Question 7 of 45

The first phase in an audit is ________________.

Client acceptance or client continuance.

Understanding internal controls.

Testing of account balances.

Understanding the client.

None of these answers are correct.

Question 8 of 45

Which of the following statements is false?

A company that ships a large quantity of its products from its manufacturing plant to a warehouse that it leases until the customer is ready for the product should record the delivery as revenue.

Touring a company's plant offers much insight into potential audit issues.

The purpose of the auditor's consideration of the effectiveness of internal controls is to determine the nature, extent and timing of substantive testing.

An appropriate mix of evidence for a low risk client could include 20% tests of details, 40% analytics, and 40% tests of controls; an appropriate mix of evidence for a high risk client could include 60% tests of details, 20% analytics, and 20% tests of controls.

When business risk is low, the auditor does not have a high concern about the ability of the organization to operate efficiently.

Question 9 of 45

If _________________________, this would indicate that fraud is pervasive throughout the company under audit.

The company's management drives luxury vehicles and takes vacations to exotic places.

All of these would indicate that fraud is pervasive.

The company's management estimates bad debts using an aged accounts receivables ledger rather than as a percent of sales.

The company's management negotiates deals with vendors in such a manner as to pay lower prices.

The company's management takes an overly aggressive approach to revenue recognition.

Question 10 of 45

If the audit client experiences a(an) _____________________, then the auditor would consider this to be an indication of a potential going-concern problem?

None of these answers are correct

loss of the controller to a competitor

adverse key financial ratios

improper reporting of internal controls by management

large increase to sales in the month previous to year-end