Prelim Exam - Attempt Review Auditing 1

12/14/22, 5:34 PM Prelim Exam: Attempt review
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Started on Saturday, 15 October 2022, 7:47 AM

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Completed on Saturday, 15 October 2022, 8:38 AM
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Question 1
Correct
Mark 1.00 out of 1.00
When a CPA is the auditor of a parent entity and also the auditor of its subsidiary, branch or division (component), which of the following are
least likely to be included in the engagement letter?
Select one:
a. who appoints the auditor of the component
b. whether a separate audit report is to be issued on the component
c. legal requirements
d. number of reports to be prepared during the peak audit season
Your answer is correct.
Question 2
Correct
Arrangements concerning with which of the following are least likely to be included in the engagement letter?
Select one:
a. A predecessor auditor
b. CPA investment in client securities
c. Fees and billing
d. Other services to be provided in addition to the audit
trimestralexam.amaesonline.com/2213/mod/quiz/review.php?attempt=3312&cmid=4721 1/24
Question 3
Correct
Set the following phases in proper order:
i. Pre-Engagement
ii. Internal Controls
iii. Evidence-Gathering
iv. Planning
v. Post-Audit Responsibilities
vi. Reporting
Select one:
a. i, iv, ii, iii, vi, v
b. i, iv, iii, ii, v, vi
c. i, iv, ii, iii, v, vi
d. i, ii, iii, iv, v, vi
Question 4
Correct
Engagement letters are widely used in practice for
Select one:
a. assurance engagements only
b. audits only
c. related services only
d. professional engagements of all types
Question 5
Correct
Which of the following is an effective audit planning and control procedures that helps prevent misunderstandings and inefficient use of
audit personnel?
Select one:
a. Arrange to have the auditor prepare and post any necessary adjusting or reclassification entries prior to final closing.
b. Provide the client with copies of the audit programs to be used during the audit.
c. Make copies, for inclusion in the working papers, of those client supporting documents examined by the auditor.
d. Arrange a preliminary conference with the client to discuss audit objectives, fees, timing, and other information.
Question 6
Correct
Internal control can only provide reasonable, not absolute, assurance of achieving entity control objectives. One of the factors limiting the
likelihood of achieving those objectives is that:
Select one:
a. the board of directors is active and independent
b. the auditor's primary responsibility is the detection of fraud
c. management monitors internal control
d. The cost of internal control should not exceed its benefits
Question 7
Correct
Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding the
predecessor’s
Select one:
a. Evaluation of all matters of continuing accounting significance.
b. Understanding as to the reasons for the change of auditors
c. Awareness of the consistency in the application of GAAP between periods.
d. Opinion of any subsequent events occurring since the predecessor’s audit report was issued.
Question 8
Correct
An engagement letter is prepared with the interest(s) of
Select one:
a. the auditor only
b. both the client and the auditor
c. the public
d. the client only
Question 9
Correct
Which of the following procedures would an auditor most likely perform in planning a financial statement audit?
Select one:
a. Inquiring of the client’s legal counsel concerning pending litigation.
b. Searching for unauthorized transactions that may aid in detecting unrecorded liabilities.
c. Examining computer generated exception reports to verify the effectiveness of internal controls.
d. Comparing the financial statements to anticipated results.
Question 10
Correct
Which of the following should an auditor obtain from the predecessor auditor prior to accepting an audit engagement?
Select one:
a. All matters of continuing accounting significance
b. Facts that might bear on the integrity of management
c. Analysis of balance sheet accounts
d. Analysis of income statement accounts
Question 11
Correct
Which statement is incorrect regarding the nature of tests of controls?
Select one:
a. A material misstatement detected by the auditor’s procedures that was not identified by the entity ordinarily is indicative of the
existence of a material weakness in internal control.
b. As the planned level of assurance increases, the auditor seeks more reliable audit evidence.
c. The absence of misstatements detected by a substantive procedure provides audit evidence that controls related to the assertion 
being tested are effective.
d. Those controls subject to testing by performing inquiry combined with inspection or reperformance ordinarily provide more
assurance than those controls for which the audit evidence consists solely of inquiry and observation.
Question 12
Correct
According to PSA 210, the auditor and the client should agree on the terms of engagement. The agreed terms would need to be recorded in
Select one:
a. engagement letter
b. memo placed in the permanent section of the working papers
c. client representation letter
d. comfort letter
Question 13
Correct
A reason to establish internal control is to:
Select one:
a. ensure the accuracy, reliability and timeliness of information
b. encourage compliance with organizational objectives
c. provide reasonable assurance that the objectives of the organization are achieved.
d. have a basis for planning the audit
Question 14
Correct
Engagement letter that documents and confirms the auditor's acceptance of the engagement would normally be sent to the client
Select one:
a. at the end of the fieldwork
b. before the commencement of the engagement
c. after the audit report is issued
d. before the auditor report is issued
Question 15
Correct
In planning the audit engagement, the auditor should consider each of the following, except
Select one:
a. matters relating to the entity's business and the industry in which it operates
b. materiality level and audit risk
c. the entity's accounting policies and procedures
d. the kind of opinion that is likely to be expressed
Question 16
Correct
Which of the following is least likely included in an audit engagement letter?
Select one:
a. The form of any reports or other communication of the results of the engagement.
b. The objective of financial reporting.
c. Arrangement concerning the involvement of other auditors or experts in some aspects of the audit.
d. Management responsibility for the financial statements.
Question 17
Correct
Which statement is incorrect regarding tests of controls?
Select one:
a. Tests of the operating effectiveness of controls are performed only on those controls that the auditor has determined are suitably
designed to prevent, or detect and correct, a material misstatement in an assertion.
b. Tests of controls are required under certain circumstances.
c. Testing the operating effectiveness of controls is the same as obtaining audit evidence that controls have been implemented. 
d. Tests of controls are required when an entity conducts its business using IT and no documentation of transactions is produced or
