Auditing Practice Exam 98 Questions with Verified Answers,100% CORRECT

Auditing Practice Exam 98 Questions with Verified Answers 1) An accountant: A) must possess expertise in the accumulation of audit evidence. B) must decide the number and types of items to test. C) must have an understanding of the principles and rules that provide the basis for preparing the accounting information. D) must be a CPA. - CORRECT ANSWER C The two major factors affecting acceptable audit risk are: A) inherent risk and the intended uses of the financial statements B) control risk and intended uses of the financial statements C) the likely statement users and the intended uses of the statements D) the audit firm and the intended uses of the statements - CORRECT ANSWER C An engagement letter sent to a publicly held audit client usually would NOT include a: A) reference to the auditor's responsibility for the detection of errors or irregularities B) estimation of the time to be spent on the audit staff and management C) statement that management advisory services would be made available upon request D) reference to management's responsibility for the financial statements - CORRECT ANSWER C The preliminary audit strategy: A) is set before the auditor understands the client's reasons for the audit B) guides the development of the audit plan C) is determined after the engagement staffing is set D) is the detailed steps to be followed for the substantive audit tests - CORRECT ANSWER B If an auditor is requested to perform non-audit services for a public company audit client, who is responsible for agreeing to those services with the audit firm? A) the client's management B) the client's chief executive officer C) the client's chief financial officer D) the client's audit committee - CORRECT ANSWER D Which of the following statements is true regarding communications between predecessor and successor auditors? A) the burden of initiating the communication rests with the predecessor B) the predecessor's response can be limited to stating that no information will be provided C) the predecessor should communicate with the successor only if the client is public D) the predecessor auditor of a public company does not need permission from the client before communicating with the successor audit - CORRECT ANSWER B The purpose of an engagement letter is to: A) document the CPA's firm responsibility to external users of the audited financial statements B) document the terms of the engagement C) notify the audit staff of an upcoming engagement so that personnel scheduling can be facilitated D) emphasize management's responsibility for approving the audit program - CORRECT ANSWER B Most auditors assess inherent risk as high for related parties and related-party transactions because: A) of the unique classification of related-party transactions required on the balance sheet B) of the lack of independence between the parties C) of the unique classification of related-party transactions required on the income statement D) it is required by generally accepted accounting principles - CORRECT ANSWER B The audit team gathers information about a new client's business and industry in order to obtain: A) an understanding of clients internal control system for financial reporting B) an understanding of how economic events and transactions have an effect on the company's financial statement C) information about control risk D) information regarding whether the company is engaging in financial statement fraud - CORRECT ANSWER B The auditor determines that Mathews Company occupies the 3rd floor of an office tower for which it pays no rent. The most likely explanation is: A) they got lucky the landlord hasn't noticed the lack of payments B) the landlord has weak internal controls over billings C) a related party transaction in which a major shareholder owns the office tower D) Mathews Company is engaging in fraudulent activities - CORRECT ANSWER B During audit planning, the auditor uses analytical procedures primarily to: A) identify weaknesses in internal control B) determine if the company's financial statements appear reasonable and are free of material misstatement C) determine the correspondence of the company's financial statements to the valuation and accuracy audit objectives D) determine the nature, extent, and timing of audit procedures - CORRECT ANSWER D Which of the following is most correct with respect to analytical procedures? A) analytical procedures may be used in evaluating balances in the testing phase as long as the auditor also uses them in assessing the going concern assumption B) analytical procedures must be used throughout the audit C) analytical procedures used in the testing phase of the audit are primarily used to direct an auditor's attention so that the auditor's understanding of the business is improved D) analytical procedures are performed by studying plausible relationships between financial and non financial data - CORRECT ANSWER D Analytical procedures: A) are not a type of audit evidence B) are not required during the completion phase of audit C) performed during the planning phase of the audit are used as a substantive test in support of account balances D) performed in the completion phase serve as a final review for material misstatements or financial problems - CORRECT ANSWER D Why does the auditor divide the financial statements into smaller segments? A) using the cycle approach makes the audit more manageable B) most accounts have few relationships with others and so it is more efficient to break the financial statements into smaller pieces C) the cycle approach is used because auditing standards require it D) all of the above are correct - CORRECT ANSWER A Why does the auditor divide the financial statements into