Audit Theory Midterms Review

Which of the following factors most likely would cause an auditor not to accept a new audit engagement?

• Concluding that the entity’s management probably

  lacks integrity.

• The close proximity to the end of the entity’s fiscal year.

• An inability to perform preliminary analytical

  procedures before assessing control risk.

• An inadequate understanding of the entity’s

  internal control structure.

The following are the reasons why the auditor will send

a new engagement letter each period, except

• Any revised or special terms of the engagement

• A significant change in nature or size of the client’s

  business

• Legal requirements

• A recent change in the audit team

In assessing audit risk, the CPA needs to do all of the following, except:

• Gather audit evidence in support of recorded transactions

• Understand the economic substance of significant transactions completed by the client

• Understand the entity and the industry in which it operates

• Obtain an understanding of the client's system of internal control

Which of the following types of documentary evidence should the auditor consider to be the most reliable?

• A sales invoice issued by the client and supported by a delivery receipt from an outside trucker.

• A check, issued by the company and bearing the payee’s endorsement, that is included with the bank statements mailed directly to the auditor.

• A working paper prepared by the client’s controller and reviewed by the client’s treasurer.

• Confirmation of an account payable balance mailed by and returned directly to the auditor.

For an internal auditor to render impartial and unbiased judgement, they must be independent of the entity's

• Stockholders

• Independent Auditors

• Board of Directors

• Management

An audit involves ascertaining the degree of correspondence between assertions and established criteria. In the case of a financial statement audit, which of the following is not a valid criterion?

• Accounting standards generally accepted in the Philippines.

• nternational Accounting Standards.

• Authoritative financial reporting framework.

• Philippine Standards on Auditing.

An auditor wants to know if the invoice is recorded by the entity. In this case, they will test from the supporting document to the accounting records. This test is called

The ​ (a)   sets the scope, timing,​ and direction of the audit, and guides the

development of a more detailed ​ (b)   ​

• overall audit strategy
• audit program
• audit planning
• auditor
• client
• audit procedures

Organize these options into the right categories

Groups:

(a) Higher Detection Risk

,

(b) Lower Detection Risk

• Increased Inherent Risk

• Reliance on Internal Control

• Extensive audit procedures

• Higher performance materiality

• More relevant evidence

Which of the following would an auditor most likely use in determining the auditor’s preliminary judgment about materiality?

• The anticipated sample size for planned substantive tests.

• The entity’s financial statements of the prior year.

• The assertions that are embodied in the financial

  statements.

• The results of the initial assessment of control risk.