The Risk-based Financial Statement Audit – Client Acceptance, Audit Planning, Supervision and Monitoring

1. Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding

• a. The degree of cooperation the predecessor received concerning the inquiry of the client’s lawyer
• b. The predecessor’s evaluation of matters of continuing accounting significance
• c. Disagreements the predecessor had with the client concerning auditing procedures and accounting principles
• d. The predecessor’s assessments of inherent risk and judgments about materiality

2. Which of the following factors most likely would cause a CPA to not accept a new audit engagement?

• a. The CPA lacks an understanding of the prospective client's operations and industry
• b. The prospective client is unwilling to make all financial records available to the CPA
• c. The prospective client has already completed its physical inventory count
• d. The CPA is unable to review the predecessor auditor's audit documentation

3. The auditor should design the written audit program so that

• a. Each account balance will be tested under either tests of controls or tests of transactions
• b. The audit procedures selected will achieve specific audit objectives
• c. All material transactions will be selected for substantive testing
• d. Substantive tests prior to the balance sheet date will be minimized

4. The following are considered by a CPA firm in deciding whether to accept a new client, except

• a. The client’s financial ability
• b. The client’s probability of achieving an unqualified opinion
• c. The client’s standing in the business community
• d. The client’s relations with its previous CPA firm

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

• a. What benefits may be attained by the assistants' adherence to established time budgets
• b. How the results of various auditing procedures performed by the assistants should be evaluated
• c. That fraud is not to be reported to those charged with governance
• d. Why certain documents are being transferred from the current file to the permanent file

6. As the acceptable level of detection risk decreases, the assurance directly provided from

• a. Tests of controls should decrease
• b. Tests of controls should increase
• c. Substantive tests should increase
• d. Substantive tests should decrease

7. Which of the following factors most likely would lead a CPA to conclude that a potential audit engagement should be rejected?

• a. Management has a reputation for consulting with several accounting firms about significant accounting issues
• b. It is unlikely that sufficient appropriate evidence is available to support an opinion on the financial statements
• c. Internal control activities requiring the segregation of duties are subject to management override
• d. The details of most recorded transactions are not available after a specified period of time

8. In relation to audit planning, the auditor should document the following:

• a. The overall audit strategy
• b. The detailed audit plan
• c. Significant changes made during the audit engagement
• d. All of the above

9. An auditor should obtain sufficient knowledge of an entity's information system relevant to financial reporting to understand the:

• a. Safeguards used to limit access to computer facilities
• b. Process used to prepare significant accounting estimates
• c. Procedures used to assure proper authorization of transactions
• d. Policies used to detect the concealment of fraud

10. In using the work of a specialist, an auditor of a non-issuer may refer to the specialist in the auditor's report if, as a result of the specialist's findings, the auditor

• a. Becomes aware of conditions causing substantial doubt about the entity's ability to continue as a going concern
• b. Desires to disclose the specialist's findings, which imply that a more thorough audit was performed
• c. Discovers significant deficiencies in the design of the entity's internal control that management does not correct
• d. Is able to corroborate another specialist's earlier findings that were consistent with management's representations