segments around the financial statement cycles? A) most auditors are trained to audit cycles as opposed to entire financial statements B) the approach aids in the assignment of tasks to different members of the audit team C) the cycle approach is required by auditing standards D) the cycle approach allows the auditor to detect illegal acts - CORRECT ANSWER B The most important general ledger account included in and affecting several cycles is the: A) cash account B) inventory account C) income tax expense and liability accounts D) retained earnings account - CORRECT ANSWER A When using the cycle approach to segmenting the audit, the reason for treating capital acquisition and repayment separately from the acquisition of goods and services is that: A) the transactions are related to financing a company rather than to its operations B) most capital acquisition and repayment cycle accounts involve few transactions, but each is often highly material and therefore should be audited extensively C) both A and B are correct D) neither A nor B is correct - CORRECT ANSWER C In describing the cycle approach to segmenting an audit, which of the following statements is NOT true? A) all general ledger accounts and journals are included at least once B) some journals and general ledger accounts are included in more than one cycle C) the "capital acquisition and repayment" cycle is closely related to the "acquisition of goods and services and repayment" cycle D) the "inventory and warehousing" cycle may be audited at any time during the engagement since it is unrelated to the other cycles - CORRECT ANSWER D The cycle approach to auditing: A) ties to the way transactions are recorded in journals and then summarized in the general ledger and financial statements B) cannot combine transactions recorded in different journals with the general ledger balances that result from those transactions C) is the only way of segmenting an audit D) assumes that each account has two or more cycles associated with it - CORRECT ANSWER A Management makes the following assertions about account balances A) existence, completeness, classification, and cutoff B) existence, accuracy, classification, and rights and obligations C) existence, completeness, valuation and allocation, and rights and obligations D) existence, completeness, rights and obligations, and cutoff - CORRECT ANSWER C Which of the following statements is true about the completeness and occurrence assertions? A) both assertions are relevant to classes of transactions and events and account balances B) if management asserts that recorded sales transactions represent exchanges of goods or services that actually took place, they are asserting completeness C) violations of the occurrence assertion relate to account overstatements D) the failure to record a sale that did occur is a violation of the occurrence assertion - CORRECT ANSWER C Which of the following assertions is described as "this assertion addresses whether all transactions that should be included in the financial statements are in fact included" A) occurrence B) completeness C) accuracy D) rights and obligations - CORRECT ANSWER B In testing for cutoff, the objective is to determine: A) whether all of the current period's transactions are recorded B) whether transactions are recorded in the correct accounting period C) the proper cutoff between capitalizing and expensing expenditures D) the proper cutoff between disclosing items in footnotes or in account balances - CORRECT ANSWER B The detail tie-in objective is not concerned that the details in the account balance: A) agree with related subsidiary ledger amounts B) are properly disclosed in accordance with GAAP C) foot to the total in the account balance D) agree with the total in the general ledger - CORRECT ANSWER B The detail tie-in part of the BLANK assertion for account balances A) classification B) valuation and allocation C) rights and obligations D) completeness - CORRECT ANSWER B The classification balance-related audit objective: A) involves determining if items included on a client's listing are included in the correct general ledger accounts B) is the counterpart to the management assertion of completeness C) involves determining if items included on a client's listing are disclosed properly in the financial statements D) involves tying in the account balances to the general ledger - CORRECT ANSWER A Which of the following best describes tests of details of balances? A) audit procedures designed to test for monetary misstatements in the accounts summarized in the financial statements B) audit procedures designed to test for monetary amounts of transactions C) audit procedures designed to test for reasonableness of account balances D) audit procedures designed to test for effectiveness in recording accounting information - CORRECT ANSWER A Which of the following statements is NOT true? A) balance-related audit objectives are applied to ending account balances B) transaction related audit objectives are applied to classes of transactions C) balance-related audit objectives are applied to the ending balance in balance sheet accounts D) balance-related audit objectives are applied to both beginning and ending balances in balance sheet accounts - CORRECT ANSWER D Which of the following management assertions is NOT associated with classes of transactions and events? A) occurence B) classification C) accuracy D) rights and obligations - CORRECT ANSWER D For privately held companies who is responsible for establishing auditing standards? A) SEC B) PCAOB C) Auditing Standards Board D) National Association of Accounting - CORRECT ANSWER C Standards issued by the Public Company Accounting Oversight Board must be followed by CPAs who audit A) both private and public companies