ACCT 3222 Ch. 3 Questions with Correct
Answers
Client Acceptance or Continuance Decision
What is the first stage of any audit?
1. Integrity of Management
2. Competence Issues
3. Independence Issues
What are the three main factors that influence client acceptance and retention?
Integrity of Management
Positive Factors:
- Management shows integrity in business and accounting decisions
- Management places a premium on representational faithfulness of accounting information
Negative Factors:
- Concerns exist about the integrity of management in business and accounting decisions
- Management is preoccupied with meeting specific accounting numbers
Competence Issues
Positive Factors
- The firm has expertise to perform services requested by the client or has access to
specialists that can meet client needs
Negative Factors
- The firm does not have expertise needed to provide the full scope of services requested by
the client, or does not have affiliation with specialists to meet client needs
Independence Issues
,Positive Factors
- No independence problems exist, or independence problems can be resolved prior to client
acceptance
Negative Factors
- Independence and client of interest issues exist that cannot be resolved prior to client
acceptance
Previous Auditors
When there is an opportunity for a new client, the auditors have to communicate with the
________ ________
Integrity, Management, Disagreements, Fraud, Noncompliance, Internal Control,
Change of Auditors, Relationships
Inquiries of the predecessor auditor may be oral or written and should include:
- Information that might bear on the ________ of ________
- _________ of management about accounting policies, auditing procedures, or other
significant matters
- Communications to those charged with governance regarding ________ and _________
with laws or regulations by the entity
- Communications to management and those charged with governance regarding significant
deficiencies and material weaknesses in ________ ________
- The predecessor auditor's understanding about the reasons for the _______ _______
_________
- The predecessor auditor's understanding of the nature of the entity's _________ and
transactions with related parties and significant unusual transactions
The Client
, To be able to speak with the previous auditor, the new firm needs permission from whom to
do so?
Engagement Letter
The final stage of the client acceptance or continuance decision process involves the
preparation of an ________ _______ . This is prepared by the auditor and acknowledged by a
client before the audit begins. It is a contract between an auditor and the client
Objective of Engagement, Auditor's Responsibilities, Management's Responsibilities,
Limitations, Fees/Timing, and Other Matters
What are the six matters that must be discussed in an engagement letter?
Objective, Engagement
The _________ of the ________ is to express an opinion on financial statements
Auditor's
The _________ responsibilities are to conduct the audit according to standards
(PCAOB/ASB)
Management's
__________ responsibilities are to prepare the financial statements in accordance with
GAAP, provide access to all documentation and client personnel, and to provide internal
controls
Reasonable Assurnace
The limitations in the engagement letter state that the auditor's opinion is going to have
__________ ________
Risk Assessment Phase, Risk Response Phase, and Reporting Phase
Answers
Client Acceptance or Continuance Decision
What is the first stage of any audit?
1. Integrity of Management
2. Competence Issues
3. Independence Issues
What are the three main factors that influence client acceptance and retention?
Integrity of Management
Positive Factors:
- Management shows integrity in business and accounting decisions
- Management places a premium on representational faithfulness of accounting information
Negative Factors:
- Concerns exist about the integrity of management in business and accounting decisions
- Management is preoccupied with meeting specific accounting numbers
Competence Issues
Positive Factors
- The firm has expertise to perform services requested by the client or has access to
specialists that can meet client needs
Negative Factors
- The firm does not have expertise needed to provide the full scope of services requested by
the client, or does not have affiliation with specialists to meet client needs
Independence Issues
,Positive Factors
- No independence problems exist, or independence problems can be resolved prior to client
acceptance
Negative Factors
- Independence and client of interest issues exist that cannot be resolved prior to client
acceptance
Previous Auditors
When there is an opportunity for a new client, the auditors have to communicate with the
________ ________
Integrity, Management, Disagreements, Fraud, Noncompliance, Internal Control,
Change of Auditors, Relationships
Inquiries of the predecessor auditor may be oral or written and should include:
- Information that might bear on the ________ of ________
- _________ of management about accounting policies, auditing procedures, or other
significant matters
- Communications to those charged with governance regarding ________ and _________
with laws or regulations by the entity
- Communications to management and those charged with governance regarding significant
deficiencies and material weaknesses in ________ ________
- The predecessor auditor's understanding about the reasons for the _______ _______
_________
- The predecessor auditor's understanding of the nature of the entity's _________ and
transactions with related parties and significant unusual transactions
The Client
, To be able to speak with the previous auditor, the new firm needs permission from whom to
do so?
Engagement Letter
The final stage of the client acceptance or continuance decision process involves the
preparation of an ________ _______ . This is prepared by the auditor and acknowledged by a
client before the audit begins. It is a contract between an auditor and the client
Objective of Engagement, Auditor's Responsibilities, Management's Responsibilities,
Limitations, Fees/Timing, and Other Matters
What are the six matters that must be discussed in an engagement letter?
Objective, Engagement
The _________ of the ________ is to express an opinion on financial statements
Auditor's
The _________ responsibilities are to conduct the audit according to standards
(PCAOB/ASB)
Management's
__________ responsibilities are to prepare the financial statements in accordance with
GAAP, provide access to all documentation and client personnel, and to provide internal
controls
Reasonable Assurnace
The limitations in the engagement letter state that the auditor's opinion is going to have
__________ ________
Risk Assessment Phase, Risk Response Phase, and Reporting Phase
