Question 1

Which of the following should an auditor obtain from the predecessor auditor prior to accepting an audit engagement?

Accepted Answer

The auditor should obtain facts that might bear on management integrity from the predecessor auditor to assess the risk of accepting the engagement.

Question 2

In assessing whether to accept a client for an audit engagement, a CPA should consider:

Accepted Answer

When deciding whether to accept a client for an audit engagement, a CPA must consider the current financial health of the prospective client, the integrity of management, and the overall engagement risk. Therefore, all of these choices are correct.

Question 3

All companies must have an audit committee.

Accepted Answer

Not all companies are required to have an audit committee. The requirement for an audit committee depends on the regulations of the country in which the company is based, its size, and whether it is publicly traded or privately held. For example, publicly traded companies in the United States are required to have an audit committee under the Sarbanes-Oxley Act, but smaller private companies may not have the same requirement.

Question 4

If the prospective client refuses to allow the predecessor auditor to communicate with the successor auditor, the successor auditor should have reservations about accepting the client.

Accepted Answer

The communication between predecessor and successor auditor is important for successor auditor to have a clear understanding of the client's accounting records and financial statements. If the prospective client refuses to allow such communication, it may indicate possible conflicts or issues that the successor auditor should be cautious of before accepting the engagement.

Question 5

If the internal audit function is competent and objective, the auditor may generally rely on the work of an internal audit function in certain areas to reduce the amount of external audit work in these areas.

Accepted Answer

According to auditing standards, if the internal audit function is competent and objective, the external auditor may rely on their work in certain areas to reduce the amount of external audit work needed in these areas. This is known as "relying on the work of others" and can be a useful tool in efficiently conducting an audit. However, the external auditor is still ultimately responsible for the overall audit opinion and must exercise professional judgment in determining the extent to which they can rely on the work of others.

Question 6

There are five general types of audit tests.

Accepted Answer

The answer of There are five general types of audit...

Question 7

Hawkins requested permission to communicate with the predecessor auditor and review certain portions of the predecessor auditor's working papers. The prospective client's refusal to permit this will bear directly on Hawkins' decision concerning the:

Accepted Answer

The refusal to allow a prospective auditor to communicate with the predecessor auditor or review certain portions of the predecessor auditor's working papers can raise concerns about the integrity of management. This refusal may suggest that management is not transparent or is possibly hiding information, which is a significant red flag for auditors assessing whether to take on a new client.

Question 8

An auditor who discovers that a client's employees paid small bribes to municipal officials most likely would withdraw from the engagement if:

Accepted Answer

The auditor would most likely withdraw from the engagement if management fails to take the appropriate remedial action upon discovering illegal acts such as bribery. This is because the failure of management to address illegal acts reflects poorly on the integrity of the management and the reliability of the financial statements, which are crucial for the auditor's assessment.

Question 9

When the prospective client has previously been audited, auditing standards require that the successor auditor make certain inquiries of the predecessor auditor before accepting the engagement.

Accepted Answer

According to auditing standards, the successor auditor is required to make certain inquiries of the predecessor auditor before accepting the engagement when the prospective client has been audited previously. This is to gain a better understanding of potential risks, issues or problems that may have arisen in the previous audit and to assess the suitability of accepting the engagement. Therefore, the statement is true.

Question 10

The external auditor is required to make a number of important communications to the audit committee during or at the end of the audit engagement.

Accepted Answer

The external auditor is required to make important communications to the audit committee during or at the end of the audit engagement. This is to ensure that the audit committee is aware of any significant issues or findings that may impact the financial statements or the company's internal controls. These communications may include matters such as significant accounting policies, audit adjustments, disagreements with management, and significant audit findings.

Question 11

The first phase of audit planning is risk assessment.

Accepted Answer

The answer of The first phase of audit planning is...

Question 12

Materiality is based only on a quantitative analysis of the financial statements.

Accepted Answer

Materiality is not based solely on a quantitative analysis of the financial statements. Other factors, such as the nature of the item, the context within which it occurs, and the size of the organization, must also be considered.

Question 13

The engagement partner is typically responsible for doing the detailed audit testing.

Accepted Answer

The engagement partner is responsible for overall management and supervision of the audit, but the detailed audit testing is typically performed by the audit team, which includes staff and senior auditors.

Question 14

The audit committee is directly responsible for the appointment, compensation, and oversight of the work of any accounting firm employed by a public company.

Accepted Answer

This statement is true as per the Securities and Exchange Commission (SEC) rules. The audit committee must select and oversee the work of the accounting firm that conducts the external audit of the company's financial statements.

Question 15

With few exceptions, the Code of Professional Conduct does not allow an auditor to disclose confidential client information without the client's consent.

Accepted Answer

The Code of Professional Conduct requires auditors to maintain confidentiality of client information and prohibits them from disclosing it without the client's consent, except in a few specified circumstances.

Question 16

In order to properly preplan the audit, the auditor must determine the engagement team requirements and ensure the independence of the audit team and audit firm.

Accepted Answer

This statement is true. Preplanning the audit involves determining the necessary resources for the engagement team and ensuring that the team and firm are independent and unbiased. This is necessary to ensure that the audit is conducted objectively and professionally.

Question 17

When a CPA is approached to perform an audit for the first time, the CPA should make inquiries of the predecessor auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determining:

Accepted Answer

When a CPA is approached to perform an audit for the first time, it is important to make inquiries of the predecessor auditor to determine whether the engagement should be accepted. The predecessor may provide information about the client's integrity, disagreements, or any issues with their accounting policies or practices that may assist the successor in making a decision about whether to accept the engagement or not. Options A-C may be important, but they are not the main purpose of making inquiries of the predecessor auditor.

Question 18

Evaluating a prospective client requires which of the following steps?

Accepted Answer

Communicating with the predecessor auditor is a crucial step in evaluating a prospective client to understand any issues or concerns from previous audits.

Question 19

Materiality significantly impacts the auditor's decisions about how much and what kind of evidence to gather.

Accepted Answer

Materiality is a key factor in determining the amount and type of evidence that should be obtained during an audit. An auditor should focus on gathering sufficient, appropriate evidence to support their opinion on the financial statements and consider the materiality level when making decisions about the scope of their procedures.

Question 20

Which of the following factors most likely would cause a CPA not to accept a new audit engagement?

Accepted Answer

The prospective client's unwillingness to permit inquiry of its legal counsel is a significant limitation on the scope of the audit, which could prevent the CPA from obtaining sufficient appropriate audit evidence.

Quiz 3: Audit Planning, Types of Audit Tests, and Materiality