LO 3-1 to 3-2
LO 3-2
LO 3-3 to 3-4
LO 3-4
LO 3-5 to 3-6
100
When initiating communications with predecessor auditors, prospective auditors should expect: a) To take responsibility for obtaining the client's consent for predecessor to give information about prior audits b) To conduct interviews with the partner and manager in charge of the predecessor public accounting firm's engagement c) To obtain copies of some or all of the predecessor auditors' audit documentation d) all of the above
d) all of the above are expected
100
When auditing Vandalay Jewelry, Costanza, CPA was not familiar with the quality and cut of hte company's precious jewel inventory. To address this shortcoming, Costanza hired Benes, an expert in jewel valuation, to assist in the inventory valuation. Should Costanza refer to Benes's work in the audit report? a) Yes, auditors' report should mention the fact that a specialist was used b) The auditors' report should mention the use of the specialist only when the specialists' findings affect the auditors' conclusions c) The use of specialist need not be mentioned if the auditors decide not to take responsibility for the specialists' findings d) The auditors report should mention the specialist only if Vandalay agrees with the specialists' findings
b) The use of a specialist should only be mentioned when it affects conclusions
100
Which of the following is not a benefit claimed for the practice of determining materiality in the initial planning stage of an audit: a) Being able to fine-tune the audit work for effectiveness and efficiency b) Avoiding the problem of doing more work than necessary (overauditing) c) Being able to decide early what type of audit opinion to issue d) avoiding the problem of doing too little work (underauditing)
c) being able to decide early what type of audit opinion to issue
100
The revenue cycle of a company generally includes which accounts: a) Inventory, Accts. Payable, and general expenses bb) Inventory, general expenses, and payroll c) Cash, Accts. Receivable, and sales d) Cash, notes payable, and capital stock
c) Cash, AR, Sales
100
DAILY DOUBLE: worth double points (200) What is a lead schedule, and how is it used in an audit?
A lead schedule is a summary of the accounts in or components of an account group. It is used by the audit team to show adjustments from the unaudited financial statements to the audited ones. This document will include tickmarks to reference to further documentation explaining the adjustments, and to show where the ending totals go (the TB)
200
Prior to accepting a new audit engagement, a public accounting firm should a) Attempt to contact the predecessor audits b) Evaluate the integrity of management c) Assess the firm's resources to ensure that they are sufficient to permit them to accept the engagement d) all of the above
D) all of the above
200
Which of the following engagement planning procedures would most likely assist the auditor in identifying related-party transactions before the balance-sheet date? a) Interviewing internal auditors about their reporting responsibilities b) Reviewing accounting records for recurring transactions occurring near year-end c) Inspecting communications with the client's legal counsel regarding recorded contingent liabilities d) Scanning the minutes for significant transactions with members of the board of directors
d) Scanning the minutes will help identify transactions with parties relating to the client
200
With respect to the concept of materiality, which one of the following statements is correct a) Materiality depends only on the dollar amount of an item relative to other items in the financial statements b) Materiality depends on the nature of a transaction rather than the dollar amount of the transaction c) Materiality is determined by reference to AICPA guidelines d) Materiality is a matter of professional judgment
d) Materiality is a matter of professional judgment
200
Confirmations of accounts receivable provide evidence primarily about which two assertions a) Completeness and valuation b) Valuation and rights and obligations c) Existence and rights and obligations d) existence and completeness
c) Existence and rights/obligations
200
Audit documentation that shows the detailed evidence and procedures regarding the balance in the accumulated depreciation account for the year under audit will be found in the a) Current file audit documentation b) Permanent file audit documentation c) Administrative audit documentation in the current file d) Planning memorandum in the current file
a) Evidence bears on the year under audit
300
GAAS requires that auditors always prepare and use: a) A written planning memorandum explaining the auditors' understanding of the client's business b) A written client consent to discuss audit matters with prospective auditors c) A written audit plan d) The written time budgets and schedules for performing each audit
c) a written audit plan
300
Which of the following communications is most likely to be written before the balance-sheet date? a) A report to the audit committee on the results of testing of internal control over cash receipts b) Confirmation letters to vendors confirming amounts they owe to the client c) An attorney's letter regarding contingent liabilities d) An engagement letter
d) An engagement letter
300
An audit plan contains: a) specifications of audit standards relevant to the financial statements being audited b) specifications of procedures the auditors believe appropriate for the financial statements under audit c) Documentation of the assertions under audit, the evidence obtained, and the conclusions reached d) Reconciliation of the account balances in the financial statements with the account balances in the client's general ledger
b) Specifications of procedures the auditors believe appropriate for the financial statements under audit
300
WILD CARD What is the name of the cannon fired after touchdowns at Kyle Field, scored by the Aggies?
