t/f: When an auditor forms an opinion, they must not consider evidence that appears to be corroborate or contradict assertions in the financial statements. correct answers False (auditor should consider all relevant info)
If the auditor is unable to obtain sufficient appropriate audit evidence, ...
ACCT CAPSTONE – AUDIT || A+ GUARANTEED.
t/f: When an auditor forms an opinion, they must not consider evidence that appears to be
corroborate or contradict assertions in the financial statements. correct answers False (auditor
should consider all relevant info)
If the auditor is unable to obtain sufficient appropriate audit evidence, what should auditor do?
correct answers the auditor should express a qualified opinion or disclaim an opinion on the
financial statements.
In other words, the auditor is required to find enough support for their conclusion that they can
demonstrate that another auditor would have come to a similar conclusion.
a misrepresentation of facts (i.e fails to correct an entity's financial statements or records that are
materially false and misleading when the member has the authority to record the entries) is a
violation of which rule correct answers Integrity and Objectivity Rule
Accounting Principles Rule (1.320)A member should not state that financials statements (or any
financial data) are in conformity with GAAP, or state that they are not aware of any materials
modifications that need to be made to the financial data, if that statement is not true.However, if
a departure is due to unusual circumstances and not departing from GAAP would cause the
financial statements or data to be misleading, the member can describe the departure, give its
approximate effect, and give the reasons why compliance would be misleading. In this situation,
the member would still be in compliance with this rule. correct answers k
T/F: An auditing firm can reject a new client on the basis that they determine that there is
excessive risk for misstatements or illegal, fraudulent, or unethical behavior on the part of the
client or prospective client. correct answers True (preconditions for the engagement)
1. Smith Corporation requested Sanchez, CPA to audit its current year financial statements.
Smith Corporation's prior year financial statements were audited by Jones, CPA. Sanchez, CPA
has requested permission to make inquiries of Jones, CPA, but the management of Smith
Corporation has refused. What should Sanchez, CPA do next?
A. Inquire as to why the request was refused and consider the implications for engagement
acceptance.
B. Inquire as to why the request was refused and assess the need to perform alternative audit
procedures.
C. Document in the audit work papers Smith's reasons for refusal, but acknowledge that Smith
has the right to confidentiality.
D. Withdraw from the engagement because communication with the predecessor auditor is a
required audit procedure. correct answers A
1. A successor auditor most likely would make specific inquiries of the predecessor auditor
regarding
A. Specialized accounting principles of the client's industry.
,B. The competence of the client's internal audit staff.
C. The uncertainty inherent in applying sampling procedures.
D. Disagreement with management as to auditing procedures. correct answers D
1. The primary reason for the second communication with the predecessor auditors subsequent to
acceptance of the client is
A. To discuss and evaluate management's integrity.
B. To discuss disagreements that the predecessor may have had with management
communications with the audit committee.
C. To understand the reasons for the change of auditors.
D. To review the working papers related to the opening balances and the consistency of the
application of generally accepted accounting principles. correct answers D
1. Which of the following is correct regarding the communication between successor and
predecessor auditors?
A. The successor and predecessor auditors should communicate with each other in writing
regarding potential problems.
B. The successor auditor should contact the predecessor auditor prior to proposing an audit
engagement.
C. The client should be present during the communications between the predecessor auditor and
the successor auditor.
D. The successor auditor should request permission from the prospective client to make an
inquiry of the predecessor auditor. correct answers D
1. When a CPA is approached to perform an audit for the first time, the CPA should make
inquiries of the predecessor auditor. This is a necessary procedure because the predecessor may
be able to provide the successor with information that will assist the successor in determining
A. Whether to accept the engagement.
B. Whether the predecessor's work should be relied upon.
C. Whether the predecessor's opinion on internal control of the company has been unmodified.
D. Whether the company follows the policy of rotating its auditors. correct answers A
1. A common way for a CPA firm to demonstrate its lack of duty to perform a service is by use
of a(n)
A. Audit contract, or engagement letter.
B. Expert witness' testimony.
C. Confirmation letter.
D. Management representation letter. correct answers A
1. The engagement letter should include all of the following except
A. Auditor is not responsible for the detection of fraud.
B. Specialized reports to be provided.
C. The period covered.
D. Discussion of fees. correct answers A
, 1. One of the changes in auditing procedure which was brought about as a result of the 1136
Tenants Corp. case was that auditors were encouraged to begin using
A. Confirmation letters
B. Letters of intent.
C. Letters of representation
D. Engagement letters. correct answers D
1. Jackson, CPA has been offered the job of auditing Benton and Lutz, a manufacturing
company. After proper consideration was made, Jackson has decided to accept the engagement.
In what form should the understanding that has been reached between the two parties be
documented?
A. A contract should be written by the auditor and signed by both parties.
B. A contract should be written by the client and signed by both parties.
C. An engagement letter should be written by the auditor and furnished to the client.
D. Written documentation should be created by the auditor and furnished to the client. correct
answers D
T/F: A contract or engagement letter is required before auditing work begins. correct answers
False (written documentation is required; however, any form will suffice).
1. Arrangements concerning which of the following are least likely to be included in an
engagement letter?
A. A predecessor auditor.
B. Fees and billing.
C. CPA investment in the client's securities.
D. Other services to be performed in addition to the audit. correct answers C
Which of the following matters is generally included in an auditor's engagement letter?
A. Management's responsibility for the entity's compliance with laws and regulations.
B. The factors to be considered in setting preliminary judgments about materiality.
C. Management and the board's joint liability for illegal acts committed by their employees.
D. The auditor's responsibility to search for significant internal control deficiencies. correct
answers A
12. Which of the following statements would least likely appear in the auditor's engagement
letter?
A. Fees for our services are based on our regular per diem rates, plus travel and other out-of-the-
pocket expenses.
B. During the course of the audit, we may observe opportunities for economies of scale or
improved controls over your operations.
C. Our engagement is subject to the risk that material misstatements or fraud, if they exist, will
not be detected.
D. After performing our preliminary analytical procedures we will discuss with you the other
procedures we consider necessary to complete the engagement. correct answers D
12. Which of the following is not a primary function of audit working papers?
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