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1. Which of the following factors most likely would cause a CPA not to accept a new audit engagement? 1 point Management reputation for failing to provide schedules to prior auditors on a timely basis. The CPA's inability to review the predecessor auditor's working papers. Management's unwillingness to make all financial records available to the CPA. The CPA's lack of understanding of the entity's operations and industry 2. Which of the following statements would most likely appear in an auditor's engagement letter? 1 point Management is responsible for reporting to us any inadequate provisions for the safeguarding of assets. We will identify internal controls relevant to specific assertions that may prevent or detect material misstatements. Management agrees to correct all deficiencies in internal control activities identified by us. Management is responsible for making all financial records and related information available to us 3. The understanding with the client regarding a financial statement audit generally includes which of the following matters? 1 point The expected opinion to be issued. The responsibilities of the auditor The contingency fee structure. The preliminary judgment about materiality. 4. Which of the following statements is correct regarding detection risk and the audit risk model? 1 point The two components of detection risk are test of details risk and inherent risk. Detection risk is equal to risk of material misstatement divided by audit risk. There is an inverse relationship between the risk of material misstatement and detection risk. There is a direct relationship between control risk and detection risk. 5. In order to respond to the increased risks that could be present in the initial audit (means auditing for first time) of an entity, an external auditor should consider the assignment of 1 point Internal audit personnel with appropriate levels of capabilities and competence Accounting personnel with appropriate levels of capabilities and competence Senior management with appropriate levels of capabilities and competence External audit personnel with appropriate levels of capabilities and competence. 6. What are the quality control elements of a CA or CPA firm? 1 point Human resources Ethical requirements Acceptance and continuance of a client Leadership responsibilities for quality Monitoring Engagement performance all of the above None 7. In a financial statement audit, inherent risk is evaluated to help an auditor assess which of the following? 1 point The internal audit department's objectivity in reporting a material misstatement of a financial statement assertion it detects to the audit committee. The risk that the internal control system will not detect a material misstatement of a financial statement assertion. The risk that the audit procedures implemented will not detect a material misstatement of a financial statement assertion The susceptibility of a financial statement assertion to a material misstatement assuming there are no related controls Before accepting an audit engagement, a FCA should evaluate whether conditions exist that raise questions as to the integrity of management. Which of the following conditions most likely would raise such questions? 1 point There are significant differences between the entity's forecasted financial statements and the financial statements to be audited The FCA will not be permitted to have access to sensitive information regarding the salaries of senior There have been substantial inventory write-offs just before the year end in each of the past four years. The FCA becomes aware of the existence of related party transactions while reading the draft financial statements. 8. Which of the following services need independence? (multiple answer 5 points Audit Review Financial statement and tax preparation Examination Agreed upon procedure Consulting Employed by entity = management. 9. Which special case do not need independence but lack of independence need disclosure? (one word as answer) 4 points Your answer 10. Choose the correct statement(s), if any, regarding fraud risk factor(s) from the following: 1 point Needlessly complex transactions present an opportunity for fraud. Ineffective oversight by those charged with governance provides an incentive for fraud. Stock options that expire soon after the release of financial statements present an opportunity for fraud. 11. The ultimate purpose of assessing inherent risk is to contribute to the auditor's evaluation of the 1 point Factors that raise doubts about the show of the financial statements (3%) Operating effectiveness of internal control policies and procedures. (7%) Risk that material misstatements exist in the financial statements. (59%) Risk that a material misstatement in the financial statements will not be detected by the audit.( 12. Which of the following is an element of a auditing firm's quality control policies and procedures applicable to their accounting and auditing practice? 