maintained, other than through the IT system.
Question 18
Correct
Which statement is incorrect regarding the nature of further audit procedures?
Select one:
a. The higher the auditor’s assessment of risk, the less reliable and relevant is the audit evidence sought by the auditor from 
substantive procedures.
b. Certain audit procedures may be more appropriate for some assertions than others.
c. The auditor is required to obtain audit evidence about the accuracy and completeness of information produced by the entity’s
information system when that information is used in performing audit procedures.
d. The nature of further audit procedures refers to their purpose and their type.
Question 19
Correct
Which of the following statements is correct concerning analytical procedures?
Select one:
a. Analytical procedures can replace tests of controls in gathering evidence to support the assessed level of control risk.
b. Analytical procedures used in planning an audit generally use data aggregated at a high level.
c. Analytical procedures usually involve comparisons of ratios developed from recorded amounts to assertions developed by
management.
d. Analytical procedures are more efficient, but not more effective, than tests of details and transactions.
Question 20
Correct
The form and content of the audit engagement letters may vary for each client, but they would generally include reference to except:
Select one:
a. management's responsibility for all the financial statements
b. unrestricted access to whatever records, documentation and other information requested in connection with the audit.
c. the form of any reports or any communication of results of engagement.
d. the scope of the audit, excluding reference to applicable legislation, regulations, or pronouncements of professional bodies to 
which the auditor adheres.
Question 21
Correct
Analytical procedures, which means the analysis of significant ratios and trends including the resulting investigation of fluctuations and
relationships that are inconsistent with other relevant information or which deviate from predicted amounts, are not required to be applied
Select one:
a. None of the above
b. At the planning stage of the audit
c. Overall review stage of the audit
d. As substantive procedures
Question 22
Correct
The auditor should plan the audit work so that the audit will be performed in an effective manner. The extent of planning will vary according
to any of the following, except:
Select one:
a. the nature and complexity of the audit engagement
b. auditor's experience with the entity and knowledge of the business
c. size of the audit client
d. the assessed level of control risk
Question 23
Correct
To obtain an understanding of the relevant policies and procedures of internal control, the auditor performs all of the following except:
Select one:
a. make inquiries
b. design substantive tests
c. inspect documents and records
d. make observations
Question 24
Correct
Which of the following is an example of an inherent limitation in a client's internal control system?
Select one:
a. procedures are designed to assure the execution and recording of transactions in accordance with management's authorization
b. in the performance of most control procedures, there are possibilities of errors arising from mistakes in judgment
c. procedures for handling large numbers of transactions are processed by information technology (IT) equipment
d. the effectiveness of procedures depends on the segregation of employee duties
Question 25
Correct
PSA 315 Redrafted requires the auditor to obtain an understanding of the client's internal controls
Select one:
a. whenever it would be appropriate
b. sufficient to find any frauds which may exist
c. for first-time audits
d. for every audit
Question 26
Correct
On recurring audit engagements, the auditor may decide not to send a new engagement letter each period. In which of the following
situations will there be no need to send a new letter?
Select one:
a. significant change in nature or size of the client's business
b. recent change of middle management and rank and file organizational structure
c. revisions or special terms of the engagement
d. indications of misunderstanding of the objective and scope of the audit
Question 27
Correct
An internal control that is working effectively
Select one:
a. eliminates risk and potential loss to the entity
b. cannot be circumvented by management
c. is unaffected by changing circumstances and conditions encountered by the entity
d. reduces the need for management the review exception reports on a day-to-day basis
Question 28
Correct
Which of the following statements is/are correct?
Statement 1: On recurring audits, the auditor should consider whether circumstances require the terms of the engagement to be revised and
whether there is a need to remind the client of the existing terms of engagement.
Statement 2: The auditor should send a new engagement letter ecah year to an established client.
Select one:
a. only statement 2 is correct
b. both statements are incorrect
c. both statements are correct
d. only statement 1 is correct
Question 29
Correct
An audit engagement letter least likely includes
Select one:
a. A reference to the inherent limitation of an audit that some material misstatements may remain undiscovered.
b. Description of any letters or reports that the auditor expects to submit to the client.
c. Arrangements concerning the involvement of internal auditors and other client’s staff.
d. Identification of specific audit procedures that the auditor needs to undertake.
Question 30
Correct
Prior to the acceptance of an audit engagement with a client who has terminated the services of the predecessor auditor, the CPA should
Select one:
a. Advise the client of the intention to contact the predecessor auditor and request permission for the contact.
b. Contact the predecessor auditor without advising the prospective client and request a complete report of the circumstance leading
to the termination with the understanding that all information disclosed will be kept confidential.
c. Accept the engagement without contacting the predecessor auditor since the CPA can include audit procedures to verify the reason
given by the client for the termination.
d. Not communicate with the predecessor auditor because this would in effect be asking the auditor to violate the confidential
relationship between auditor and client.
Question 31
Correct
Which of the following least likely requires the auditor to send a new engagement letter?
Select one:
a. A recent change in the audit firm’s management.
b. An indication that the client misunderstands the objective and scope of the audit.
c. Legal requirements and other government agencies’ pronouncements.
d. Any revised or special terms of the engagement.
Question 32
Correct
The following are components of internal control:
Select one:
a. legal environment of the firm, management philosophy, and organizational structure.
b. risk assessment process, backup facilities, responsibility accounting and natural laws.
