Audit Planning

An auditor has withdrawn from an audit engagement of a publicly held company after finding fraud that may materially affect the financial statements. The auditor should set forth the reasons and findings in correspondence with the 

• SEC
• Client's legal counsel
• Stock exchanges where the company's stock is traded
• Audit committee of the board of directors

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 

• Whether the predecessor's work should be utilized.
• Whether, in the predecessor's opinion, the financial statements are materially correct
• Whether, in the predecessor's opinion, the company's internal controls have been satisfactory
• Whether the engagement should be accepted

Which of the following should an auditor obtain from the predecessor auditor prior to accepting an audit engagement? 

• Analysis of balance sheet accounts
• Analysis of income statement accounts
• All matters of continuing accounting significance
• Facts that might bear on management integrity

A successor auditor should request the new client to authorize the predecessor auditor to allow a review of the predecessor's 

• Engagement letter
• Audit working papers
• Engagement letter and audit working papers
• It would not be typical to allow a review of either the engagement letter or the audit working papers.

An auditor is required to establish an understanding with a client regarding the responsibilities for each engagement. This understanding generally includes 

• Management's responsibility to guarantee that there are no material misstatements due to fraud
• The auditor's responsibility to plan and perform the audit to provide reasonable, but not absolute, assurance of detecting material errors or fraud.
• Management's responsibility for providing the auditor with an assessment of the risk of material misstatement due to fraud.
• The auditor's responsibility for the fairness of the financial statements

Which of the following is not a concern as to whether a misstatement is qualitatively material? 

• The misstatement hides a failure to meet analysts' expectations
• The misstatement is less than 5% of pretax income
• The misstatement increases management's compensation
• The misstatement changes a small amount of profit to a small reported loss

In assessing the competence of the internal audit function, an independent CPA most likely would obtain information about the 

• Quality of the work of the internal audit function
• Organization's commitment to integrity and ethical values
• Influence of management on the scope of the internal audit function duties
• Organizational levels to which the internal audit function reports

Which of the following procedures would an auditor most likely include in the initial planning of a financial statement audit? 

• Perform detailed testing of the individual balance sheet accounts
• Examining documents to detect illegal acts having a material effect on the financial statements.
• Considering whether the client's accounting estimates are reasonable in the circumstances
• Determining the extent of involvement of the client's internal audit function

The in-charge auditor most likely would have a supervisory responsibility to explain to the staff assistants 

• That immaterial fraud is not to be reported to the client's audit committee
• How the results of various auditing procedures performed by the assistants should be evaluated.
• How the overall audit strategy will allow the firm to reach a sufficiently low level of audit risk
• How overall materiality was selected.

Which of the following audit procedures would be least likely to disclose the existence of related party transactions of a client during the period under audit? 

• Reading "conflict-of-interest" statements obtained by the client from its management
• Scanning accounting records for large transactions at or just prior to the end of the period under audit.
• Reading minutes of the Board of Directors meetings for authorization or discussion of material transactions.
• Confirming purchases and sales transactions with the vendors and/or customers involved.