Aud Ch 4

Regarding a nonissuer's compliance with laws and regulations, an auditor performing an audit of the entity's financial statements is responsible for:

-Preventing noncompliance with existing applicable laws and regulations that determine reported amounts and disclosures in the entity's financial statements.

-Ensuring that the entity's operations are conducted in accordance with the provisions of laws and regulations relevant to the entity's financial statements.

-Determining whether an act performed by the entity being audited constitutes noncompliance with existing applicable laws and regulations.

-Obtaining a general understanding of the legal and regulatory framework applicable to the entity and how the entity is complying with that framework.
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Regarding a nonissuer's compliance with laws and regulations, an auditor performing an audit of the entity's financial statements is responsible for:

-Preventing noncompliance with existing applicable laws and regulations that determine reported amounts and disclosures in the entity's financial statements.

-Ensuring that the entity's operations are conducted in accordance with the provisions of laws and regulations relevant to the entity's financial statements.

-Determining whether an act performed by the entity being audited constitutes noncompliance with existing applicable laws and regulations.

-Obtaining a general understanding of the legal and regulatory framework applicable to the entity and how the entity is complying with that framework.
-Obtaining a general understanding of the legal and regulatory framework applicable to the entity and how the entity is complying with that framework.
Which of the following information that comes to an auditor's attention would be most likely to raise a question about the occurrence of illegal acts?

-The presence of several difficult-to-audit transactions affecting expense accounts.

-The failure to develop adequate procedures that detect unauthorized purchases.

-The discovery of unexplained payments made to government employees.

-The exchange of property for similar property in a nonmonetary transaction.
-The discovery of unexplained payments made to government employees.
An auditor who performed analytical procedures that compared current-year financial information to the comparable prior period noted a significant increase in net income. Given this result, which of the following expectations of recorded amounts would be unreasonable?

-A decrease in notes payable.

-A decrease in retained earnings.

-A decrease in costs of goods sold as a percentage of sales.

-A decrease in accounts payable.
-A decrease in retained earnings.
Which of the following most likely would cause an auditor to consider whether a client's financial statements contain material misstatements?

-The chief financial officer will not sign the management representation letter until the last day of the auditor's fieldwork.

-Audit trails of computer-generated transactions exist only for a short time.

-The results of an analytical procedure disclose unexpected differences.

-Management did not disclose to the auditor that it consulted with other accountants about significant accounting matters.
-The results of an analytical procedure disclose unexpected differences.
Which of the following would not be considered an analytical procedure?

-Developing the current year's expected net sales based on the sales trend of similar entities within the same industry.

-Converting dollar amounts of income statement account balances to percentages of net sales for comparison with industry averages.

-Projecting a deviation rate by comparing the results of a statistical sample with the actual population characteristics.

-Estimating the current year's expected expenses based on the prior year's expenses and the current year's budget.
-Projecting a deviation rate by comparing the results of a statistical sample with the actual population characteristics.
Analytical procedures used in planning an audit should focus on identifying:

-The various assertions that are embodied in the financial statements.

-Material weaknesses in the internal control structure.

-The predictability of financial data from individual transactions.

-Areas that may represent specific risks relevant to the audit.
-Areas that may represent specific risks relevant to the audit.
What is the primary purpose of reviewing conflict-of-interest statements signed by members of management?

-To consider limitations of internal control.

-To obtain an understanding of business processes.

-To assess control risk.

-To identify transactions with related parties.
-To identify transactions with related parties.
In auditing related party transactions, an auditor ordinarily places primary emphasis on:

-The probability that related party transactions will recur.

-The adequacy of the disclosure of the related party transactions.

-Confirming the existence of the related parties.

-Verifying the valuation of the related party transactions.
-The adequacy of the disclosure of the related party transactions.
Which of the following auditing procedures would be most likely to assist an auditor in identifying related party transactions?

-Performing analytical procedures to seek indications of possible financial difficulties.

-Vouching accounting records for recurring transactions recorded just after the balance sheet date.

-Reviewing confirmations of loans receivable and payable for indications of guarantees.

-Inspecting correspondence with lawyers for evidence of unreported contingent liabilities.
-Reviewing confirmations of loans receivable and payable for indications of guarantees.
Which of the following groups is considered a subgroup ordinarily charged with assisting the board of directors in fulfilling its oversight responsibilities?

-Secured creditors

-Senior management

-Audit committee

-Internal auditors
-Audit committee