chap 8 accept client and perform initial audit planning

Question 1

what are a couple of reasons CPA firms refuse clients

Answer 1

1. they are in a high risk industry = 2. for a small firm they might not want a compnay if they are publicly held so they dont want the risk of litigation or the high costs associated with registering the audit firm with the PCAOB

Question 2

After understanding the client’s reason for an audit, the auditor should ?

Answer 2

develop and document a preliminary audit strategy

Question 3

the audit strategy considers what?

Answer 3

the nature of the clients business, the number of client locations and the past effectiveness of client controls in developing a prelimianry approach to the audit

Question 4

before accepting a new client most firms investigate the compnay to dertmine its acceptability as well as looking at themselves…how do they do this? (5)

Answer 4

1. examin the prospedtive3 clients standing in the business community 2. examine financial stability 3. examine relations with its previous CPA firm 4. determine that theCPA firm has the competency like industry knowledge 5. must know that the CPA firm can satisfy all independence requirements

Question 5

The new (successor) auditor is required by auditing standards to ?

Answer 5

communicate with the predecessor auditor.

Question 6

Risk factors associated with the client’s reasons for an audit that are major factors affecting acceptable audit include what 2 things?

Answer 6

1.likely statement users 2. the intended uses of the statements

Question 7

T/F Auditing standards do not require that there be an engagement letter which includes the engagement’s objectives

Answer 7

F

Question 8

what does the AICPA standards require from the auditor regarding the financial reporting framework to be used by management to preparte the FSs?

Answer 8

that the auditor determine whether the framework is appropriate because if it isnt’ then the auditor doesnt have suitable criteria for auditing the FSs

Question 9

the audit reporet should not refer to the specialist being used unless?

Answer 9

the specialist report results in a modification of the audit opinion

Question 10

T/FA clear understanding of the terms of the engagement should exist between the auditor and the client

Answer 10

T

Question 11

what is included in the engagement letter? (5)

Answer 11

1. the objectives 2. the responsibilities of management and the auditor 3. identification of the financial reporting framework used by management 4. reference to expected form and content of audit report 5. limitations of the engagement

Question 12

the audit strategy does what?

Answer 12

sets the scope, timing , and direction of the audit and guides the development of the audit plan

Question 13

the auditor is likely to accumulate more evidence when the statements are to be used extensively which is the case in what 3 cases?

Answer 13

1. the company is public 2. the company has extensive indebtedness 3. the company is about to be sold in the near future

Question 14

what are the 3 ways the auditor determine if the company is using an appropriate financial reporting framework?

Answer 14

they consider the nature of the entity, the purpose and nature of the FSs, and whether laws or regulations prscrive a particular framework

Question 15

Initial audit planning involves what four things?

Answer 15

1. The auditor decides whether to accept a new client or continue serving an existing client. 2. The auditor identifies why the client wants or needs an audit. 3. To avoid misunderstandings, the auditor obtains an understanding with the client about the terms of the engagement. 4. The auditor develops the overall strategy for the audit, including engagement staffing and any required audit specialists.

Question 16

The CPA firm must select staff for the engagement who are ?

Answer 16

are knowledgeable about the client’s business. If the CPA firm lacks expertise, they may need to hire outside specialists.

Question 17

an underlyuing principals in auditing standards says auditors are respobnsible for having appropriate _____ and ____ to perform the audit

Answer 17

competence capabilities

Question 18

: CPA firms evaluate existing clients to determine what?

Answer 18

whether a continuing client presents risks due to lack of integrity.

Question 19

engagment letter info is important in planning the audit principally because?

Answer 19

it affects the timing of the tests and the total amount of time the audit and other services will take

Question 20

what is the purpose of the new auditor communicating with the previous auditor

Answer 20

is to determine if the client lacks integrity or if there were disputes about accounting principles, audit procedures, or fees

Question 21

why must clients consent to communication between the new auditor and the old one?

Answer 21

because of confidentiality requirements