A2

Question 1

What is audit documentation often referred to as?

Answer 1

Workpapers

Question 2

What should audit documentation provide evidence of?

Answer 2

Basis for auditor’s report, compliance with GAAS, and legal/regulatory requirements

Question 3

Who are those charged with Governance (TCWG)?

Answer 3

Individuals responsible for overseeing strategic direction and financial reporting, including the Board and Audit Committee

Question 4

What are the preconditions for accepting an audit engagement?

Answer 4

Acceptable financial reporting framework, management’s acknowledgment of responsibilities, and unrestricted access to information

Question 5

What are the key components of audit planning?

Answer 5

audit strategy, audit plan, risk assessment procedures

Question 6

What are the financial statement assertions?

Answer 6

Completeness, Cutoff, Accuracy, Classification, Presentation, Occurrence, Existence, Rights, and Obligations

Question 7

Can internal auditors make audit judgments?

Answer 7

No, they can assist but not make judgements

Question 8

What is the role of a specialist in an audit?

Answer 8

Provide expertise in areas outside accounting/auditing to assist in obtaining sufficient appropriate audit evidence

Question 9

What is a performance materiality?

Answer 9

A lower threshold than overall materiality used to reduce the risk of undetected misstatements

Question 10

what factors influence materiality?

Answer 10

Both qualitative and quantitative factors, including user expectations and financial benchmarks

Question 11

What is the audit risk formula

Answer 11

AR = IR x CR x DR or AR = RMM x DR

Question 12

what does detection risk depend on?

Answer 12

Effectiveness of audit procedures and auditor’s application of them

Question 13

What are the components of the fraud triangle?

Answer 13

Incentives/Pressures, Opportunity, Rationalization/Attitude

Question 14

What are presumed fraud risks in every audit?

Answer 14

Improper revenue recognition and management override of controls

Question 15

What is the primary purpose of audit documentation?

Answer 15

To record audit procedures performed, evidence obtained, and conclusions reached

Question 16

What should audit documentation demonstrate?

Answer 16

That the audit was conducted in accordance with GAAS and applicable legal/regulatory requirements

Question 17

What are the preconditions for accepting an audit engagement?

Answer 17

Acceptable financial reporting framework and management’s acknowledgement of responsibilities

Question 18

What must be included in an engagement letter?

Answer 18

Objective and scope, responsibilities, applicable framework, expected report form, and other arrangements

Question 19

What should an auditor consider before accepting a late engagement?

Answer 19

Whether limitations may lead to a qualified or disclaimer opinion

Question 20

What are the key components of audit planning?

Answer 20

Audit strategy, audit plan, risk assessment procedures

Question 21

What does the audit strategy define?

Answer 21

Scope, reporting objectives, timing, communications, and focus areas

Question 22

what are the types of audit procedures?

Answer 22

Risk assessment, tests fo controls, substantive procedures, aand other GAAS required procedures

Question 23

What are the main assertion categories?

Answer 23

Transactions and Events, Account Balances, and Disclosures

Question 24

Name the three assertions related to Account Balances.

Answer 24

Existence, Rights and Obligations, Valuation

Question 25

What does the assertion "Completeness" mean?

Answer 25

All transactions and accounts that should be recorded are included

Question 26

What must an external auditor assess before using internal auditor work?

Answer 26

Competence, objectivity, and systematic approach

Question 27

What is the role of a specialist in an audit?

Answer 27

To provide expertise in areas outside accounting/auditing to assist in obtaining audit evidence

Question 28

What is a component auditor?

Answer 28

An auditor who performs work on a portion of the group financial statements

Question 29

What is performance materiality?

Answer 29

An amount less than overall materiality used to reduce risk of undetected misstatements

Question 30

What factors influence materiality?

Answer 30

Qualitative and quantitative factors, including user expectations and financial benchmarks

Question 31

When should materiality be revised?

Answer 31

If actual results differ from estimtes or significant events occur during the audit

Question 32

What is inherent risk?

Answer 32

The susceptibility of an assertion to misstatement assuming no controls

Question 33

What is detection risk?

Answer 33

The risk that the auditor's procedures will not detect a material misstatement.

Question 34

What are the components of the fraud triangle?

Answer 34

Incentives/Pressures, Opportunity, Rationalization

Question 35

What are the two types of fraud?

Answer 35

Fraudulent financial reporting and misappropriation of assets

Question 36

What are presumed fraud risks in every audit?

Answer 36

Improper revenue recognition and management override of controls

Question 37

What is the auditor's responsibility regarding fraud?

Answer 37

To plan and perform the audit to obtain reasonable assurance that f/s are free of material misstatement due to fraud.