Spirit of '02 Cannon
300
An auditor's permanent file audit documentation most likely will contain a) internal control analysis for the current year b) the most recent engagement letter c) memoranda of conference with management d) excerpts of the corporate charter and bylaws
d) excerpts of the corporate charter and bylaws
400
When planning an audit, which of the following is not a factor that affects auditors' decisions about the quantity, type, and content of audit documentation: a) Auditors' need to document compliance with GAAS b) Existence of new sales contracts important for the client's business c) Auditors' judgment about their independence with regard to the client d) Auditors' judgment about materiality
c) independence is important but usually documented in the working papers
400
Which of the following procedures would most likely be performed during planning? a) Surprise counts of the client's petty cash fund b) Reporting internal control deficiencies to the audit committee c) Performing a search for unrecorded liabilities d) Identifying related parties
d) Identification of related parties is important to the planning stage of an audit
400
DAILY DOUBLE: Double point value awarded for this question (800) Name four methods for obtaining audit evidence
Inspection of tangible assets Inspection of records or documents (tracing OR vouching) Confirmation Reperformance Analytical procedures Inquiry
400
When evaluating whether accounting estimates made by management are reasonable, the audit team would be most interested in which of the following a) Key factors that are consistent with prior periods b) Assumptions that are similar to industry guidelines c) Measurements that are objective and not susceptible to bias d) Evidence of a conservative systematic bias
d) Evidence of a systematic bias, whether aggressive or conservative, would be of most concern to the audit team.
400
Spreadsheet software would be most useful for which of the following audit activities a) Testing internal controls over computerized accounting applications b) Preparing an audit plan c) Preparing a comparison of current-year expenses with those from teh previous year d) Drafting a planning memorandum
c) Preparing a comparison of current-year expenses with those from the previous year
500
An audit engagement letter should normally include which of the following matters of agreement between the auditor and the client? a) Schedules and analyses to be prepared by the client's employees b) Methods of statistical sampling the auditor will use c) Specification of litigation in progress against the client d) Client representations about the availability of all minutes of meetings with the board of directors
a) Client cooperation should be specified
500
DAIlLY DOUBLE: Answer this question correctly for double point value List some items normally documented in a planning memorandum.
preliminary analytical procedures materiality assessment significant industry or company risks assessed level of control risk utilization of internal auditors scheduling of work periods, meetings, and completion dates
500
When auditing the existence assertion for an asset, auditors proceed from the a) financial statement amounts back to the potentially unrecorded items b) potentially unrecorded items forward to the financial statement amounts c) general ledger back to the supporting original transaction documents d) supporting original transaction documents to the general ledger
c) general ledger back to supporting original transaction documents
500
DAILY DOUBLE: Worth double points (1000) When are analytical procedures required during an audit?
Professional standards require that analytic procedures be used during planning and during final evaluation stages of the audit; analytical procedures are optional for use as a substantive audit procedure.
500
BONUS: Answer this correctly for a chance at a second question for another 500 points Which of the following is an advantage of computer-assisted audit techniques (CAATs)? a) The CAATs programs are all written in one computer language b) The software can be used for audits of clients that use differing computer equipment and file formats c) The use of CAATs has reduced the need for the auditors to study input controls for computer-related procedures d) The use of CAATs can be substituted for a relatively large part of the required testing
b) CAATs can be transported to various clients having various systems.
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