Auditing and Assurance Services Test 1
UPDATED ACTUAL Exam Questions and
CORRECT Answers
Acceptable Audit Risk - CORRECT ANSWER - a measure of how willing the auditor is
to accept that the
financial statements may be materially misstated after the audit is completed and an unqualified
opinion has been issued
Audit Strategy - CORRECT ANSWER - overall approach to the audit that considers the
nature of the client, risk of significant misstatements, and other factors such as the number of
client locations and past effectiveness of client controls
Budgets - CORRECT ANSWER - written records of the client's expectations for the
period; a comparison of budgets with actual results may indicate
whether or not misstatements are likely
Client Business Risk - CORRECT ANSWER - the risk that the client will fail to achieve
its objectives related to (1) reliability of financial reporting, (2) effectiveness and efficiency of
operations, and (3) compliance with laws and regulations
Corporate Minutes - CORRECT ANSWER - the official record of the meetings of a
corporation's board
of directors and stockholders, in which corporate issues such as the declaration of dividends and
the approval of contracts are documented
Engagement Letter - CORRECT ANSWER - an agreement between the CPA firm and the
client as to the terms of the engagement for the conduct of the audit and related services
, Inherent Risk - CORRECT ANSWER - a measure of the auditor's assessment of the
likelihood that there are material misstatements in a segment before considering the effectiveness
of internal control
Initial Audit Planning - CORRECT ANSWER - involves deciding whether to accept or
continue doing
the audit for the client, identifying the client's reasons for the audit, obtaining an engagement
letter, and developing an audit strategy
Related Party - CORRECT ANSWER - affiliated company, principal owner of the client
company,
or any other party with which the client deals, where one of the parties can influence the
management or operating
policies of the other
Related Party Trasnsaction - CORRECT ANSWER - any transaction between the client
and a related party
Analytical Procedures - CORRECT ANSWER - evaluations of financial information
through analysis
of plausible relationships among financial and nonfinancial data
Appropriateness of Evidence - CORRECT ANSWER - a measure of the quality of
evidence; appropriate
evidence is relevant and reliable in meeting audit objectives for classes of transactions, account
balances, and related disclosures
Audit Documentation - CORRECT ANSWER - record of the audit procedures performed,
relevant audit
evidence, and conclusions the auditor reached
UPDATED ACTUAL Exam Questions and
CORRECT Answers
Acceptable Audit Risk - CORRECT ANSWER - a measure of how willing the auditor is
to accept that the
financial statements may be materially misstated after the audit is completed and an unqualified
opinion has been issued
Audit Strategy - CORRECT ANSWER - overall approach to the audit that considers the
nature of the client, risk of significant misstatements, and other factors such as the number of
client locations and past effectiveness of client controls
Budgets - CORRECT ANSWER - written records of the client's expectations for the
period; a comparison of budgets with actual results may indicate
whether or not misstatements are likely
Client Business Risk - CORRECT ANSWER - the risk that the client will fail to achieve
its objectives related to (1) reliability of financial reporting, (2) effectiveness and efficiency of
operations, and (3) compliance with laws and regulations
Corporate Minutes - CORRECT ANSWER - the official record of the meetings of a
corporation's board
of directors and stockholders, in which corporate issues such as the declaration of dividends and
the approval of contracts are documented
Engagement Letter - CORRECT ANSWER - an agreement between the CPA firm and the
client as to the terms of the engagement for the conduct of the audit and related services
, Inherent Risk - CORRECT ANSWER - a measure of the auditor's assessment of the
likelihood that there are material misstatements in a segment before considering the effectiveness
of internal control
Initial Audit Planning - CORRECT ANSWER - involves deciding whether to accept or
continue doing
the audit for the client, identifying the client's reasons for the audit, obtaining an engagement
letter, and developing an audit strategy
Related Party - CORRECT ANSWER - affiliated company, principal owner of the client
company,
or any other party with which the client deals, where one of the parties can influence the
management or operating
policies of the other
Related Party Trasnsaction - CORRECT ANSWER - any transaction between the client
and a related party
Analytical Procedures - CORRECT ANSWER - evaluations of financial information
through analysis
of plausible relationships among financial and nonfinancial data
Appropriateness of Evidence - CORRECT ANSWER - a measure of the quality of
evidence; appropriate
evidence is relevant and reliable in meeting audit objectives for classes of transactions, account
balances, and related disclosures
Audit Documentation - CORRECT ANSWER - record of the audit procedures performed,
relevant audit
evidence, and conclusions the auditor reached
