16. Which of the following might be used to protect the firm from exposure to a substantial portion of damages from defalcations? . O A. An indemnification clause. A loss limitation clause. O c. A time limitation clause. OD. An undertaking-to-be-truthful clause. 17. When will the use of alternative dispute resolution (ADR) impair an auditor's independence? O A. When binding arbitration is used. B. When mediation is used. C. When an ADR proceeding begins. D. When the firm has an agreement with the client to use ADR. 18. When would it be unethical for a predecessor auditor to withhold workpapers from the successor auditor? O A. There are unpaid fees owed by the client to the predecessor. B. There is pending litigation between the client and the predecessor. C. They contain information that is part of the client's accounting records. O D. The predecessor does not have the time to copy the workpapers. 19. Which of the following statements best describes an aspect of how an auditor treats opening balances in an initial engagement? O A. In relation to opening balances, auditors cannot overaudit and should review all possible information. O B. Auditors should trace the opening balances back to the closing balances of the prior period. O c. Auditors must consider all opening balances, not just those that affect current-period results. OD. The passage of time makes it more difficult for the auditor to determine opening balances. 20. What is one reason that initial audits of nonprofit organizations are less complicated than initial audits of business enterprises? A. Nonprofit organizations often have larger amounts of inventory than business enterprises. B. Each year is considered in conjunction with other years whereas each year of a business enterprise is viewed as discrete. O c. The closing balance of a nonprofit's statement of financial position is more important than operating account totals. O D. The statement of financial position accounts for a nonprofit are often smaller than a business enterprise's balance sheet accounts. 21. What is the first thing an auditor should do when there is a predecessor auditor? A. Request access to the workpapers from the predecessor. B. Obtain the predecessor's workpapers. O c. Ask management to authorize the predecessor to allow a review of the workpapers. O D. To decide whether to reference, reissue, or reaudit the prior-year statements. 22. What information might an auditor obtain by reading the predecessor's planning memo? A. Help identifying risks and significant audit areas. B. Help identifying control deficiencies. O c. An indication of the client's expectations on accounting assistance. O D. Information about how the predecessor responded to risk areas. 23. What is AU-C 402B's term for an auditor of an entity that uses a service organization? A. Auditor. B. Predecessor auditor. O c. Service auditor. OD. User auditor. 24. Christina is engaged to audit a nonprofit organization. Her client uses a service organization to process certain transactions. Christina is unable to obtain a sufficient understanding of the nature and significance of the service organization's controls and how those controls impact her client's internal control based only on information she gathers from her audit client. What is one action Christina could take? A. Read a service auditor's report or perform procedures at the service organization. O B. Visit the service organization and request assurances that its processes are working appropriately. O c. Request information from other auditors who have experience with this service organization. Withdraw from the audit engagement immediately as she will not be able to gather sufficient audit evidence. D. 25. What type of service auditor's report would allow a user auditor to assess control risk at low or moderate for certain transactions? O A. A type 1 report. B. A type 2 report O c. Either a type 1 report or an agreed-upon procedures report on tests of controls. O D. Either a type 2 report or an agreed-upon procedures report on tests of controls. 26. What are complementary controls in relation to a service organization? O A. Controls adopted by the service organization to complement those at the user entity. B. Controls adopted by the user entity to complement those at the service organization. C. Controls at both the service organization and the user entity that serve the same purpose. D. Controls at either the service organization or the user entity that happen to apply to the same type of transaction. 27. What is a key consideration in determining whether an individual is an auditor's specialist for the purposes of applying AU-C 620B? O A. Whether the expertise is outside of auditing and accounting. B. Whether the potential specialist is objective. C. Whether the specialist is part of the same firm or external. O D. Whether the work performed by the specialist will meet the auditor's needs. 28. When are firms required to notify a client in writing about the use of an auditor's specialist? OOO O A. The specialist is helpful but not necessary to the audit. B. The specialist is not employed by the auditor's firm. OC. The auditor does not have sufficient knowledge to evaluate the specialist's work. D. The specialist's expertise lies in an area of accounting or auditing. 29. When might an auditor need to make reference to the work of an auditor's specialist in the auditor's report? O A. The auditor's opinion is unmodified. OB. The auditor's opinion is modified related to the specialist's area. O C. The specialist agrees to be referenced in the report. D. There are issues related to the specialist's competence, capabilities, or objectivity. 30. Are specialists hired by a firm performing an audit under the Yellow Book subject to the requirements in the auditing standards (independence, etc.)? O A. Yes, the Yellow Book states that the AICPA Statements on Auditing Standards contain all of the applicable requirements. O B. Yes, requirements of the AICPA Statements on Auditing Standards must be met, but the Yellow Book includes additional requirements. O c. No, if the audit is performed under the Yellow Book, separate requirements must be met instead of those in the auditing standards. OD. No, the auditor is allowed to choose whether to adopt the requirements of the auditing standards or those in the Yellow Book