Term
|
Definition
Adequate planning and design of an audit is necessary for an auditor to restrict which type of audit risk?
A) Control Risk.
B) Detection Risk.
C) Sufficiency Risk.
D) Inherent Risk. |
|
|
Term
| C) B&M should attempt communications with the predecessor auditors and ask if they had any accounting policy disagreements with 3W |
|
Definition
B&M auditors have been accepted as the auditors of World Wide Widgets (3W). What are B&M's responsibilities with regard to contacting 3W's predecessor auditors?
A) If 3W had a disagreement with its predecessor auditors, B&M should not contact the predecessor auditors.
B) B&M is not required to attempt communication with the predecessor auditors under any circumstances.
C) B&M should attempt communications with the predecessor auditors and ask if they had any accounting policy disagreements with 3W.
D) It would be unethical for B&M to ask the predecessor auditors about the integrity of 3W's management. |
|
|
Term
| C) A letter from the auditors to company management that specifies the responsibilities of both the company and the auditors in completing the audit and the timing for its completion |
|
Definition
An engagement letter is best described as which of the following?
A) A letter from company management to the auditors specifying management's expectations for completion of the audit on a timely basis and the fees.
B) A letter from the auditors to company management specifying that management is responsible for the financial statements, and the auditors will issue an opinion on the financial statements.
C) A letter from the auditors to company management that specifies the responsibilities of both the company and the auditors in completing the audit and the timing for its completion.
D) A letter from the Board of Directors' audit committee to the auditor that indicates the auditor has been engaged to perform the audit and the fees to be paid. |
|
|
Term
| D) Materiality is the amount at which judgments based on the financial statements may be altered. |
|
Definition
Materiality can best be described as which of the following?
A) Materiality is typically measured as a fixed percentage of assets.
B) Materiality is typically measured as a fixed percentage of net income.
C) Materiality does not depend on the company being audited, but is solely dependent on the auditors discretion.
D) Materiality is the amount at which judgments based on the financial statements may be altered. |
|
|
Term
| D) Make a legal determination of whether fraud has occurred. |
|
Definition
Which of the following is least likely to be required on an audit?
A) Test appropriateness of journal entries and adjustment.
B) Review accounting estimates for biases
C) Evaluate the business rationale for significant, unusual transactions.
D) Make a legal determination of whether fraud has occurred. |
|
|
Term
| B) Use less predictable audit procedures |
|
Definition
Which of the following is most likely to be an overall response to fraud risks identified in an audit?
A) Supervise members of the audit team less closely and rely more upon judgment.
B) Use less predictable audit procedures.
C) Only use certified public accountants on the engagement.
D) Place increased emphasis on the audit of objective transactions rather than subjective transactions. |
|
|
Term
| B) Improper revenue recognition |
|
Definition
Which of the following is most likely to be presumed to represent a fraud risk on an audit?
A) Capitalization of repairs and maintenance expense into the property, plant and equipment asset account.
B) Improper revenue recognition.
C) Improper interest expense accrual.
D) Introduction of significant new products. |
|
|
Term
| A) Are financial reporting operations controlled by and limited to one location? |
|
Definition
Which of the following is least likely to be included in an auditor's inquiry of management while obtaining information to identify the risks of material misstatement due to fraud?
A) Are financial reporting operations controlled by and limited to one location?
B) Does it have knowledge of fraud or suspect fraud?
C) Does it have programs to mitigate fraud risks?
D) Has it reported to the audit committee the nature of the company's internal control? |
|
|
Term
| B) Document that provides an overview of the company and a general plan for the audit work to be accomplished, timing of the work, and other matters of concern to the audit |
|
Definition
An audit plan is a:
A) Detailed plan of analytical procedures and all substantive tests to be performed in the course of the audit.
B) Document that provides an overview of the company and a general plan for the audit work to be accomplished, timing of the work, and other matters of concern to the audit.
C) Generic document that auditing firms have developed to lead the process of the audit through a systematic and logical process.
D) Budget of the time that should be necessary to complete each phase of the audit procedures. |
|
|
Term
| A) The detailed plan of audit procedures to be performed in the course of the audit |
|
Definition
An audit program is:
A) The detailed plan of audit procedures to be performed in the course of the audit.
B) An overview of the company and a general plan for the audit work to be accomplished.
C) A generic document that auditing firms have developed to lead the process of the audit through a systematic and logical process.
D) A budget of the time that should be necessary to complete each phase of the audit procedures. |
|
|
Term
| A) The systems approach focuses on testing controls to make sure they are effective, while the substantive approach is the detailed testing of specific accounts for accuracy |
|
Definition
Which statement best describes the interaction of the systems and substantive approaches in the audit plan?
A) The systems approach focuses on testing controls to make sure they are effective, while the substantive approach is the detailed testing of specific accounts for accuracy.
B) The systems approach focuses on detailed testing of specific accounts for accuracy, while the substantive approach is the testing controls to make sure they are effective.
C) The systems approach focuses on the use of computer systems to aid in the audit while the substantive approach focuses on more manual tests.
D) A thoroughly designed systems approach to auditing can eliminate the need for any substantive procedures. |
|
|
Term
|
Definition
Tracing from source documents to journals most directly addresses which financial statement assertion?
A) Completeness.
B) Existence.
C) Valuation.
D) Rights. |
|
|
