Question 1

The corporate minutes are the official record of the meetings of the board of directors and stockholders. The minutes typically include authorizations related to:

Accepted Answer

The answer of The corporate minutes are the official record...

Question 2

Which of the following ratios is best used to assess a company's ability to meet its long- term debt obligations?
A) Debt to equity.
B) Return on common equity.
C) Quick ratio.
D) Current ratio.

Accepted Answer

The debt to equity ratio is best used to assess a company's ability to meet its long-term debt obligations as it compares the company's total liabilities to its shareholder equity, providing insight into the company's leverage and financial health in terms of long-term debt management.

Question 3

Which of the following would not usually be included in the minutes of the board of directors?
A) Approval of executive bonuses.
B) The duties and powers of the corporate officers.
C) Declaration of dividends.
D) Authorization of long- term loans.

Accepted Answer

The duties and powers of the corporate officers are typically outlined in the corporation's bylaws or governance documents, not in the minutes of the board of directors. The minutes usually record decisions made and actions taken during the meeting, such as approval of executive bonuses, declaration of dividends, and authorization of long-term loans.

Question 4

Whenever an auditor compares client data to client- prepared budgets, there are two special concerns. Indicate if the two items below are concerns.

Accepted Answer

The answer of Whenever an auditor compares client data to...

Question 5

Which is usually included in an engagement letter?

Accepted Answer

The answer of Which is usually included in an engagement...

Question 6

Which is usually included in an engagement letter?

Accepted Answer

The answer of Which is usually included in an engagement...

Question 7

Which is usually included in an engagement letter?

Accepted Answer

The answer of Which is usually included in an engagement...

Question 8

Which is usually included in the engagement letter?

Accepted Answer

The answer of Which is usually included in the engagement...

Question 9

Which is usually included in the engagement letter?

Accepted Answer

The answer of Which is usually included in the engagement...

Question 10

Discuss the required communications between predecessor and successor auditors as outlined by ISA 300.

Accepted Answer

The answer of Discuss the required communications between predecessor and...

Question 11

Before accepting a new client, most audit firms investigate the company to determine its acceptability. However, confidentiality requirements prohibit audit firms from contacting certain parties-such as the company's attorneys and bankers-during this investigation.

Accepted Answer

Audit firms often perform due diligence before accepting a new client, which includes contacting third parties such as the company's attorneys and bankers, usually with the client's permission, to gather relevant information and assess risk.

Question 12

Auditors should obtain copies of the client's corporate charter (articles of incorporation), bylaws, and minutes of the meetings of the board of directors to help their understanding of the company's management and governance structure.

Accepted Answer

These documents provide crucial information about the company's legal and organizational structure, governance policies, and significant decisions affecting financial reporting, which are essential for auditors to understand the company's operations and to assess the risk of material misstatement in the financial statements.

Question 13

Ordinarily, the auditor should review and abstract copies of contracts during the later stages of an audit.

Accepted Answer

The auditor should review and abstract copies of contracts during the earlier stages of an audit to understand the entity's commitments and potential liabilities, which can significantly impact the financial statements.

Question 14

Two categories of audit- relevant information found in corporate charters and bylaws (memorandum and articles of association) are authorizations and discussions of matters affecting inherent risk.

Accepted Answer

The answer of Two categories of audit- relevant information found...

Question 15

If the omission or misstatement of information, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users of financial statements, then that information is, by definition of ISA 320:
A) insignificant.
B) material.
C) relevant.
D) significant.

Accepted Answer

According to ISA 320, information is considered "material" if its omission or misstatement could reasonably be expected to influence the economic decisions of users made on the basis of the financial statements.

Question 16

The FASB definition of materiality emphasizes what class of financial statement users?
A) Informed investors.
B) Potential investors.
C) Regulators.
D) Reasonable persons.

Accepted Answer

The FASB (Financial Accounting Standards Board) definition of materiality emphasizes the perspective of "reasonable persons." This approach is based on the idea that information is material if omitting it or misstating it could influence the decisions of users of financial statements, who are considered to be reasonable in their expectations and actions.

Question 17

Auditors are ________ to decide on the combined amount of misstatements in the financial statements that they would consider material early in the audit.
A) permitted
B) required
C) strongly encouraged
D) not allowed

Accepted Answer

Auditors are required to decide on the combined amount of misstatements in the financial statements that they would consider material early in the audit to ensure that the financial statements give a true and fair view of the company's financial position.

Question 18

After the preliminary judgment about materiality has been established, auditors may:
A) adjust it downward only.
B) adjust it either downward or upward.
C) not adjust it.
D) adjust it upward only.

Accepted Answer

Auditors may adjust their preliminary judgment about materiality either downward or upward as they gather more information during the audit process. This flexibility allows them to respond to new evidence or changes in circumstances.

Question 19

In an audit area that has a lower inherent risk, it would be prudent to:
A) expand planning procedures.
B) increase the tolerable misstatement for the area.
C) assign more experienced staff to that area.
D) increase the amount of audit evidence gathered.

Accepted Answer

In areas with lower inherent risk, auditors can accept a higher level of tolerable misstatement because the likelihood of a significant error or fraud is lower. This approach allows auditors to allocate resources more efficiently to areas of higher risk.

Question 20

Which of the following is least likely to be appropriate as the basis for determining the preliminary judgment about materiality in the audit of financial statements?
A) Owners' equity.
B) Current assets.
C) Net income before taxes.
D) Inventory.

Accepted Answer

Inventory is a specific account and not a broad measure of financial performance or position, making it less appropriate for determining overall materiality.

Quiz 3: Audit Evidence, Audit Planning, Analytical Procedures, Materiality and Risk

The corporate minutes are the official record of the meetings of the board of directors and stockholders. The minutes typically include authorizations related to:

Which of the following ratios is best used to assess a company's ability to meet its long- term debt obligations?

Which of the following would not usually be included in the minutes of the board of directors?

Whenever an auditor compares client data to client- prepared budgets, there are two special concerns. Indicate if the two items below are concerns.

Which is usually included in an engagement letter?

Which is usually included in an engagement letter?

Which is usually included in an engagement letter?

Which is usually included in the engagement letter?

Which is usually included in the engagement letter?

Discuss the required communications between predecessor and successor auditors as outlined by ISA 300.

Before accepting a new client, most audit firms investigate the company to determine its acceptability. However, confidentiality requirements prohibit audit firms from contacting certain parties-such as the company's attorneys and bankers-during this investigation.

Auditors should obtain copies of the client's corporate charter (articles of incorporation), bylaws, and minutes of the meetings of the board of directors to help their understanding of the company's management and governance structure.

Ordinarily, the auditor should review and abstract copies of contracts during the later stages of an audit.

Two categories of audit- relevant information found in corporate charters and bylaws (memorandum and articles of association) are authorizations and discussions of matters affecting inherent risk.

If the omission or misstatement of information, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users of financial statements, then that information is, by definition of ISA 320:

The FASB definition of materiality emphasizes what class of financial statement users?

Auditors are ________ to decide on the combined amount of misstatements in the financial statements that they would consider material early in the audit.

After the preliminary judgment about materiality has been established, auditors may:

In an audit area that has a lower inherent risk, it would be prudent to:

Which of the following is least likely to be appropriate as the basis for determining the preliminary judgment about materiality in the audit of financial statements?