An audit strategy can take A. a reliance on procedures approach, a substantive app B. a reliance on controls approach, a subst C. neither a reliance on controls appr D. an approach whereby only internal control is audited es approach, a substantive approach, or a combination of both ontrols approach, a substantive approach, or a combination of both er a reliance on controls approach, nor a substantive approach uditors have completed testing controls and drawn a conclusion about control risk, - A. they make decisions about the nature and timing of substantive testing B. they are ready to issue the audit opinion c. they make decisions about the nature, timing, and extent of substantive testing D. they should withdraw if control risk is assessed as high - An auditor mailing positive confirmations is an example of A. a compilation engagement B. a review engagement C. a substantive procedure D. a test of internal control Assertions about account balances at year-end typically include A. existence, completeness, and allocation B. existence, completeness, and rights and obligations C. existence, occurrence, and cutoff D. accuracy, valuation, and occurrence Assertions about presentation and disclosure typically include_ A. completeness, accuracy and valuation, and classification and understandability B. existence, rights and obligations, and cutoff C. cutoff, presentation, and disclosure D. cutoff, accuracy, and valuation If significant fraud risk exists, the auditors should A. respond by including elements of predictability in their audit plan B. respond by including elements of unpredictability in their audit plan C. plan to place greater reliance on the internal audit function D. be able to place greater reliance on management assertions Auditors will have more confidence in internal controls and audit evidence generated internally - A. with a client that maintains an effective control environment B. with a client that maintains a poor control environment C. if the controls are centralized and controlled by one department D. if the audit evidence is received from one department of function only After auditors have assessed control risk, A. they are in a good position to evaluate the risk of fraud B. the audit is ready to be finalized and the audit opinion issued C. the findings should be submitted to management for review and approval D. the findings should be referred to the internal audit function for investigation When analytical procedures are used to obtain audit evidence during the risk response phase, A. they are referred to as "substantive analytical procedures." B. they are referred to as tests of internal control C. the audit report is ready to be issued D. management should be allowed to select the procedures and tests 10. The nature of an audit procedure refers to A. its purpose (test of controls or substantive procedure) and its type B. its extent (test of controls or substantive procedure) and its type C. its timing (test of controls or substantive procedure) and its type D. its timing (test of controls only) and its type 11. Examples of substantive procedures include A. observation B. inquiry C. confirmation D. All of these answer choices are correct. 12. The most important factor when responding to assessed risks is A consideration of the nature of the audit procedure B. consideration of the nature of the associated internal control C. the opinion of management regarding the assessed risk D. the opinion of the internal auditor regarding the assessed risk 13. A dual-purpose test A involves the auditors designing a test of controls and a substantive test of details to be performed at the same time on different transactions Ives the auditors designing a test of controls and a substantive test of details to be performed at the same time on the same transaction C. involves satisfying informational requests from management and the client's legal counsel simultaneously D. involves the auditor being able to bill the client for two tests when only one was performed 14. Examples of initial procedures that an auditor may perform include A. trace beginning balances to working papers from the prior year's audit B. scan the transactions in the account for unusual items C. obtain a trial balance or other detailed report for the account D. All of these answer choices are correct. 15. The use of analytical procedures A. is optional during risk assessment B. is prohibited during risk assessment C. is required during risk assessment D. is most effective as part of the testing of the system of internal control The cutoff assertion for sales means A. that transactions have been recorded in the proper accounting period B. that the auditor should check to make sure sales are being shipped to the correct client customers C. that transactions are being recorded in the correct accounts D. that sales should be limited to certain clients who may not have the ability to pay Auditors should carefully consider which of the following assertions for loss contingencies? A. Existence B. Presentation and disclosure C. Completeness D. Rights and obligations 18 If management determines the loss contingency is probable and an amount can be reasonably estimated, then the company A. must record a liability and a related expense or loss, and disclose the relevant details of the event in the notes to the financial statements B. must record an asset and a related expense or loss, and disclose the relevant details of the event in the notes to the financial statements C. must record a liability and a related depreciation expense or loss, and disclose the relevant details of the event in the notes to the financial statements D. should include a note in the notes to the financial statements but need not record an entry in accounting journals Which of the following defines a legal letter? A. An audit inquiry sent to a client's external and in-house legal counsel to obtain information about litigation, assessments, and claims. B. A letter comprising the auditor's report that is required by generally accepted auditing standards or is included at the auditor's discretion. nquiry and analytical procedures to provide limited assurance that no material modifications should be made to the financial statements. D. An engagement in which a CPA applies accounting and financial expertise to assist management in the presentation of financial statements. 