Audit and Assurance MIDTERMS

An attitude of professional skepticism means that the practitioner

• Should assess critically with a questioning mind the validity of evidence obtained

• Should recognize that circumstances may exist that can cause the subject matter information to be materially misstated

• Is alert to evidence that contradicts or brings into question the reliability of documents or representations by the responsible party

• Is expected to eliminate the risk of overlooking suspicious circumstances, of over generalizing when drawing conclusions from observations and of using faulty assumptions in determining the nature, timing and extent of evidence gathering procedures and evaluating the results thereof

Non assurance engagements include all of the following except:

• Agreed upon procedures

• Management consulting

• Preparation of tax returns where no conclusion is expressed

• Compliance audit

When a CPA expresses an opinion on financial statements, his or her responsibilities extend to:

• The underlying wisdom of the client's management decisions

• Whether the results of the client's operating decisions are fairly presented in the financial statements

• Active participation in the implementation of the advice given to the client

• An ongoing responsibility for the client's solvency

The independent auditor is most concerned with which of the following:

• Fairness and reliability of accounting data.

• Promotion of operational efficiency.

• Adherence of prescribed managerial policies.

• Attainment of the organization's objectives.

When setting a preliminary judgment about materiality,

• More evidence is required for a low peso amount than for a high peso amount.

• Less evidence is required for a low peso amount than for a high peso amount.

• The same amount of evidence is required for either low or high peso amount.

• There is no relationship between it and the peso amount of evidence needed.

Inherent risk and control risk differ from detection risk in that inherent risk and control risk are

• Elements of audit risk while detection risk is not.

• Changed at the auditor's discretion while detection risk is not.

• Considered at the individual account-balance level while detection risk is not.

• Functions of the client and its environment while detection risk is not.

Which of the following will not necessarily lead the client to request for the auditor to change the engagement to one which provides a lower level of assurance

• Restrictions on the scope of the engagement, whether imposed by management or caused by circumstances

• Misunderstanding as to the nature of an audit or related service originally requested

• Recent changes in senior management, board of directors or ownership

• Change in circumstances affecting the need for the service

One of the major parts of audit planning is preplanning. Which of the following is not involved during the preplanning phase?

• Deciding whether to accept or continue this client

• Obtaining information about client's legal obligations

• Selecting staff for the engagement

• Obtaining an engagement letter

The purpose of the engagement letter is to

• Reduce the terms to writing in order to minimize misunderstandings

• Reduce the CPA firm's responsibility to external users of the audited financial statements

• Satisfy the Statute of Frauds which requires that contracts for professional services must be in writing to be enforceable

• Notify the audit staff of an upcoming engagement so that personnel scheduling can be facilitated.

The acceptable level of detection risk is inversely related to the:

• Assurance provided by substantive tests.

• Risk of misapplying auditing procedures.

• Preliminary judgment about materiality levels.

• Risk of falling to discover material misstatements.