MCQ - Chapter 4 - Audit process

1. The objective of the ordinary audit of FS is the expression of an opinion on:

- The fairness of the fs in all material respects.
2. The responsibility for the preparation of the fs and the accompanying footnotes belongs to:
- Management
3. Auditors accumulate evidence to:
- Enable them to reach conclusions about the fairness of the fs.
4. Management assertions are:
- directly related to the financial reporting framework and by the company.
5. Which of the following is not one f the five broad categories of management assertions?
- general or specific transaction objectives
6. This assertion addresses whether all transaction that should be included in the fs are in fact included.
- completeness
7. Which of the following statement is not correct?
- it would be a violation of the completeness assertion if management would record a sale that did not take place.
8. Which of the following assertions does not relate to balances at period end?
- occurrence
9. Which of the following statements is correct?
- existence relates to whether the balances are valid.
10. Which of the following management assertions is not associated with transactions-related audit objectives?
- classification and understandability
11. An assertion that transactions are recorded in the proper accounting period is
- cut-off
12. The auditor is determining that the recorded sales are for the amount of goods shipped are correctly billed and recorded. The
auditor is gathering evidence about which transaction related audit objective?
- accuracy
13. In testing for cutoff, the objective is to determine:
- whether transactions are recorded in the correct accounting period.
14. Which of the following is not correct?
- gathering evidence and minimizing costs are equally important considerations that affect the approach the auditor selects.
15. When the auditor examines the client’s documents and records to substantiate information on the fs, it is commonly referred to
as - vouching
16. When the auditor tracing as an audit procedure for tests of transactions, the auditor is primarily concerned with which audit
objective? - completeness
17. When the auditor used the audit procedure vouching, the auditor is primarily concerned with which of the following audit
objectives when testing classes of transactions? - occurrence
18. Which f the following is example of vouching?
- trace inventory purchases from the acquisition journal to supporting invoices.
19. A document which the auditor receives from the client, but which was prepared by someone outside the client’s organization is a
- external document
20. Traditionally, confirmations are used to verify
- bank balances and accounts receivables
21. In performing your audit to privately-held firm your inquiries have yielded that one of the company’s owner’s primary
motivations is to pay the least amount of income tax that is possible. Based on this observation which audit objective for ending
inventory would the auditor be most concerned about ascertaining?
- completeness
22. After the auditor has completed all the audit procedures, it is necessary to combine the information obtained to reach an overall
conclusion as to whether the fs are fairly presented. This is highly subjective process that relies heavily on:
- the auditor’s professional judgement
23. Which of the following audit procedures is used extensively throughout the audit and often is complementary to performing
other audit procedures? - inquiry
24. Which statement is incorrect regarding inquiry?
- inquiry alone is sufficient to test the operating effectiveness of controls.
25. Observation - consist of looking at a process or procedure being performed by others.
26. This is consist of checking the mathematical accuracy of documents or records.
- recalcultation
27. Even with the most effectively designed internal control, the auditor must obtain audit evidence, beyond testing the controls, for
every: - material fs account
28. The sequence of steps in gathering evidence as the basis of auditor’s opinion is
- documentation of control structure, test of controls, and substantive tests
29. Which of the following is the correct order of steps in the audit process?
 - prepare engagement letter, develop an overall strategy…, perform test of control, perform substantive tests, and obtain
client’s written representation
30. Which of the following would an auditor least likely perform as part of the auditor’s preliminary engagement activities?
- obtain understanding of the legal and regulatory framework applicable to the entity.
31. Which of the following is not one of the reasons why auditor should perform preliminary engagement activities?
- to ensure that sufficient appropriate evidence will be obtained to support the auditor’s opinion on the FS.
32. Which of the following is not normally performed in the preplanning or pre-engagement phase?
- making a preliminary estimate of materiality.
33. In making a decision to accept or continue with the client, the auditor should consider:
- its competence, independence, ability to serve client properly and integrity of client’s management
34. Before accepting an engagement to audit a new client, a CPA is required to obtain
- a preliminary understanding of the prospective client’s industry and business
35. Preliminary knowledge about the client’s business and industry must be obtained prior to the acceptance of the engagement
primarily to - determine the degree of knowledge and expertise required by the management.
36. A CPA firm’s quality control procedures pertaining to the acceptance of a prospective audit client would most likely include
- inquiry of third parties, such as the prospective client’s bankers and attorneys, about information regarding the prospective
client and its management.
37. Prior to the acceptance of an audit engagement with a client who has terminated the services of the predecessor auditor, the
CPA should - advise the client of the intention to contact the predecessor auditor and request permission for the contact.
38. The purpose of the requirement for having communication between the predecessor and successor auditors is to:

