1. Consider the following statements:

I. Per auditing standards, the successor [new] audit firm is required to initiate communication

with the predecessor [old] audit firm.

II. The predecessor auditor might communicate, to the successor auditor, information related to

client managements integrity.

a. I is true; II is true

b. I is true; II is false

c. I is false; II is true

d. I is false; II is false

2. A letter that formalizes the contract between the auditor and the entity and outlines the

responsibilities of both parties is referred to as a(n):

a audit letter.

b. contact letter.

c. engagement letter.

d. management letter.

3. Certain accounts and transactions affect both the Income Statement and the Balance Sheet. If

$25,000 is considered to be material to the income statement, but $30,000 is material to the

balance sheet, the auditor should set overall materiality at which of the following dollar amounts?

a. $25,000

b. 30,000

c. 55,000

d. None of the above. The answer is _____

4. Which of the following best describes the amount of misstatement an auditor is willing to accept and

still not say the account balance is materially misstated?

a. Tolerable misstatement.

b. Overall financial statement materiality

c. A clearly trivial amount

d. Significant materiality