B) public companies only C) private companies, public companies, and nonprofit entities D) private companies only - CORRECT ANSWER B The international standards on auditing (ISAs): A) are issued by the AICPA B) override a country's regulations governing the audit of a company C) has many of the same standards as the Auditing Standards Board (ASB) D) must be followed by companies whose stock is traded in the U.S. - CORRECT ANSWER C If an auditor of a public company cannot find guidance issued by the PCAOB on a particular audit matter, the auditor should generally seek guidance from which of the following sources? A) statements on auditing standards B) statements on standards for accounting and review services C) regulations issued by the SEC D) the AICPA code of professional conduct - CORRECT ANSWER A The purpose of establishing quality control policies and procedures to accept or continue a client relationship is to: A) provide reasonable assurance that personnel are adequately trained to fulfill their responsibilities B) monitor the risk factors concerning misstatements that arise from the misappropriation of assets C) document objective criteria for the CPA firm's peer review D) minimize the likelihood of associating with a client whose management may lack integrity - CORRECT ANSWER D Which of the following is an element of the CPAs quality control system that should be considered in establishing its quality control policies and procedures? A) considering audit risk and materiality B) using statistical sampling techniques C) assigning personnel to engagements D) complying with laws and regulations - CORRECT ANSWER C Which of the following is NOT an essential component of quality control? A) policies and procedures to ensure that firm personnel are actively engaged in marketing strategies B) policies and procedures to ensure that the work performed by firm personnel meet applicable professional standards C) policies to ensure that personnel maintain their independence in fact and appearance D) policies that ensure that monitoring activities are effectively applied - CORRECT ANSWER A Which of the following statements best describes the primary purpose of Statements on Auditing Standards? A) they are guides intended to set forth auditing procedures that are applicable to a variety of situations B) they are procedural outlines that are intended to narrow the areas of inconsistency and divergence of auditor opinion C) they are authoritative statements enforced through the Code of Professional Conduct, and are intended to limit the degree of auditor judgment D) they are interpretations that are intended to clarify the meaning of "generally accepted auditing standards" - CORRECT ANSWER D Hansen Corporation's stock is listed on a national stock exchange and registered with the SEC. Hansen's management hires a CPA to perform an independent audit of Hansen's financial statements. The primary objective of this audit is to provide assurance to the: A) investors in Hansen Corporation's stock B) stock exchange C) SEC D) management of Hansen Corporation - CORRECT ANSWER A Which of the following statements about Generally Accepted Audit Standards are true? I. they serve as broad guidelines to auditors for conducting an audit engagement II. they are sufficiently specific to provide any meaningful guide to practitioners III. they represent a framework upon which the AICPA can provide interpretations A) I and II B) I and III C) II and III D) I, II, and III - CORRECT ANSWER B Generally Accepted Auditing Standards (GAAS) and Statements on Auditing Standards (SAS) should be looked upon by practitioners as: A) ideals to work towards, but which are not achievable B) maximum standards that denote excellent work C) minimum standards of performance that must be achieved on each audit engagement D) benchmarks to be used on all audits, reviews, and compilations - CORRECT ANSWER C An examination of part of an organization's procedures and methods for the purpose of evaluating efficiency and effectiveness is what type of audit? A) operational audit B) compliance audit C) financial statement audit D) production audit - CORRECT ANSWER A An audit to determine whether an entity is following specific procedures or rules set down by some higher authority is classified as a(n): A) audit of financial statements B) compliance audit C) operational audit D) production audit - CORRECT ANSWER B Which one of the following is more difficult to evaluate objectively? A) presentation of financial statements in accordance with generally accepted accounting principles B) compliance with government regulations C) efficiency and effectiveness of operations D) all three of the above are equally difficult - CORRECT ANSWER C Which of the following audits can be regarded as generally being a compliance audit? A) IRS agents' examination of taxpayer returns B) GAO auditors' evaluation of the computer operations of governmental units C) an internal auditor's review of a company's payroll authorization procedures D) a CPA firm's audit of a public company - CORRECT ANSWER A Three common types of attestation services are: A) audits of historical financial statements, reviews of historical financial statements, and audits of internal control over financial reporting B) audits of historical financial information, verifications of historical financial information, and attestations regarding internal controls C) reviews of historical financial information, verifications of future financial information, and attestations regarding internal controls D) audits of historical financial information, reviews of controls related to investments, and verifications of historical financial information - CORRECT ANSWER A Which of the following services provides the lowest level of