AUD T - B41 Pre-Final

1. Laura is covered member in an audit engagement. Which of the following

cannot work in any capacity for a company being audited the Laura?'

I. Laura’s spouse

II. Laura’s dependent daughter

• a. I only

• b. II only

• c. Both I and II

• d. Neither I nor II

2. The following statements relate to assurance engagements. Choose the

incorrect statements.

1) The objective of an assurance engagement is for a professional

accountant to evaluate or measure a subject matter that is the

responsibility of another party against suitable criteria, and to

express a conclusion that provides the intended user with a level of

assurance about the subject matter.

2) Assurance engagements performed by professional accountants are

intended to enhance the credibility of information about a subject

matter.

3) Assurance engagements involve two parties: a professional accountant

and an intended user.

4) The subject matter of an assurance engagement is limited to

historical or prospective financial information.

5) The intended user in an assurance engagement is the person or class

of persons for whom the professional accountant prepares the report

for a specific use or purpose.

• a. 2, 3, 4, and 5.

• b. 2, 4 and 5.

• c. 3 and 4.

• d. 1, 2, 3, and 4.

3. Inquiries of the predecessor auditor prior to acceptance of the

engagement should include specific questions regarding:

I. disagreements with management as to accounting principles and

auditing procedures

II. the integrity of management

• a. I only

• b. II only

• c. Both I and II

• d. Neither I nor II

4. A CPA should not decide NOT to accept a new client for an audit

engagement if:

I. the CPA lacks an understanding of the client’s industry and

accounting principles prior to acceptance

II. the client’s management has unusually high turnover

• a. I only

• b. II only

• c. Both I and II

• d. Neither I nor II

5. Which statement is incorrect regarding an engagement to perform agreed-

upon procedures?

• a. An auditor is engaged to carry out those procedures of an

  audit nature to which the auditor and the entity and any

  appropriate third parties have agreed and to report on

  factual findings.

• b. The recipients of the report must form their own conclusions

  from the report by the auditor.

• c. The report is restricted to those parties that have agreed to the procedures to be performed.

• d. The report on factual findings is expressed in the form of

  negative assurance.

6. Which of the following procedures would an auditor likely perform in

the planning stage of a financial statement audit?

I. Obtaining a signed engagement letter from the client’s

management

II. Examining documents to detect violations of laws and

regulations having a material effect on the financial

statements.

• a. I only

• b. II only

• c. Both I and II

• d. Neither I nor II

7. Which of the following procedures is likely to be performed in the

planning stage of the audit?

I. Determining the extent of involvement of specialists and

internal auditors

II. External confirmation of client accounts receivables

• a. I only

• b. II only

• c. Both I and II

• d. Neither I nor II

8. Internal auditing is considered to be part of an organization's:

• a. Accounting system.

• b. Monitoring.

• c. Control activities.

• d. External controls.

9. All of the following are correct regarding an auditor’s understanding

with a potential client prior to beginning an audit EXCEPT:

• a. the understanding should cover the responsibilities of the

  independent auditor.

• b. the understanding should cover the limitations of the

  engagement.

• c. the understanding should be in the form of an engagement

  letter in order to be in conformity with auditing standards.

• d. the understanding should list the audit fees and frequency

  of billing.

10. Which of the following will cause the auditor to assess inherent risk

as high?

I. Complex transactions with third parties are discovered.

II. No related-party transactions are discovered.

III. Management relies heavily on estimates in the financial

statements.

• a. I and II only

• b. I, II and III

• c. I and III only

• d. III only