- help the successor auditor evaluate whether to accept the engagement.

39. Jenna, CPA, who has been retained to audit the fs of JMV Co. JMV’s predecessor auditor was Moshe, CPA, who has been notified
by JMV that Moshe’s service have been terminated. Under these circumstances, which party should initiate the communication
between Jena and Moshe? - Jenna, the incoming auditor
40. In an audit, communication between the predecessor and incoming auditor should be
- either written or oral
41. The predecessor auditor is required to respond to the request of the successor auditor for information, but the response can be
limited to starting that no information will be provided when:
- there are actual potential legal problems between the client and the predecessor.
42. Arnel, CPA is succeeding Von, CPA, on the audit engagement of Jin Corporation. Arnel plans to consult Von and to review Von’s
prior working papers. Arnel may do so if -Von and Jin consent
43. Upon discovering material mistatements in the client’s fs that the client would not revise, the auditor withdrew from
engagement. If asked about the incoming auditor about the termination the engagement, the predecessor auditor should
- suggest that the incoming auditor obtain the client’s permission to discuss the reasons.
44. Before accepting an engagement to audit a new client, a CPA is required to obtain
- the prospective client’s consent to make inquiries of the predecessor auditor, if any.
45. Before accepting an audit engagement, a successor auditor should make specific inquiries to the predecessor auditor regarding
- disagreements the predecessor had with the client concerning auditing procedures and accounting principles.
46. Before accepting an audit engagement,a successor auditor should make specific inquiries of the predecessor auditor regarding
the predecessor’s - understanding as to the reason for the change of auditors
47. An incoming auditor most likely would make specific inquiries of the predecessor auditor regarding
- disagreements with management as to auditing procedures
48. Which of the following should an incoming auditor obtain from the predecessor auditor prior to accepting an audit engagement
- facts that might bear on the integrity of management.
49. What information should an incoming auditor obtain during the inquiry of the predecessor auditor prior to acceptance of audit?
- facts that bear on the integrity of management and disagreement with management concerning auditing procedures.
50. An incoming auditor should request the new client to authorize the predecessor auditor to allow a review of the predecessor’s
- not engagement letter, yes working paper
51. Which of the following factors would most likely
- concluding that the entity’s management probably lacks integrity.
52. Would of the following factors would most likely influence an auditor’s determination of the auditabilty of the entity’s fs
- the adequacy of the accounting records.
53. In auditing the fs of Star Corp. Land discovered information leading Land to believe that Star’s prior year’s fs, which are audited
by Jell, require substantial revisions. Under these circumstances, Land should
- request Star to arrange a meeting among the three parties to resolve the matter.
54. Hawkins requested permission to communicate with the predecessor auditor and review certain predecessor auditor’s work
papers. The prospective client’s refusal to permit this will bear directly on Hawkin’s decision concerning the:
- integrity of management
55. Ordinarily, the predecessor auditor permits the successor auditor to review the predecessor’s working paper analyzes relating to
- contingencies and balance sheet accounts
56. In making client acceptance decisions the firm will consider:
- the client’s business risk and the CPA firm’s engagement risk.
57. The purpose of an engagement letter is to:
- document the terms of the engagement.
58.