20. Auditors should be alert to subsequent events A. that may occur between the date of the financial statements and the date of the auditor's report B. that may occur between the date of the auditor's report and the next balance sheet date C. and report all immaterial findings to the Securities and Exchange Commission D. as they are particularly important to the year-end closing process Which statement defines a Type 1 subsequent event? A. An event that provides evidence of conditions that arose after the date of the financial statements B. An event that provides evidence of unreported earnings that arose after the date of the financial statements. C. An event that provides evidence of conditions that existed at the date of the financial statements. A Type I event requires an adjustment to the financial statements. D. An event that provides evidence of conditions that did not exist at the date of the financial statements. A Type I event requires an adjustment to the financial statements. A Type Il subsequent event A. provides evidence of conditions that arose after the date of the financial statements B. provides evidence of conditions that arose before the date of the financial statements C. provides evidence of conditions that arose after the date of the auditor's report D. provides evidence of conditions that arose before the date of the auditor's report Define subsequent events. A. Events occurring between the date of the financial statements and the date of the auditor's report. B. Events that provide evidence of conditions that arose after the date of the auditor's report. C. Events that provide evidence of conditions that arose after the date of the financial statements. D. Events that never require an adjustment to the financial statements but may require disclosure in the notes to the financial statements. Final analytical procedures are intended A. to corroborate audit evidence obtained during the audit only B. to corroborate audit evidence obtained during the audit, and to confirm the financial statements are consistent with the auditor's revised expectations based on evidence evaluated during the audit C to refute audit evidence obtained during the audit, and to confirm the financial statements are consistent with the auditor's revised expectations based on evidence evaluated during the audit D. to corroborate audit evidence obtained during the audit, and to confirm the financial statements are inconsistent with the auditor's revised expectations based on evidence evaluated during the audit. 25. At the conclusion of the audit, A. auditors typically revaluate materiality decisions made during the audit to ensure it is still appropriate based on the results of audit procedures B. auditors typically attempt to contact the prior auditor C. auditors may attempt to contact the client's legal counsel D. auditors ask management for recommendations on any needed adjustments to the accounts An audit strategy can take A. a reliance on procedures approach, a substantive app B. a reliance on controls approach, a subst C. neither a reliance on controls appr D. an approach whereby only internal control is audited es approach, a substantive approach, or a combination of both ontrols approach, a substantive approach, or a combination of both er a reliance on controls approach, nor a substantive approach uditors have completed testing controls and drawn a conclusion about control risk, - A. they make decisions about the nature and timing of substantive testing B. they are ready to issue the audit opinion c. they make decisions about the nature, timing, and extent of substantive testing D. they should withdraw if control risk is assessed as high - An auditor mailing positive confirmations is an example of A. a compilation engagement B. a review engagement C. a substantive procedure D. a test of internal control Assertions about account balances at year-end typically include A. existence, completeness, and allocation B. existence, completeness, and rights and obligations C. existence, occurrence, and cutoff D. accuracy, valuation, and occurrence Assertions about presentation and disclosure typically include_ A. completeness, accuracy and valuation, and classification and understandability B. existence, rights and obligations, and cutoff C. cutoff, presentation, and disclosure D. cutoff, accuracy, and valuation If significant fraud risk exists, the auditors should A. respond by including elements of predictability in their audit plan B. respond by including elements of unpredictability in their audit plan C. plan to place greater reliance on the internal audit function D. be able to place greater reliance on management assertions Auditors will have more confidence in internal controls and audit evidence generated internally - A. with a client that maintains an effective control environment B. with a client that maintains a poor control environment C. if the controls are centralized and controlled by one department D. if the audit evidence is received from one department of function only After auditors have assessed control risk, A. they are in a good position to evaluate the risk of fraud B. the audit is ready to be finalized and the audit opinion issued C. the findings should be submitted to management for review and approval D. the findings should be referred to the internal audit function for investigation When analytical procedures are used to obtain audit evidence during the risk response phase, A. they are referred to as "substantive analytical procedures." B. they are referred to as tests of internal control C. the audit report is ready to be issued D. management should be allowed to select the procedures and tests 10. The nature of an audit procedure refers to A. its purpose (test of controls or substantive procedure) and its type B. its extent (test of controls or substantive procedure) and its type C. its timing (test of controls or substantive procedure) and its type D. its timing (test of controls only) and its type 11. Examples of substantive procedures include A. observation B. inquiry C. confirmation D. All of these answer choices are correct. 