Question 1

The reliance on client internal audit personnel on the audit is:

Accepted Answer

The reliance on client internal audit personnel is acceptable if the external auditor reviews and tests their work to ensure its adequacy for the audit's purposes. This approach allows the auditor to assess the reliability of the internal audit function and use their work as part of the audit evidence, provided it meets the necessary audit standards.

Question 2

In the investigation of a potential new client, if the client refuses to give permission to inquire of the existing auditor, or if the existing auditor does not respond fully, the prospective auditor should:

Accepted Answer

B

Question 3

Which of these would not be part of a typical audit team?

Accepted Answer

Internal auditors are not typically part of an external audit team. They work within an organization to assess and improve its systems of internal control and corporate governance, whereas external audit teams, consisting of audit partners, managers, and seniors, are independent of the organization being audited.

Question 4

In accepting an engagement, an auditor takes on professional responsibilities to:

Accepted Answer

An auditor has professional responsibilities towards the public, ensuring the integrity and reliability of financial information, towards the client, by providing accurate and honest audit services, and towards other members of the profession, by upholding standards and ethics, thus maintaining the profession's reputation.

Question 5

The auditor should regularly evaluate clients in respect of specified events to determine whether to continue the relationship. Which of the following is not a specified event that should prompt an evaluation?

Accepted Answer

A change in the audit partner is a normal part of audit firm rotation practices and does not necessarily prompt an evaluation of the client relationship. The other options (A, B, D) are events that could significantly affect the client-auditor relationship and thus warrant re-evaluation.

Question 6

The initial phase of a financial statement audit involves the acceptance decision for the client in question. Which of the following is not a consideration during this phase of the audit:

Accepted Answer

Determining the existence of related parties is typically not part of the initial client acceptance decision phase of an audit. It is a consideration that usually comes later in the audit process, during the planning or execution phases, when auditors assess risks and gather evidence.

Question 7

Which of these is not an example of an expert as defined by ASA 620 (ISA 620)?

Accepted Answer

According to ASA 620 (ISA 620), an expert is an individual or organization possessing special skill, knowledge, and experience in a particular field other than accounting and auditing. Internal auditors, while they may possess specialized knowledge, are considered part of the entity's internal control and audit function, rather than external experts in the context of this standard. Actuaries and appraisers, on the other hand, are typical examples of external experts engaged or used by the auditor to assist in obtaining sufficient appropriate audit evidence.

Question 8

Setting materiality levels, assessing audit risk and its components and obtaining an understanding of the internal control structure are all part of which audit stage?

Accepted Answer

These activities are part of the audit planning stage, where auditors prepare for the audit by setting objectives, assessing risks, and understanding the client's internal controls to design their audit approach.

Question 9

When assessing the industry conditions of a client, which of the following would not normally be assessed?

Accepted Answer

Economy-wide factors are broader and affect all industries, not just the specific industry of the client.

Question 10

In assessing independence, an audit firm may do which of the following?

Accepted Answer

All of the options listed are actions an audit firm may take to assess its independence in relation to a prospective client. Declining an engagement due to a lack of independence, circulating the name of a prospective client to identify any conflicting relationships, and completing a professional independence questionnaire are all measures to ensure the firm maintains the necessary independence for an audit.

Question 11

Which of the following is not normally found in the audit engagement letter?

Accepted Answer

The audit engagement letter typically includes elements such as a disclaimer on detecting all material irregularities (A), the objective or purpose of the audit (B), and a space for the client's approving signature (C). The use of binding arbitration in the case of a dispute (D) is not a standard component of an audit engagement letter, as the letter focuses on the scope and nature of the audit services to be provided rather than on dispute resolution mechanisms.

Question 12

A common fee structure for audit engagements is:

Accepted Answer

A fixed fee from a tendering process is a common fee structure for audit engagements, as it provides a clear and agreed-upon cost for the services to be rendered.

Question 13

In the investigation of a potential new client, besides inquiring of the existing auditor, the prospective auditor should make inquires of other third parties. Which of the following is least likely to be included in this inquiry?

Accepted Answer

Customers are least likely to be included in the inquiry by a prospective auditor investigating a new client because the auditor's focus is typically on understanding the client's financial, legal, and operational status from a business and regulatory perspective, which is more directly informed by legal advisers, bankers, and business associations like the chamber of commerce.

Question 14

Which of the following is not a consideration in the planning phase of the audit?

Accepted Answer

Assessing competence to perform the audit is a consideration before accepting the audit engagement, not specifically in the planning phase. The planning phase focuses on understanding the entity, assessing risks, and determining materiality, among other tasks.

Question 15

The main purpose of the audit engagement letter is to:

Accepted Answer

The main purpose of the audit engagement letter is to confirm the terms of the engagement, including the scope of the audit, the objectives, the responsibilities of both the auditor and the client, and other significant matters.

Question 16

Which of these is not an ethical consideration for the auditor in deciding whether to accept an audit engagement?

Accepted Answer

Identifying intended users of the audited financial statements is not an ethical consideration for the auditor in deciding whether to accept an audit engagement. Ethical considerations typically involve evaluating circumstances that could compromise independence, assessing competence, and ensuring the ability to perform the audit with due care. Identifying users of the financial statements is more related to understanding the engagement's scope and purpose rather than an ethical consideration.

Question 17

Which of these steps in planning the audit is out of sequence?

Accepted Answer

Understanding the entity's internal control structure typically comes after obtaining an understanding of the entity and its environment, making preliminary judgments about materiality, and considering audit risk.

Question 18

Before accepting an engagement, the auditor should identify special circumstances and unusual risks. Which of these conditions is not directly part of a review of such a circumstance or risk?

Accepted Answer

The answer of Before accepting an engagement, the auditor should...

Question 19

All of the following are ways in which an auditor can assess the integrity of management except:

Accepted Answer

Arranging a police search on the police confidential database is not a standard or ethical method for an auditor to assess the integrity of management. It violates privacy laws and professional auditing standards. Other options like making enquiries of third parties, communicating with the previous auditor, and considering previous experience with the client's management are legitimate ways to assess management's integrity.

Question 20

Concerning errors, irregularities and illegal acts, the auditor should plan the audit with an attitude of:

Accepted Answer

Professional scepticism involves the auditor having a questioning mind and a critical assessment of audit evidence. It does not imply the auditor should approach the audit with mistrust or pessimism, nor should they act as if they are adversaries of the client.

Quiz 8: Client Evaluation and Planning the Audit