c. control environment, risk assessment process, control activities, information system and communication, and monitoring of 
controls.
d. organizational structure, management philosophy, and planning.
Question 33
Correct
The primary purpose of the auditor's consideration of internal control is to provide a basis for
Select one:
a. constructive suggestions to clients concerning deficiencies in internal control.
b. determining whether procedures and records that are concerned with the safeguarding of assets are reliable.
c. determining the nature, timing and extent of audit tests to be applied.
d. the expression of an opinion.
Question 34
Correct
In an audit of financial statements, an auditor's primary consideration regarding a control is whether it:
Select one:
a. enhances management's decision-making processes.
b. affects management's financial statement assertions.
c. reflects management's philosophy and operating style.
d. provides adequate safeguards over access to assets.
Question 35
Correct
Which of the following is/are correct?
Statement 1: The client should plan the audit work so that the audit will be performed in an effective manner.
Statement 2: The auditor should develop and document an overall audit plan describing the scope and conduct of the audit.
Select one:
a. both statements are correct
b. both statements are incorrect
c. only statement 1 is correct
d. only statement 2 is correct
Question 36
Correct
If permission from client to discuss its affairs with the proposed auditor is denied by the client, the predecessor auditor should:
Select one:
a. Disclose adequately to proposed auditor all noncompliance made by the client.
b. Seek legal advice before responding to the proposed auditor
c. Disclose the fact that the permission to disclose is denied by the client.
d. Keep silent of the denial.
Question 37
Correct
It involves establishing the overall audit strategy for the engagement and developing an audit plan in order to reduce audit risk to an
acceptably low level.
Select one:
a. reporting
b. organizing
c. planning
d. field work
Question 38
Correct
Information about segregation of duties ordinarily is best obtained by
Select one:
a. observing employees as they apply specific controls.
b. developing audit objectives that reduce control risk.
c. performing test of transactions that corroborate management's financial statement's assertions.
d. obtaining a flowchart of activities performed by entity personnel.
Question 39
Correct
Internal controls are not designed to provide reasonable assurance that
Select one:
a. access to assets is permitted only in accordance with management's authorization
b. irregularities will be eliminated
c. the recorded accountability for assets is compared with the existing assets at reasonable intervals
d. transactions are executed in accordance with management's authorization
Question 40
Correct
There is an inverse relationship that exists between the acceptable level of detection risk and the
Select one:
a. assurance provided by substantive tests
b. preliminary judgments about materiality levels
c. risk of misapplying audit process
d. risk of falling to discover material misstatement
Question 41
Correct
Analytical procedures used in planning an audit should focus on
Select one:
a. Providing assurance that potential material misstatements will be identified.
b. Reducing the scope of tests of controls and substantive tests.
c. Enhancing the auditor’s understanding of the client’s business.
d. Assessing the adequacy of the available evidential matter.
Question 42
Correct
Which statement is incorrect regarding the timing of further audit procedures?
Select one:
a. All audit procedures can be performed prior to period end. 
b. If the auditor performs tests of controls or substantive procedures prior to period end, the auditor considers the additional evidence
required for the remaining period.
c. The auditor may perform tests of controls or substantive procedures at an interim date or at period end.
d. Timing refers to when audit procedures are performed or the period or date to which the audit evidence applies.
Question 43
Correct
The primary objective of procedures performed to obtain an understanding of internal control is to provide an auditor with
Select one:
a. evidence to use in reducing detection risk
b. a basis for modifying test of controls
c. knowledge necessary to plan the audit
d. information necessary to prepare flowcharts
Question 44
Correct
When an independent auditor is approached to perform an audit for the first time, he or she should make inquiries of the predecessor
auditor. Inquiries are necessary because the predecessor may be able to provide the successor with information that will assist the successor
in determining whether
Select one:
a. In the predecessor’s opinion, control risk is low.
b. The engagement should be accepted.
c. The predecessor’s work should be used.
d. The company rotates auditors.
Question 45
Correct
A successor auditor most likely would make specific inquiries of the predecessor auditor regarding
Select one:
a. The competency of the client’s internal audit staff.
b. The uncertainty inherent in applying sampling procedures.
c. Specialized accounting principles of the client’s industry.
d. Disagreements with management as to auditing procedures.
Question 46
Correct
It is the process designed and effected by those charged with governance, management, and other personnel to provide reasonable
assurance about the achievement of the entity's objectives.
Select one:
a. accounting process
b. internal auditing
c. business strategy
d. internal control
Question 47
Correct
Control activities constitute one of the five components of internal control. Which of the following is not included in this internal control
component?
Select one:
a. authorization
b. an internal audit function
c. performance reviews
d. segregation of duties
Question 48
Correct
As part of a periodic planning exercise, AAA Company discovers that a political dispute may interfere with the company's supply sources. This
is an example of:
Select one:
a. monitoring of controls
b. control environment
c. risk assessment
d. control activities
Question 49
Correct
Which statement is incorrect regarding the extent of further audit procedures?
Select one:
a. The auditor ordinarily decreases the extent of audit procedures as the risk of material misstatement increases. 
b. Increasing the extent of an audit procedure is effective only if the audit procedure itself is relevant to the specific risk.
c. The extent of an audit procedure is determined by the judgment of the auditor after considering the materiality, the assessed risk,
and the degree of assurance the auditor plans to obtain.
d. Extent includes the quantity of a specific audit procedure to be performed.
Question 50
Correct
The objective and scope of the audit and the extent of the auditor’s responsibilities to the client are best documented in
Select one:
a. Independent auditor’s report
b. Audit engagement letter
c. Audit program
d. Client’s representation letter
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12/14/22, 5:34 PM Prelim Exam: Attempt review

