Multiple Choice Questions
The following questions concern the planning of the engagement. Select the best response.
a. Which of the following is an effective audit planning procedure that helps prevent misunderstandings and inefficient use of audit personnel?
(1) Arrange to make copies, for inclusion in the audit files, of those client supporting documents examined by the auditor.
(2) Arrange to provide the client with copies of the audit programs to be used during the audit.
(3) Arrange a preliminary conference with the client to discuss audit objectives, fees, timing, and other information.
(4) Arrange to have the auditor prepare and post any necessary adjusting or reclassification entries prior to final closing.
b. When auditing related party transactions, an auditor places primary emphasis on
(1) Confirming the existence of the related parties.
(2) Verifying the valuation of related party transactions.
(3) Evaluating the disclosure of the related party transactions.
(4) Ascertaining the rights and obligations of the related parties.
c. Which of the following will most likely indicate the existence of related parties?
(1) Writing down obsolete inventory prior to year end.
(2) Failing to correct deficiencies in the client's internal control.
(3) An unexplained increase in gross margin.
(4) Borrowing money at a rate significantly below the market rate.
d. Which of the following is least likely to be included in the auditor's engagement letter? (1) Details about the preliminary audit strategy.
(2) Overview of the objectives of the engagement.
(3) Statement that management is responsible for the financial statements.
(4) Description of the level of assurance obtained when conducting the audit.