1 point Engagement Performance risk analysis safeguarding of assets information processing 13. An auditor wants to ensure that it associates only with potential clients whose management has integrity. To achieve this, the auditor should 1 point Communicate with a potential client's predecessor auditor. Perform risk assessment procedures to determine the audit risk. Ensure that a representation letter is signed by management Refuse to accept a client who has been issued an adverse opinion in the last three years 14. The ultimate purpose of assessing control risk is to contribute to the auditor's evaluation of the risk that 1 point Specific internal control activities are not operating as designed The collective effect of the control environment may not achieve the control objectives. Tests of controls may fail to identify activities relevant to assertions. Material misstatements may exist in the financial statements = assertion. 15. In a financial statement audit, inherent risk is evaluated to help an auditor assess which of the following? The internal audit department's objectivity in reporting a material misstatement of a financial statement assertion it detects to the audit committee. The risk that the internal control system will not detect a material misstatement of a financial statement The risk that the audit procedures implemented will not detect a material misstatement of a financial The susceptibility of a financial statement assertion to a material misstatement assuming there are no related controls. 16. Each of the following statements regarding fraud is correct, except: 1 point Professional skepticism is applied by auditors to recognize fraud risks Materiality is not a factor in deciding whether the auditor will communicate about a fraud. Fraud results from either intentional or unintentional acts. Weak internal controls provide an opportunity for fraud. 17. What can an auditor do before it's client's year end closing or balance sheet date?( multiple answer) 4 points Knowledge of internal control and business environment Other risk assessment procedure Certain substantive testing (ex, sales, expense testing) Cut off testing all of the above none 18. What can an auditor do after it's client's year end closing or balance sheet date? ( multiple answer) 4 points Knowledge of internal control and business environment Other risk assessment procedure Certain substantive testing (ex, sales, expense te testing) Cut off testing Evaluate going concern Verify lien and collateral Send legal letter 19. In a financial statement audit, inherent risk is evaluated to help an auditor assess which of the following? The internal audit department's objectivity in reporting a material misstatement of a financial statement assertion it detects to the audit committee The risk that the internal control system will not detect a material misstatement of a financial statement The risk that the audit procedures implemented will not detect a material misstatement of a financial statement assertion The susceptibility of a financial statement assertion to a material misstatement assuming there are no related controls. 20. An auditor determines that due to accounting errors, both a company's expenses and revenues are materially understated, each by approximately the same amount. What is the auditor's most likely course of action in response to these findings? 1 point Document these findings but take no further action because net income will still be correct. Suggest adjusting entries to correct the understated expenses only. Suggest adjusting entries to correct both the understated expenses and understated revenues. Report the possible fraud scheme to the audit committee. 21. During the initial planning phase of an audit, an auditor most likely would 1 point Identify specific internal control activities that are likely to prevent fraud. Evaluate the reasonableness of the client's accounting estimates. Discuss the timing of the audit procedures with the client's management, Inquire of the client's attorney as to whether any unrecorded claims are probable of assertion 22. Which of the following circumstances would an auditor most likely consider a risk factor relating to misstatements arising from fraudulent financial reporting? 1 point Several members of management have recently purchased additional shares of the entity's stock. Several members of the board of directors have recently sold shares of the entity's stock. The entity distributes financial forecasts to financial analysts that predict conservative operating results. Management is interested in maintaining the entity's earnings trend by using aggressive accounting practices 23. A successor auditor is required to attempt communication with the predecessor auditor prior to 1 point Making a proposal for the audit engagement Accepting the audit engagement 24. A prospective client's legal and ethical standards defined by following terms (multiple answers) 3 points Auditor independence Engagement does not violate laws or code Communicate with previous auditor Assess client's reputation No scope limitation Management tone at the top Adequate training, skills and experience Firm's staffing resources Reasonable deadline 25. A prospective client's Integrity of the client defined by following terms (multiple answers) 5 points Auditor independence Engagement does not violate laws or code Communicate with previous auditor Assess client's reputation No scope limitation Management tone at the top Adequate training, skills and experience Firm's staffing resources Reasonable deadline 25. A prospective client's capabilities of the firm is defined by 3 points Auditor independence Engagement does not violate laws or code Communicate with previous auditor Assess client's reputation No scope limitation Management tone at the top Adequate training, skills and experience Firm's staffing resources Reasonable deadline