TF.

When an auditor decides there is higher inherent risk for an account, one potential
effect is that more audit evidence will be required for that account.
A) True
B) False - (correct answer)A. True


As acceptable audit risk is decreased, the likely cost of conducting an audit increases.
A) True
B) False - (correct answer)A. True


Obtaining sufficient appropriate evidence is essential if the CPA firm is to minimize legal
liability.
A) True
B) False - (correct answer)A. True


A 100% audit risk is complete certainty.
A) True
B) False - (correct answer)B. False


Before accepting a new client, most CPA firms investigate the company to determine its
acceptability. However, AICPA confidentiality requirements prohibit CPA firms from
contacting certain parties--namely the company's attorneys and bankers--during this
investigation.
A) True
B) False - (correct answer)B. False


For prospective clients that have previously been audited by another CPA firm, the
predecessor auditor is required to communicate with the successor auditor.
A) True

,B) False - (correct answer)B. False


When a successor auditor contacts a company's previous auditor, the predecessor
auditor is required to respond fully and without limit to the request for information.
A) True
B) False - (correct answer)B. False


A predecessor auditor who has been contacted by a successor auditor for information
about the client does not have to obtain permission from the former client before
providing any confidential information to the successor auditor because the
confidentiality requirement does not extend to former clients.
A) True
B) False - (correct answer)B. False


An auditor must evaluate a specialist's professional qualifications and understand the
objectives of the specialist's work.
A) True
B) False - (correct answer)A. True


Because of audit risk, some CPA firms now refuse any new clients in certain high-risk
industries.
A) True
B) False - (correct answer)A. True


An engagement letter establishes a clear understanding of the terms of the engagement
between the client and the auditor, but it is optional for private companies
A) True
B) False - (correct answer)A. True

, Because of the requirements of Rule 201 of the AICPA's Code of Professional Conduct
which state that auditors should "undertake only those professional services that the
member or the member's firm can reasonably expect to be completed with professional
competence," auditors are not normally permitted to consult with, or rely on the work of,
outside specialists during an audit engagement.
A) True
B) False - (correct answer)B. False


If a prospective client has been audited in the past, the successor auditor will typically
rely solely on the representations about the client by the predecessor auditor.
A) True
B) False - (correct answer)B. False


A major consideration in audit staffing is the need for continuity from year to year.
A) True
B) False - (correct answer)A. True


When a successor auditor requests information from a company's previous auditor, and
there are legal problems or disputes between the client and the predecessor auditor, the
predecessor auditor's response to the new auditor may be limited to stating that no
information will be provided. A) True
B) False - (correct answer)A. True


An engagement letter can affect the CPA firm's legal responsibilities to the client, but
does not affect responsibility to external users of audited financial statements.
A) True
B) False - (correct answer)A. True


Auditors should obtain copies of the client's code of ethics and minutes of the meetings
of the board of directors to aid in their understanding of the company's management
and governance structure.