B.Analytical procedures are powerful tools that arerequired to be used during the planning andtesting phases of the audit.C. Analytical procedures may be used to identifymisstatements in a client’s accounts.D.Analytical procedures are required to be usedduring the planning and completion phases of theaudit.45.Which of the following is not an information sourcefor developing analytical procedures used in theaudit?
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46.Which of the following results from analyticalprocedures might indicate obsolete inventory?
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47.Auditors try to identify predictable relationships whenusing analytical procedures. Which of the followingaccounts would most likely yield the highest level ofevidence regarding relationships that involvetransactions?
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78. Which of the following is most correct with respect to the use ofanalytical procedures?
79. One purpose of performing preliminary analytical procedures in theplanning phase of an audit is to help the auditor make a preliminaryassessment of control risk.
81.When are auditors likely to encounter judgment problems in the use ofanalytical procedures?
82.An auditor has accessed client business risk and the risk of materialmisstatements to the clients financial statements. These are done inorder to:
83.Analytical procedures:
84.Management is the primary source for identifying client business risks.
85.The most widely used profitability ratio is return on assets.
86. Which of the following is a correct statement regarding analyticalprocedures?
87. Which of the following statements isnot correct with respect toanalytical procedures?
88.Determining materiality requires professional judgment.
89.Auditors are responsible for determining whether financial statementsare materially misstated, so upon discovering a material misstatementthey must bring it to the attention of:
90.If an auditor establishes a relatively high level for materiality, then theauditor will:
91.The preliminary judgment about materiality and the amount of auditevidence accumulated are ________ related.
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A measure of how willing the auditor is to accept that the financial statements may be materially
misstated after the audit is completed and an unqualified opinion has been issued is the:
acceptable audit risk
A measure of the auditor's assessment of
the likelihood that there are material misstatements in an
account before considering the effectiveness of the client's internal control is called:
inherent risk
In what order should the following steps occur?
A. assess client business risk
B. understand the client's business and industry
C. perform preliminary analytical procedures
D. assess acceptable audit risk
B, A, D, C
The auditor uses knowledge gained from the understanding of the client's business and industry to
assess:
client business risk
Initial audit planning involves four matters. Which of the following is not one of these?
Request that bank balances be confirmed.
Rodgers CPA
has requested permission to communicate with predecessor auditor in order to review
certain workpapers for high risk accounts for a new audit client. The new audit clients refusal to allow
this communication to occur would impact Rodgers decision concerning:
integrity of management concerning possible accounting misstatements
Which of the following is not correct regarding an auditor's decision that a
lower acceptable audit risk
is appropriate?
Less evidence is accumulated.
If an auditor is requested to perform nonaudit services for a public company audit client, who is
responsible for agreeing to those services with the audit firm?
the client's audit committee
Which of the following statements is true regarding
communications between predecessor and
successor auditors?
The predecessor's response can be limited to stating that no information will be provided.
The purpose of an engagement letter is to:
document the terms of the engagement.
Written communication that the auditor will provide reasonable assurance for the detection of
fraud
is found in:
engagement letter.
Which of the following normally signs the engagement letter for an audit of a private company?
Management.
The first standard of field work, which states that the work is to be adequately planned and that
assistants, if any, are to be properly supervised, recognizes that:
early appointment of the auditor is advantageous to the auditor and the client
An engagement letter sent to a publicly held audit client usually would not include a:
statement that management advisory services would be made available upon request
Jennings and Company has repositioned the firm's business strategy from the basis of
competing on
costs to competing on product differentiation. All the following will increase, except:
Audit risk
The purpose of the requirement in having communication between the predecessor and successor
auditors is to:
help the successor auditor to evaluate whether to accept the engagement
The predecessor auditor is
required to respond to the request of the successor auditor for information,
but the response can be limited to stating that no information will be provided when:
there are actual or potential legal problems between the client and the predecessor.
Which of the following best expresses the requirement to establish with the client an understanding of
the responsibilities the auditor and company is taking for
the audit engagement?
Auditors assert that their primary responsibility is to plan and perform the audit in order to provide
reasonable assurance as to the detection of material misstatement due to error or fraud.
Early appointment of the independent auditor will enable:
a more efficient examination to be planned.
An auditor
who accepts an audit engagement and does not possess the industry expertise of the
business entity should:
obtain a knowledge of matters that relate to the nature of the entity's business
In making client acceptance decisions the audit firm will consider:
the client's business risk and the CPA Firm's engagement risk.
Most auditors assess inherent risk as high for related parties and related-party transactions because:
of the lack of independence between the parties
The audit team gathers information about a new client's business and industry in order to obtain:
an understanding of how economic events and transactions have an effect on the company's financial
statements.
The auditor determines that Mathews Company occupies the 3rd floor of an office tower for which it
pays no rent. The most likely explanation is:
related party transaction in which a major shareholder owns the office tower.
An official record of meetings of the board of directors and stockholders is included in the corporate:
minutes.
Related party transactions may be indicated when another company
Subsidizes certain operating expenses of the company
Which one of the following is not an inherent risk factor in the financial statements?
The company's inventory, because of multiple locations, is difficult to count.
An auditor should examine minutes of the board of directors' meetings
through the date of the audit report
Which of the following would not likely be classified as a related-party transaction?
an advance of one week's salary to an employee
Which of the following best describes the coporate minutes of an entity?
official record of the meetings of the board of directors and the stockholders
An auditor searching for related party transactions should obtain an understanding of each
subsidiary's relationship to the total entity because:
this may reveal whether transactions would have taken place if the parties had been unrelated
An auditor has accessed
client business risk and the risk to material misstatements to the clients
financial statements. These are done in order to:
apply the audit risk model in determining the appropriate audit procedures to perform
Which of the following statements is most correct concerning audit risk?
Audit risk cannot be quantified with certainty
During audit planning, the auditor uses analytical procedures primarily to:
understand the client's business and industry and to indicate possible misstatements.
Which of the following is most correct with respect to the use of analytical procedures?
Analytical procedures are performed by studying plausible relationships between financial and
nonfinancial data.
Which of the following best describes the first standard of field work?
The auditor must maintain independence in mental attitude in all matters relating to the audit
Which of the following would not be classified as an analytical procedure?
Reconciling fixed asset dispositions with the fixed asset ledger
Which of the following statements is not correct with respect to analytical procedures?
Analytical procedures must be performed throughout the audit.
When performing planning analytical procedures for a client the auditor detected that the gross profit
percentage had declined by 50% from the previous year to the year currently under audit. The auditor
should:
investgate the possibility the client may have made an error in their cost of goods sold computation.
When are auditors likely to encounter judgment problems in the use of analytical procedures?
The auditor is likely to encounter judgment problems in each of the above instances
The major concern when using nonfinancial data in analytical procedures is the:
accuracy of the nonfinancial data
Which is a liquidity activity ratio?
Inventory turnover
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