ACC 421 EXAM 2 2025 QUESTIONS AND
ANSWERS
For all audits of financial statements made in accordance with auditing standards, the use of
analytical procedures is required to some extent - ANS In the planning stage and the
completion stage
Which of the following situations has the best chance of being detected when a CPA compares
2019 revenues and expenses with the prior year and investigates all changes exceeding a fixed
percent? - ANS The company changed its capitalization policy for small tools in 2019.
Which of the following would not be considered to be an analytical procedure? -
ANS Projecting the error rate by comparing the results of a statistical sample with the actual
population characteristics
Analytical procedures used in planning the audit should focus on - ANS Areas that may
represent specific risks relevant to the audit
Which of the following is the most important step in analytical procedures - ANS Expectation
formulation (for account balance or item)
Which of the following parts of analytical procedures does not need documentation during the
audit? - ANS Evaluation
Analytical procedures used in planning an audit should focus on identifying - ANS areas that
may represent specific risks relevant to the audit.
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,Which of the following will most likely indicate the existence of related parties? -
ANS Borrowing money at a rate significantly below the market rate
Which of the following is least likely to be included in the auditor's engagement letter? -
ANS Details about the preliminary audit strategy
When 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 whether -
ANS the engagement should be accepted.
A successor would most likely make specific inquiries of the predecessor auditor regarding -
ANS disagreements with management as to auditing procedures.
Which of the following circumstances would most likely pose the greatest risk in accepting a
new audit engagement? - ANS There will be a client-imposed scope limitation.
Which one of the following statements is correct concerning the concept of materiality? -
ANS Materiality is a matter of professional judgment.
In considering materiality for planning purposes, an auditor believes that misstatements
aggregating $10,000 will have a material effect on an entity's income statement, but that
misstatements will have to aggregate $20,000 to materially affect the balance sheet. Ordinarily,
it is appropriate to design audit procedures that are expected to detect misstatements that
aggregate - ANS $10,000.
A client decides not to record an auditor's proposed adjustments that collectively are not
material and wants the auditor to issue the report based on the unadjusted numbers. Which of
the following statements is correct regarding the financial statement presentation? -
ANS The financial statements are free from material misstatement, and no disclosure is
required in the notes to the financial statements.
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, In which of the following circumstances would an auditor of an issuer be least likely to
reevaluate established materiality levels? - ANS The client released third-quarter results
before the SEC-prescribed deadline.
Which of the following procedures would a CPA least likely perform during the planning stage
of the audit? - ANS Perform inquiries of outside legal counsel regarding pending litigation
A successor auditor's inquiries of the predecessor auditor should include questions regarding -
ANS communications to management and those charged with governance regarding
significant deficiencies in internal control.
Which of the following is the main reason for audit planning - ANS to obtain sufficient
appropriate evidence for the circumstances, to help keep audit costs reasonable, to avoid
misunderstanding with the client
Which of the following is NOT part of accepting the client and performing initial audit planning -
ANS Non of the following: understanding with the client, determining needs for outside
specialist, identify clients reason for audit, take competent staff for the engagement
When the auditor engages with a new client, he should communicate with the previous auditor.
Who should initiate the communication? - ANS Successor auditor
Who writes to the predecessor auditor for communication? - ANS the company's
management
What matters should successor inquire from the predecessor? - ANS Integrity of
management, disagreement with management as to accounting principles, auditing
procedures, or other similarly significant matters, reasons for change of auditors
the auditors use specialists when they do not have enough time to finish the audit by the due
date - ANS false
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ANSWERS
For all audits of financial statements made in accordance with auditing standards, the use of
analytical procedures is required to some extent - ANS In the planning stage and the
completion stage
Which of the following situations has the best chance of being detected when a CPA compares
2019 revenues and expenses with the prior year and investigates all changes exceeding a fixed
percent? - ANS The company changed its capitalization policy for small tools in 2019.
Which of the following would not be considered to be an analytical procedure? -
ANS Projecting the error rate by comparing the results of a statistical sample with the actual
population characteristics
Analytical procedures used in planning the audit should focus on - ANS Areas that may
represent specific risks relevant to the audit
Which of the following is the most important step in analytical procedures - ANS Expectation
formulation (for account balance or item)
Which of the following parts of analytical procedures does not need documentation during the
audit? - ANS Evaluation
Analytical procedures used in planning an audit should focus on identifying - ANS areas that
may represent specific risks relevant to the audit.
1 Copyright ©BRIGHSTARS ALL RIGHTS RESERVED 2025
,Which of the following will most likely indicate the existence of related parties? -
ANS Borrowing money at a rate significantly below the market rate
Which of the following is least likely to be included in the auditor's engagement letter? -
ANS Details about the preliminary audit strategy
When 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 whether -
ANS the engagement should be accepted.
A successor would most likely make specific inquiries of the predecessor auditor regarding -
ANS disagreements with management as to auditing procedures.
Which of the following circumstances would most likely pose the greatest risk in accepting a
new audit engagement? - ANS There will be a client-imposed scope limitation.
Which one of the following statements is correct concerning the concept of materiality? -
ANS Materiality is a matter of professional judgment.
In considering materiality for planning purposes, an auditor believes that misstatements
aggregating $10,000 will have a material effect on an entity's income statement, but that
misstatements will have to aggregate $20,000 to materially affect the balance sheet. Ordinarily,
it is appropriate to design audit procedures that are expected to detect misstatements that
aggregate - ANS $10,000.
A client decides not to record an auditor's proposed adjustments that collectively are not
material and wants the auditor to issue the report based on the unadjusted numbers. Which of
the following statements is correct regarding the financial statement presentation? -
ANS The financial statements are free from material misstatement, and no disclosure is
required in the notes to the financial statements.
2 Copyright ©BRIGHSTARS ALL RIGHTS RESERVED 2025
, In which of the following circumstances would an auditor of an issuer be least likely to
reevaluate established materiality levels? - ANS The client released third-quarter results
before the SEC-prescribed deadline.
Which of the following procedures would a CPA least likely perform during the planning stage
of the audit? - ANS Perform inquiries of outside legal counsel regarding pending litigation
A successor auditor's inquiries of the predecessor auditor should include questions regarding -
ANS communications to management and those charged with governance regarding
significant deficiencies in internal control.
Which of the following is the main reason for audit planning - ANS to obtain sufficient
appropriate evidence for the circumstances, to help keep audit costs reasonable, to avoid
misunderstanding with the client
Which of the following is NOT part of accepting the client and performing initial audit planning -
ANS Non of the following: understanding with the client, determining needs for outside
specialist, identify clients reason for audit, take competent staff for the engagement
When the auditor engages with a new client, he should communicate with the previous auditor.
Who should initiate the communication? - ANS Successor auditor
Who writes to the predecessor auditor for communication? - ANS the company's
management
What matters should successor inquire from the predecessor? - ANS Integrity of
management, disagreement with management as to accounting principles, auditing
procedures, or other similarly significant matters, reasons for change of auditors
the auditors use specialists when they do not have enough time to finish the audit by the due
date - ANS false
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