Which of the following activities would be most helpful to a CPA in deciding whether to accept a new audit client quizlet?

In performing interviews and examining documents related to preliminary work in a financial statement audit of a nonissuer, an auditor identifies a business risk associated with plans for a new product line. What should the auditor do as a result?

A. Modify the scope of the engagement to include an analysis of the budget for the new product line and consider the new risk in conjunction with other risks after the budget items have been analyzed.

B. Analyze the newly identified risk in conjunction with economic circumstances related exclusively to the new product line and consider whether there is an immediate consequence for the risk of material misstatement for affected classes of transactions.

C. Modify the financial statement disclosures to include the newly identified risk if it is likely that the new product line will have an adverse effect on the company's profitability.

D. Analyze the newly identified risk in conjunction with other known business risks and consider whether there is an immediate consequence for the risk of material misstatement at various levels of the audit.

Which of the following is not a primary responsibility of an auditor:

Provide regulators with an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.
Provide creditors with an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.
Provide management with an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.
Provide investors with an opinion by the auditor on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.

An auditor's document includes the following statement:

"Our engagement cannot be relied upon to identify or disclose any financial statement misstatements, including those caused by error or fraud, or to identify or disclose any wrongdoing within the entity or noncompliance with laws and regulations. However, we will inform the appropriate level of management of any material errors and any evidence or information that comes to our attention during the performance of our review procedures that indicates fraud may have occurred."

The above passage is most likely from

For the fiscal year ending December 31 of the previous year and for the current year, Justin Co. has net sales of $1,000,000 and $2,000,000; average gross receivables of $100,000 and $300,000; and an allowance for uncollectible accounts receivable of $30,000 and $50,000, respectively. If the accounts receivable turnover and the ratio of allowance for uncollectible accounts receivable to gross accounts receivable are calculated, which of the following best represents the conclusions to be drawn?

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Which of the following factors does a CPA ordinarily consider in the planning stage of an audit engagement?

Financial statement accounts likely to contain a misstatement.
Conditions that require extension of audit tests.

A.I only.
B.Neither I nor II.
C.II only.
D.Both I and II.

D

Which of the following activities would be most helpful to a CPA in deciding whether to accept a new audit client?

A.Reviewing industry benchmarking data.
B.Evaluating the most recent peer review of the client's previous auditor.
C.Considering the client's compensation methods.
D.Evaluating the CPA's ability to properly service the client.

D

Which of the following is an auditor least likely to perform in planning a financial statement audit?

A.Discussing matters that may affect the audit with firm personnel responsible for non-audit services to the entity.
B.Selecting a sample of vendors' invoices for comparison with receiving reports.
C.Coordinating the assistance of entity personnel in data preparation.
D.Reading the current year's interim financial statements.

B

Upon discovering material misstatements in a client's financial statements that the client would not revise, a predecessor auditor withdrew from the engagement. If asked by the auditor about the termination of the engagement, the predecessor auditor should

A.Suggest that the auditor ask the client.
B.Suggest that the auditor obtain the client's permission to discuss the reasons.
C.State that (s)he found material misstatements that the client would not revise.
D.Indicate that a misunderstanding occurred.

B

When expressing an unmodified opinion, the auditor who evaluates the audit findings should determine whether

A.The amount of identified misstatement is documented in the management representation letter.
B.Uncorrected misstatements are material.
C.The amount of identified misstatement is acknowledged and recorded by the client.
D.Estimates of total misstatement include the amounts of adjusting entries already recorded by the client.

B

An auditor is required to establish an understanding with a client regarding the services to be performed for each engagement. For an auditor of a nonissuer, this understanding generally includes

A.The auditor's responsibility for ensuring that management and those charged with governance are aware of any significant deficiencies or material weaknesses in control that come to the auditor's attention.
B.Management's responsibility for identifying mitigating factors when the auditor has doubt about the entity's ability to continue as a going concern.
C.Management's responsibility for providing the auditor with an assessment of the risks of material misstatement due to fraud.
D.The auditor's responsibility for determining the preliminary judgments about materiality and audit risk factors.

A

Which of the following is correct regarding the communication between successor and predecessor auditors?

A.The client should be present during the communications between the predecessor auditor and the successor auditor.
B.The successor and predecessor auditors should communicate with each other in writing regarding potential problems.
C.The successor auditor should request permission from the prospective client to make an inquiry of the predecessor auditor.
D.The successor auditor should contact the predecessor auditor prior to proposing an audit engagement.

C

Before accepting an engagement to audit a new client, an auditor is required to

A.Make inquiries of the predecessor auditor after obtaining the consent of the prospective client.
B.Obtain the prospective client's signature to the engagement letter.
C.Discuss the management representation letter with the prospective client's audit committee.
D.Prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan.

A

Madison Corporation has a few large accounts receivable that total $1,000,000. Nassau Corporation has a great number of small accounts receivable that also total $1,000,000. The importance of a misstatement in any one account is therefore greater for Madison than for Nassau. This is an example of the auditor's concept of

A.Materiality.
B.Reasonable assurance.
C.Audit risk.
D.Comparative analysis.

A

Which of the following conditions most likely would pose the greatest risk in accepting a new audit engagement?

A.Staff will need to be rescheduled to cover this new client.
B.There will be a client-imposed scope limitation.
C.The client's financial reporting system has been in place for 10 years.
D.The firm will have to hire a specialist in one audit area.

B

Which of the following statements about materiality is most likely to be true?

A.Materiality requires that relatively more time be directed to those areas that are more susceptible to fraud.
B.Materiality at the assertion level is larger than for the financial statements as a whole.
C.Performance materiality is less than materiality for the financial statements as a whole.
D.Materiality is measured according to specific AICPA standards.

C

The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the

A.Audit has been performed by persons having appropriate competence and capabilities.
B.Auditor's system of quality control has been maintained at a high level.
C.Results are consistent with the conclusions to be presented in the auditor's report.
D.Audit procedures performed are approved in the professional standards.

C

Which of the following is an effective audit planning and control procedure that helps prevent misunderstandings and inefficient use of audit personnel?

A.Arrange to have the auditor prepare and post any necessary adjusting or reclassification entries prior to final closing.
B.Make copies of those client supporting documents examined by the auditor for inclusion in the audit documentation.
C.Arrange a preliminary conference with the client to discuss audit objectives, fees, timing, and other information.
D.Provide the client with copies of the audit plans to be used during the audit.

C

Financial statement audit plans usually should be developed

A.After obtaining an understanding of the information and communication and control activities components of internal control.
B.Prior to performing risk assessment procedures.
C.When the engagement letter is prepared.
D.After the auditor has established the overall audit strategy.

D

Analytical procedures are required for which of the following?

A.Client retention decision.
B.Tests of balances.
C.Audit planning.
D.Internal control evaluation.

C

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