Question 38

A successor auditor's inquiries of the predecessor auditor should include questions regarding: A) The predecessor's understanding of the reasons for the change in auditors B) The predecessor's knowledge of accounting matters of continuing significance C) Subsequent events that occurred since the predecessor's audit report was issued D) The predecessor's evaluation of audit risk and judgment about materiality

Answer 38

A) The predecessor's understanding of the reasons for the change in auditors.

Question 39

Which of the following auditor concerns most likely could be so serious that the auditor concludes that a financial statement audit cannot be conducted? A) Procedures requiring segregation of duties are subject to management override. B) The entity has no formal written code of conduct. C) The integrity of the entity's managements is suspect D) Management fails to modify prescribed controls for change in conditions.

Answer 39

C) The integrity of the entity's management is suspect

Question 40

Which of the following statements is not true about engagement letters? A) An engagement letter generally includes specific audit procedures B) The engagement letter should be signed and dated by the client C) An engagement letter reduces the risk of misunderstanding D) An engagement letter generally includes the objectives of the engagement

Answer 40

A) An engagement letter generally includes specific audit procedures.

Question 41

Which of the following is required documentation in an audit in accordance with generally accepted auditing standards? A) A planning memorandum establishing the timing of the audit procedures and coordinating the assistance of entity personnel B) An audit plan setting forth in detail the procedures necessary to accomplish the engagement's objectives C) A flowchart or narrative of the information system relevant to financial reporting describing the recording and classification of transactions for financial reporting D) An internal control questionnaire identifying controls that assure specific objectives will be achieved

Answer 41

B) An audit plan setting forth in detail the procedures necessary to accomplish the negagement's objectives

Question 42

Which of the following is not a type of financial statement assertion? A) Rights and obligations B) Valuation and allocation C) Understandability of presentation and classification D) Fairness and accuracy

Answer 42

D) Fairness and accuracy

Question 43

Which of the following is true about the auditor's use of an internal auditor and a specialist? A) The auditor may share responsibility for the audit report with a specialist who is deemed to be both objective and competent, but may not share such responsibility with an internal auditor B) A spacialist may be related to the client, but an internal auditor may not C) The auditor must access the competency of both the internal auditor and the specialist D) The auditor may share responsibility for the audit report with an internal auditor who is deemed and competent, but may not share such responsibility with a specialist

Answer 43

C) The auditor must assess the competency of both the internal auditor and the specialists.

Question 44

In which of the following circumstances is an auditor most likely to rely on work done by internal auditors? A) For financial statement amounts judged by the auditor to require little or no subjectively evaluated audit evidence B) If financial statement amounts are material and the degree of subjectivity in evaluating the audit evidence is high C) If the internal auditors have concluded that the risk of material misstatements at the overall financial level is negligible D) For financial statement amounts determined largely or entirely on the basis of estimates made by management

Answer 44

A) For financial statement amounts judged by the auditor to require little or no subjectively evaluated audit evidence

Question 45

Which of the following statements is not correct about materiality? A) An auditor's consideration of materiality is influenced by the auditor's preception of the needs of a reasonable person who will rely on the financial statements B) An auditor considers materiality for the financial statements as a whole in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements C) The concept of materiality recognizes that some matters are important for fair presentation of financial statements in conformity with GAAP, while other matters are not important D) Materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative judgments.

Answer 45

B) An auditor considers materiality for the financial statements as a whole in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements.

Question 46

Tracy, senior accountant at JFM CPA Firm, is determining the performance materiality for her client in Year 2. Tracy expects that there will be a high likelihood of uncorrected and undetected misstatements. JFM CPA Firm's materiality guidelines advise the auditor to set performance materiality in the range of 50% to 70% of overall materiality based on the likelihood of misstatement. Tracy has calculated overall materiality at $140,000. Tracy will most likely set performance materiality closest to: A) $140,000 B) $168,000 C) $98,000 D) $70,000

Answer 46

C) $70,000

Question 47

Detection risk differs from both control risk and inherent risk in that detection risk: A) Can be changed at the auditor's discretion B) Arises from risk factors relating to fraud C) Should be assessed in nonquantitative terms D) Exists independently of the financial statement audit.

Answer 47

A) Can be cchanged at the auditor's discretion

Question 48

What is the primary objective of the fraud brainstorming session? A) Assess the potential for materiality misstatement due to fraud B) Determine audit risk and materiality C) Determine whether the planned procedures in the audit program will satisfy the general audit objectives D) Identify whether analytical procedures should be applied to the revenue accounts.

Answer 48

A) Assess the potential for materiality misstatement due to fraud