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First Auditing Multiple Choice Questions
1. Which of the following factors most likely would cause a CPA to not accept a new audit engagement?
a. The prospective client has already completed its physical inventory count
b. The CPA lacks an understanding of the prospective client’s operations and industry
c. The CPA is unable the review the predecessor auditor’s working papers
d. The prospective client is unwilling to make all financial records available to the CPA.
2. The primary purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to
a. Enable the CPA firm to attest to the reliability of the client
b. Satisfy the CPA firm’s duty to the public concerning the acceptance of new clients. Which of the following most likely would be the result of ineffective internal control policies
c. Minimize the likelihood of association with clients whose management lacks integrity
d. Anticipate before performing any field work whether an unqualified opinion can be expressed.
3. Which of the following procedures would an auditor most likely include in the planning phase of a financial statement audit?
a. Obtain an understanding of the entity’s risk assessment process
b. Identify specific internal control activities designed to prevent fraud
c. Evaluate the reasonableness of the entity’s accounting estimates
d. Perform cutoff tests of the entity’s sales and purchases.
4. A successor auditor most likely would make specific inquiries of the predecessor auditor regarding
a. Specialized accounting principles of the client’s industry
b. The competency of the client’s internal audit staff
c. The uncertainty inherent in applying sampling procedures
d. Disagreements with management as to auditing procedures
5. In developing a preliminary audit strategy, an auditor should consider
a. Whether the allowance for sampling risk exceeds the achieved upper precision limit
b. Findings from substantive tests performed at interim dates
c. Whether the inquiry of the client’s attorney identifies any litigation, claims, or assessments not disclosed in the financial statements.
d. The planned assessed level of control risk.
6. Which of the following statements is not correct about materiality?
a. The concept of materiality recognizes that some matters are important for fair presentation of financial statements in accordance with GAAP, while other matters are not important
b. An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements
c. An auditor’s consideration of materiality is influences by the auditor’s perception of the needs of a reasonable person who will rely on the financial statements
d. Materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative judgments.
7. The audit program usually cannot be finalized until the
a. Consideration of the entity’s internal control has been completed
b. Engagement letter has been signed by the auditor and the client
c. Search for unrecorded liabilities has been performed and documented
d. reportable conditions have been communicated to the audit committee of the board of directors.
8. Because an audit in accordance with generally accepted auditing standards is influenced by the possibility of material misstatements, the auditor should conduct the audit with and attitude of
a. Objective judgment
b. Conservative advocacy
c. Professional responsiveness
d. Professional skepticism
9. Management’s attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely would significantly influence an entity’s control environment when
a. External policies established by parties outside the entity affect its accounting practices
b. Management is dominated by one individual who is also a shareholder
c. Internal auditors have direct access to the board of directors and the entity’s management
d. The audit committee is active in overseeing the entity’s financial reporting policies.
10.Which of the following auditor concerns most likely could be so serious that the auditor concludes that a financial statement audit cannot be conducted?
a. The entity has no formal written code of conduct
b. The integrity of the entity’s management is suspect
c. Procedures requiring segregation of duties are subject to management override
d. Management fails to modify prescribed controls for changes in condition.