assurance on a financial statement? A) a review B) an audit C) neither service provides assurance on financial statements D) each service provides the same level of assurance on financial statements - CORRECT ANSWER A In "auditing" financial accounting data, the primary concern is with: A) determining whether recorded information properly reflects the economic events that occurred during the accounting period B) determining if fraud has occurred C) determining if taxable income has been calculated correctly D)analyzing the financial information to be sure that it complies with government requirements - CORRECT ANSWER A The trait that distinguishes auditors from accountants is the: A) auditors ability to interpret accounting principles generally accepted in the United States B)auditors education beyond the Bachelor's degree C) auditor's ability to interpret FASB Statements D) auditor's accumulation and interpretation of evidence related to a company's financial statements - CORRECT ANSWER D An accountant: A) must possess expertise in the accumulation of audit evidence. B) must decide the number and types of items to test. C) must have an understanding of the principles and rules that provide the basis for preparing the accounting information. D) must be a CPA. - CORRECT ANSWER D A correct relationship among the auditor, the client, and the external users is: A) management of a public company hires the independent auditor. B) the audit committee of a private company hires the independent auditor. C) the client provides capital to the external users. D) the external users can rely upon the auditor's report to reduce information risk. - CORRECT ANSWER D The most common way for users to obtain reliable information is to: A) have an internal audit. B) have an independent audit. C) verify all information individually. D) verify the information with management. - CORRECT ANSWER B Any service that requires a CPA firm to issue a report about the reliability of an assertion that is made by another party is a(n): A) accounting and bookkeeping service. B) attestation service. C) assurance service. D) tax service. - CORRECT ANSWER B Attestation services on information technology include WebTrust services and SysTrust services. Which of the following statements most accurately describes SysTrust services? A) SysTrust services provide assurance on business processes, transaction integrity and information processes. B) SysTrust services provide assurance on system reliability in critical areas such as security and data integrity. C) SysTrust services provide assurance on internal control over financial reporting. D) SysTrust services provide assurance as to whether accounting personnel are following procedures prescribed by the company controller. - CORRECT ANSWER B The use of the Certified Public Accountant title is regulated by: A) the federal government. B) state law through a licensing department or agency of each state. C) the American Institute of Certified Public Accountants through the licensing departments of the tax and auditing committees. D) the Securities and Exchange Commission. - CORRECT ANSWER B The organization that is responsible for providing oversight for auditors of public companies is called the ________. A) Auditing Standards Board B) American Institute of Certified Public Accountants C) Public Oversight Board D) Public Company Accounting Oversight Board - CORRECT ANSWER D Members of the Public Company Accounting Oversight Board are appointed and overseen by: A) the U.S. Congress. B) the American Institute of Certified Public Accountants. C) the Auditing Standards Board. D) the Securities and Exchange Commission. - CORRECT ANSWER D The Public Company Accounting Oversight Board: A) performs inspections of the quality controls of audit firms that audit public companies. B) establishes auditing standards that must be followed by CPAs on all audits. C) oversees auditors of private companies. D) performs any of the above functions. - CORRECT ANSWER A The form that must be completed and filed with the Securities and Exchange Commission whenever a company experiences a significant event that is of interest to public investors is the: A) Form S-1. B) Form 8-K. C) Form 10-K. D) Form 10-Q. - CORRECT ANSWER B Standards issued by the Public Company Accounting Oversight Board must be followed by CPAs who audit: A) both private and public companies. B) public companies only. C) private companies, public companies, and nonprofit entities. D) private companies only. - CORRECT ANSWER B Which of the following is not one of the responsibilities of an auditor under the principles underlying an audit? A) Possess appropriate competence and capabilities B) Comply with ethical requirements C) Plan work and supervise assistants D) Maintain professional skepticism and exercise professional judgment - CORRECT ANSWER C To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, the auditor must fulfill several performance responsibilities, including: A) verifying that all audit work is performed by a CPA with a minimum of three years experience. B) obtaining sufficient, appropriate audit evidence. C) exercising professional judgment. D) providing an opinion on the financial statements. - CORRECT ANSWER B Which of the following statements best describes the primary purpose of Statements on Auditing Standards? A) They are guides intended to set forth auditing procedures that are applicable to a variety of situations. B) They are procedural outlines that are intended to narrow the areas of inconsistency and divergence of auditor opinion. C) They are authoritative statements, enforced through the Code of Professional Conduct, and are intended to limit the degree of auditor judgment. D) They are interpretations that are intended to clarify