Assessment Task

Quiz

True or False. Highlight with color yellow the letter of your choice.

1. When an auditor decides there is higher inherent risk for an account, one
potential effect is that more audit evidence will be required for that account.
a. True
b. False

2. As acceptable audit risk is decreased, the likely cost of conducting an audit

increases.
a. True
b. False

3. Before accepting a new client, most CPA firms investigate the company to
determine its acceptability. However, AICPA confidentiality requirements
prohibit CPA firms from contacting certain parties—namely the company’s
attorneys and bankers—during this investigation.
a. True
b. False

4. For prospective clients that have previously been audited by another CPA
firm, the predecessor auditor is required to communicate with the successor
auditor.
a. True
b. False

5. When a successor auditor contacts a company’s previous auditor, the

predecessor auditor is required to respond fully and without limit to the request
for information.
a. True
b. False

6. A predecessor auditor who has been contacted by a successor auditor for

information about the client does not have to obtain permission from the former
client before providing any confidential information to the successor auditor
because the confidentiality requirement does not extend to former clients.
a. True
b. False

7. Auditors should obtain copies of the client’s articles of incorporation, bylaws,

and minutes of the meetings of the board of directors to aid in their
understanding of the company’s management and governance structure.
a. True
b. False

8. An auditor must evaluate a specialist’s professional qualifications and

understand the objectives of the specialist’s work.
a. True
b. False

9. To evaluate a specialist’s work the auditor must himself/herself be considered

a specialist.
a. True
b. False

10. An engagement letter establishes a clear understanding of the terms of the

engagement between the client and the auditor, but it is optional for private
companies.
a. True
b. False

11. Because of the requirements of Rule 201 of the AICPA’s Code of

Professional Conduct which state that auditors should “undertake only those
professional services that the member or the member’s firm can reasonably
expect to be completed with professional competence,” auditors are not
normally permitted to consult with, or rely on the work of, outside specialists
during an audit engagement.
a. True
b. False

12. Acceptable audit risk is a measure of the auditor’s willingness to accept that
the financial statements do not contain material misstatements after the audit is
completed and a qualified audit report has been issued.
a. True
b. False

13. If a prospective client has been audited in the past, the successor auditor will
typically rely solely on the representations about the client by the predecessor
auditor.
a. True
b. False

14. Two major factors that affect acceptable audit risk are the likely users of the
financial statements and the likelihood of issuing an unqualified audit opinion.
a. True
b. False

15. A major consideration in assigning staff to an audit engagement is the

experience levels required for the work, while a less important consideration is
maintaining staff continuity on the engagement.
a. True
b. False

16. Inherent risks typically vary across industries.

a. True
b. False

17. Transactions with related parties must be disclosed in the financial

statements if they are deemed to be material.
a. True
b. False

18. All known related parties must be identified and included in the auditor’s
permanent files related to the client.
a. True
b. False

19. Generally, auditors assess inherent risk as moderate for related party
transactions because they expect clients to be aware of their scrutiny of such
transactions.
a. True
b. False

20. The corporate charter typically establishes the company’s fiscal year and frequency of
stockholder meetings.
a. True
b. False

Part II. Enumerate five (5) samples of audit documentation and describe it thoroughly.