12. The most important factor when responding to assessed risks is A consideration of the nature of the audit procedure B. consideration of the nature of the associated internal control C. the opinion of management regarding the assessed risk D. the opinion of the internal auditor regarding the assessed risk 13. A dual-purpose test A involves the auditors designing a test of controls and a substantive test of details to be performed at the same time on different transactions Ives the auditors designing a test of controls and a substantive test of details to be performed at the same time on the same transaction C. involves satisfying informational requests from management and the client's legal counsel simultaneously D. involves the auditor being able to bill the client for two tests when only one was performed 14. Examples of initial procedures that an auditor may perform include A. trace beginning balances to working papers from the prior year's audit B. scan the transactions in the account for unusual items C. obtain a trial balance or other detailed report for the account D. All of these answer choices are correct. 15. The use of analytical procedures A. is optional during risk assessment B. is prohibited during risk assessment C. is required during risk assessment D. is most effective as part of the testing of the system of internal control The cutoff assertion for sales means A. that transactions have been recorded in the proper accounting period B. that the auditor should check to make sure sales are being shipped to the correct client customers C. that transactions are being recorded in the correct accounts D. that sales should be limited to certain clients who may not have the ability to pay Auditors should carefully consider which of the following assertions for loss contingencies? A. Existence B. Presentation and disclosure C. Completeness D. Rights and obligations 18 If management determines the loss contingency is probable and an amount can be reasonably estimated, then the company A. must record a liability and a related expense or loss, and disclose the relevant details of the event in the notes to the financial statements B. must record an asset and a related expense or loss, and disclose the relevant details of the event in the notes to the financial statements C. must record a liability and a related depreciation expense or loss, and disclose the relevant details of the event in the notes to the financial statements D. should include a note in the notes to the financial statements but need not record an entry in accounting journals Which of the following defines a legal letter? A. An audit inquiry sent to a client's external and in-house legal counsel to obtain information about litigation, assessments, and claims. B. A letter comprising the auditor's report that is required by generally accepted auditing standards or is included at the auditor's discretion. nquiry and analytical procedures to provide limited assurance that no material modifications should be made to the financial statements. D. An engagement in which a CPA applies accounting and financial expertise to assist management in the presentation of financial statements. 20. Auditors should be alert to subsequent events A. that may occur between the date of the financial statements and the date of the auditor's report B. that may occur between the date of the auditor's report and the next balance sheet date C. and report all immaterial findings to the Securities and Exchange Commission D. as they are particularly important to the year-end closing process Which statement defines a Type 1 subsequent event? A. An event that provides evidence of conditions that arose after the date of the financial statements B. An event that provides evidence of unreported earnings that arose after the date of the financial statements. C. An event that provides evidence of conditions that existed at the date of the financial statements. A Type I event requires an adjustment to the financial statements. D. An event that provides evidence of conditions that did not exist at the date of the financial statements. A Type I event requires an adjustment to the financial statements. A Type Il subsequent event A. provides evidence of conditions that arose after the date of the financial statements B. provides evidence of conditions that arose before the date of the financial statements C. provides evidence of conditions that arose after the date of the auditor's report D. provides evidence of conditions that arose before the date of the auditor's report Define subsequent events. A. Events occurring between the date of the financial statements and the date of the auditor's report. B. Events that provide evidence of conditions that arose after the date of the auditor's report. C. Events that provide evidence of conditions that arose after the date of the financial statements. D. Events that never require an adjustment to the financial statements but may require disclosure in the notes to the financial statements. Final analytical procedures are intended A. to corroborate audit evidence obtained during the audit only B. to corroborate audit evidence obtained during the audit, and to confirm the financial statements are consistent with the auditor's revised expectations based on evidence evaluated during the audit C to refute audit evidence obtained during the audit, and to confirm the financial statements are consistent with the auditor's revised expectations based on evidence evaluated during the audit D. to corroborate audit evidence obtained during the audit, and to confirm the financial statements are inconsistent with the auditor's revised expectations based on evidence evaluated during the audit. 25. At the conclusion of the audit, A. auditors typically revaluate materiality decisions made during the audit to ensure it is still appropriate based on the results of audit procedures B. auditors typically attempt to contact the prior auditor C. auditors may attempt to contact the client's legal counsel D. auditors ask management for recommendations on any needed adjustments to the accounts