1. The purpose of risk assessment procedures is to

a. Obtain an understanding of the entity and its environment

b. Reduce detection risk

c. Evaluate management ability

d. Determine the operating effectiveness of controls

2. The primary objective of procedures performed to obtain an understanding of the entity and its environment is to provide an auditor with:

a. Knowledge necessary for risk assessment and audit planning.

b. Audit evidence to use in assessing inherent risk.

c. A basis for issuing an opinion on the financial statements.

d. An evaluation of the consistency of application of management's policies.

3. The audit team gathers information about a new client's business and industry in order to obtain:

a. an understanding of the clients internal control system for financial reporting.

b. an understanding of how economic events and transactions have an effect on the company's financial statements.

c. information about engagement risk.

d. information regarding whether the company is engaging in financial statement fraud.

4. Which of the following are the most common techniques used in obtaining knowledge of a client in the planning phase of an audit engagement?

a. Confirmation, enquiry, analysis, reperformance

b. Enquiry, analysis, observation, inspection

c. Enquiry, analysis, observation, reperformance

d. Vouching, tracing, discussion, analysis

5. The auditors are planning an audit engagement for a new client in a business that is unfamiliar to the auditors. Which of the following would be the most useful source of information for the auditors during the preliminary planning stage when they are trying to obtain a general understanding of audit problems that might be encountered?

a. Client manuals of accounts and charts of accounts.

b. Established Industry Audit Guides.

c. Prior-year working papers of the predecessor auditors.

d. Latest annual and interim financial statements issued by the client.

6. Which of the following is least likely to be included in an auditor's inquiry of management while obtaining information to identify the risks of material misstatement due to fraud?

a. Are all financial reporting operations at one location?

b. Does it have knowledge of fraud or suspect fraud?

c. Does it have programs to mitigate fraud risks?

d. Has it reported to the audit committee the nature of the company's internal control?

7. Inquiries directed towards those charged with governance may most likely

a. Relate to their activities concerning the design and effectiveness of the entity's internal control and whether management has satisfactorily responded to any findings from those activities

b. Help the auditor in understanding the environment in which the financial statements are prepared

c. Relate to changes in the entity's marketing strategies, sales trends or contractual arrangements with its customers

d. Help the auditor in evaluating the appropriateness of the selection and application of certain accounting policies

8. Which one of the following is a valid source of information about the client's processes?

a. Management inquiry

b. Review of the client's budget

c. Tour of client's plant and operations

d. All are valid sources.

9. Which of the following is not an information source for developing analytical procedures used in the audit?

a. Relationships among financial statement elements

b. Relationships between financial and relevant nonfinancial data

c. Comparison of financial data with anticipated results (e.g., budgets and forecasts)

d. Comparison of current year financial data with projections for next year's financial results

10. Which of the following is not a typical analytical review procedure?

a. Study of relationships of the financial information with relevant non-financial information.

b. Comparison of the financial information with similar information regarding the industry in which the entity operates.

c. Comparisons of recorded amounts of major disbursements with appropriate invoices.

d. Comparisons of the financial information with budgeted amounts.

11. Which of the following is not an example of analytical evidence?

a. Compared inventory turnover by major class with the prior year on a monthly and quarterly basis.

b. Compared gross profit percentages by major product classes with the prior year.

c. Examined monthly performance reports and investigated significant variations from budgeted amounts.

d. Examined invoices for plant asset additions to determine whether the client had erroneously recorded ordinary repairs as plant assets.

12. What type of analytical procedure would an auditor most likely use in developing relationships among balance sheet accounts when reviewing the financial statements of a nonpublic entity?

a. Trend analysis. c. Ratio analysis.

b. Regression analysis. d. Risk analysis.

13. An auditor compares year-to-year account balances in order to perform analytical procedures. This is an example of:

a. Vertical analysis c. Trend analysis

b. Internal control analysis d. Ratio analysis

14. Analytical procedures used in planning an audit should focus on identifying

a. material weaknesses in internal control.

b. the predictability of financial data from individual transactions.

c. the various assertions that are embodied in the financial statements.

d. areas that may represent specific risks relevant to the audit.

15. In performing an audit, which one of the following procedures would be considered an analytical procedure?

a. Comparing last year's interest expense with this year's interest expense.

b. Comparing signatures on checks with the signatures of authorized check signers.

c. Reviewing initials on received documents

d. Reviewing procedures followed in receiving, depositing, and disbursing cash.

16. Which of the following is least likely to be comparable between similar corporations in the same industry line of business?

a. Accounts receivable turnover

b. Earnings per share

c. Gross profit percent

d. Return on assets before interest and taxes

17. An example of an analytical procedure is the comparison of

a. Financial information with similar information regarding the industry in which the entity operates

b. Recorded amounts of major disbursements with appropriate invoices

c. Results of a statistical sample with the expected characteristics of the actual population

d. EDP generated data with similar data generated by a manual accounting system

18. Analytical procedures are

a. Never required

b. Required for planning, substantive testing, and overall review of the financial statements

c. Required for planning and overall review of the financial statements

d. Required during planning only

19. Which of the following statements is not correct?

a. Analytical procedures are used to isolate accounts or transactions that should be investigated more extensively.

b. For certain immaterial accounts, analytical procedures may be the only evidence needed.

c. In some instances, other types of evidence may be reduced when analytical procedures indicate that an account balance appears reasonable.

d. Analytical procedures use supporting documentation to determine which account balances need additional detailed procedures.

20. Which of the following parties would normally attend a planning meeting held before the beginning of an audit engagement to discuss relevant client information and the audit approach to be taken in performing the engagement?

a. Engagement partner and the client's chief financial officer

b. Engagement partner and audit manager

c. Engagement partner, audit manager, and senior auditor

d. Engagement partner, audit manager, senior auditor, and junior audit staff members