1.

Which of the following would not be a consideration of a CPA firm in deciding whether to accept a new
client?
A. The client’s probability of achieving an unqualified opinion.
B. The client’s financial ability.
C. The client’s relations with its previous CPA firm.
D The client’s standing in the business community.
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2. After accepting an audit engagement, a successor auditor should make specific inquiries of the
predecessor auditor regarding:
A. The predecessor’s evaluation of matters of continuing accounting significance.
B. Disagreements which the predecessor had with the client concerning auditing procedures and
accounting principles.
C. The client’s ability to pay the fee for this engagement.
D The predecessor’s assessments of inherent risk and judgments about materiality.
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3. The objective and scope of the audit and the extent of the auditor’s responsibilities to the client are best
documented in a(n):
A Client’s representation letter C. Audit engagement letter.
.
B Independent auditor’s report D Management letter
. .
4. Which of the following is not a valid reason why an auditor sends to his client an engagement letter?
A. Avoid misunderstanding with respect to the engagement
B. Confirms the auditor’s appointment
C. Discloses the objective and scope of the audit
D Assures CPA’s compliance to PSAs
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5. The secondary purpose of the engagement letter is to:
A. Remind management that the primary responsibility for the financial statements rests with
management.
B. Satisfy the requirements of the CPA’s liability insurance policy.
C. Provide a written record of the agreement with the client as to the services to be provided.
D Provide a starting point for the auditor’s preparation of the preliminary audit program.
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6. S1 The engagement letter will include identification of significant dates throughout the engagement.
S2 The engagement letter will inform the client about the audit procedures to be performed.
A. True, true B. False, false C. True, false D. False, true

7. Which of the following procedures is performed primarily during audit planning?

A. Risk assessment procedures
B. Tests of controls
C. Substantive tests
D. All of the above are performed primarily during audit planning
8. Which of the following is not a risk assessment procedure?
A. Inquiries of management and others within the entity
B. Analytical procedures
C. External confirmation with customers
D. Observation and inspection
9. S1 Materiality judgments are made in light of surrounding circumstances and necessarily involve both
quantitative and qualitative judgments.
S2 An auditor’s consideration of materiality is influenced by the auditor’s perception of the needs of a
reasonable person who will rely on the financial statements.
A. True, true B. False, false C. True, false D. False, true

10. S1 Analytical procedures are required to be used in planning a financial statement audit.
S2 Analytical procedures are required to be used all throughout the audit.
A. True, true B. False, false C. True, false D. False, true

11. S1 In a financial statement audit, audit risk represents the probability that internal controls fail and the
failure is not detected by the auditor’s procedures.
S2 Audit risk may be eliminated by 100% testing of the items in the population.
A. True, true B. False, false C. True, false D. False, true

12. In a financial statement audit, detection risk represents:

A. The susceptibility of an account balance to error that could be material.
B. The risk that error could occur and not be prevented or detected by the internal control structure
of the client.
C. The risk that the auditor fails to modify materially misstated financial statements.
D. The risk that error could occur and not be detected by the auditor’s procedures.
13. The following statements describe components of internal control. Which one describes risk assessment
process?
A. This includes the governance and management functions and the attitudes, awareness, and
actions of those charged with governance and management concerning the entity’s internal
control and its importance in the entity.
B. The process for identifying business risks relevant to financial reporting objectives and deciding
about actions to address those risks, and the results thereof.
C. The classes of transactions in the entity’s operations that are significant to the financial
statements.
D. The policies and procedures that help ensure that management directives are carried out.
14. S1 The auditor assesses detection risk because it affects the level of control risk that the auditor may
accept.
S2 The auditor assesses control risk because it affects the level of detection risk that the auditor may
accept.
A. True, true B. False, false C. True, false D. False, true

15. Which of the following would not be a method used to conduct tests of
controls?
A Inquiry and observation. C. Reperformance.
.
B. Inspection. D Analytical procedures
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