Auditing Ch 6

A successor auditor is required to attempt communication with the predecessor auditor prior to:
Accepting the engagement
An abnormal fluctuation in gross profit that might suggest the need for extended audit procedures for sales and inventories would most likely be identified in the risk assessment phase of the audit by the use of:
Analytical Procedures
Preliminary arrangements agreed to by the auditors and the client should be reduced to writing by the auditors. The best place to set forth these arrangements is in:
An engagement letter
Tests for unrecorded assets typically involve tracing from:
Source documents to recorded journal entries
The auditors must consider materiality in planning an audit engagement. Materiality for planning purposes is
The auditor’s preliminary estimate of the smallest amount of misstatement that would be material to any of the one client’s financial statements.
Which of the following factors would most likely cause a CPA to decide not to accept a new audit engagement?
A) Management’s attempt to meet earnings per share growth rate goals
B) The existence of related party transactions
C) Managements disregard for internal control
D) Lack of understanding of the potential client’s internal auditor’s computer-assisted audit techniques.
C) Managements disregard for internal control
Which of the following is an example of fraudulent financial reporting
Company management falsifies inventory count tags thereby overstating ending inventory and understanding cost of goods sold
Which of the following is not one of the assertions made by management about an account balance?
A) Relevance
B) Existence
C) Rights and obligations
D) Valuation
A) Relevance
Which of the following is not a general objective for the audit of asset accounts?
A) Establishing proper valuation of assets
B) Establishing the completeness of assets
C) Establishing existence of assets
D) Establishing proper liabilities relating to assets
D) Establishing proper liabilities relating to assets
Which of the following topics is not normally included in an engagement letter?
A) The auditors estimate of the fee for the engagement
B) Limitations on the scope of the engagement
C) The auditors preliminary assessment of internal control
D) A description of responsibility for the detection of fraud
C) The auditors preliminary assessment of internal control
An audit plan includes a detailed listing of the audit procedures to be performed in the verification of items in the financial statements.
Analytical procedures are seldom used during the risk assessment stage of an audit engagement because they are substantive procedures.
At least a portion of the auditors consideration of internal control usually is performed at an interim date rather than at the balance sheet date.
Audit committees should be made up of the most qualified directors regardless of whether they are a part of management of the company.
Confirming a bank account establishes existence but not rights to the cash balance.
Preliminary arrangements with clients should be set forth in the management letter.
The auditors test of controls are designed to substantiate the fairness of specific statement accounts.
The completeness of recording of assets is generally verified by tracing from the source documents to the recorded entry.
The substantive approach to an audit is appropriate for many small businesses.
Vouching the acquisition of assets is an audit procedure that is often performed to establish the valuation of the assets.

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