Home / My courses / UGRD-ACTG6481-2213T / PRELIM EXAM / Prelim Exam

Started on Saturday, 15 October 2022, 7:47 AM

Mark 1.00 out of 1.00

b. whether a separate audit report is to be issued on the component

d. number of reports to be prepared during the peak audit season

Your answer is correct.

Mark 1.00 out of 1.00

b. CPA investment in client securities

c. Fees and billing

d. Other services to be provided in addition to the audit

Your answer is correct.

Mark 1.00 out of 1.00

Set the following phases in proper order:

b. i, iv, iii, ii, v, vi

c. i, iv, ii, iii, v, vi

d. i, ii, iii, iv, v, vi

Your answer is correct.

Mark 1.00 out of 1.00

Engagement letters are widely used in practice for

c. related services only

d. professional engagements of all types

Your answer is correct.

Mark 1.00 out of 1.00

Your answer is correct.

Mark 1.00 out of 1.00

b. the auditor's primary responsibility is the detection of fraud

c. management monitors internal control

d. The cost of internal control should not exceed its benefits

Your answer is correct.

Mark 1.00 out of 1.00

b. Understanding as to the reasons for the change of auditors

c. Awareness of the consistency in the application of GAAP between periods.

Your answer is correct.

Mark 1.00 out of 1.00

An engagement letter is prepared with the interest(s) of

b. both the client and the auditor

d. the client only

Your answer is correct.

Mark 1.00 out of 1.00

d. Comparing the financial statements to anticipated results.

Your answer is correct.

Mark 1.00 out of 1.00

b. Facts that might bear on the integrity of management

c. Analysis of balance sheet accounts

d. Analysis of income statement accounts

Your answer is correct.

Mark 1.00 out of 1.00

Which statement is incorrect regarding the nature of tests of controls?

Your answer is correct.

Mark 1.00 out of 1.00

b. memo placed in the permanent section of the working papers

c. client representation letter

Your answer is correct.

Mark 1.00 out of 1.00

A reason to establish internal control is to:

b. encourage compliance with organizational objectives

d. have a basis for planning the audit

Your answer is correct.

Mark 1.00 out of 1.00

b. before the commencement of the engagement

c. after the audit report is issued

d. before the auditor report is issued