the meaning of "generally accepted auditing standards." - CORRECT ANSWER D Which of the following is NOT true for audit firms who audit publicly traded companies? A) They must undergo a PCAOB inspection on an annual basis if they audit more than 100 issuers. B) They must have an AICPA peer review on all audit clients. C) They must have an AICPA peer review on all non-publicly traded clients. D) The audit firm can choose which CPA firm they wish to conduct their AICPA peer review. - CORRECT ANSWER B The methods used by a CPA firm to ensure that the firm meets is professional responsibilities to clients and others is: A) continuing professional education. B) compliance with generally accepted reporting standards. C) quality control. D) peer review. - CORRECT ANSWER C Within the context of quality control, the primary purpose of continuing professional education and training activities is to enable a CPA firm to provide its personnel with: A) technical training that assures proficiency as a valuation expert. B) professional education that is required in order to perform with due professional care. C) knowledge required to fulfill assigned responsibilities. D) knowledge required to perform a peer review. - CORRECT ANSWER C The auditor's best defense when material misstatements are not uncovered is to have conducted the audit: A) in accordance with generally accepted auditing standards. B) as effectively as reasonably possible. C) in a timely manner. D) only after an adequate investigation of the management team. - CORRECT ANSWER A An audit must be performed with an attitude of professional skepticism. Professional skepticism consists of two primary components: a questioning mind and: A) the assumption that upper-level management is dishonest. B) a critical assessment of the audit evidence. C) the assumption that all employees are motivated by greed. D) verification of all critical information by independent third parties. - CORRECT ANSWER B Which of the following would most likely be deemed a direct-effect illegal act? A) Violation of federal employment laws B) Violation of federal environmental regulations C) Violation of federal income tax laws D) Violation of civil rights laws - CORRECT ANSWER C The concept of reasonable assurance indicates that the auditor is: A) not a guarantor of the correctness of the financial statements. B) not responsible for the fairness of the financial statements. C) responsible only for issuing an opinion on the financial statements. D) responsible for finding all misstatements. - CORRECT ANSWER A Which of the following is the auditor least likely to do when aware of an illegal act? A) Discuss the matter with the client's legal counsel. B) Obtain evidence about the potential effect of the illegal act on the financial statements. C) Contact the local law enforcement officials regarding potential criminal wrongdoing. D) Consider the impact of the illegal act on the relationship with the company's management. - CORRECT ANSWER C When dealing with laws and regulations that do not have a direct effect on the financial statements, the auditor: A) should inquire of management about whether the entity is in compliance with such laws and regulations. B) has no responsibility to determine if any violations of these laws has occurred. C) must report all violations, including inconsequential violations, to the audit committee. D) should perform the same procedures as for violations having a direct effect on the financial statements. - CORRECT ANSWER A Which of the following statements is usually true? A) Materiality is easy to quantify. B) Fraudulent financial statements are often easy for the auditor to detect, especially when there is collusion among management. C) Reasonable assurance is a low level of assurance that the financial statements are free from material misstatement. D) An item is considered material if it would likely have changed or influenced the decisions of a reasonable person using the statements - CORRECT ANSWER D Which of the following statements best describes the auditor's responsibility regarding the detection of fraud? A) The auditor is responsible for the failure to detect fraud only when such failure clearly results from nonperformance of audit procedures specifically described in the engagement letter. B) The auditor is required to provide reasonable assurance that the financial statements are free of both material errors and fraud. C) The auditor is responsible for detecting material financial statement fraud, but not a material misappropriation of assets. D) The auditor is responsible for the failure to detect fraud only when an unqualified opinion is issued. - CORRECT ANSWER B If a client has violated federal tax laws: A) the auditor must notify the IRS. B) and the amount is significant, the auditor should communicate with those charged with governance. C) the noncompliance generally will not impact the financial statements. D) the auditor does not need to evaluate the effects of the noncompliance on other aspects of the audit. - CORRECT ANSWER B In describing the cycle approach to segmenting an audit, which of the following statements is NOT true? A) All general ledger accounts and journals are included at least once. B) Some journals and general ledger accounts are included in more than one cycle. C) The "capital acquisition and repayment" cycle is closely related to the "acquisition of goods and services and payment" cycle. D) The "inventory and warehousing" cycle may be audited at any time during the engagement since it is unrelated to the other cycles. - CORRECT ANSWER D The cycle approach to auditing: A) ties to the way transactions are recorded in journals and then summarized in the general ledger and financial statements. B) cannot combine transactions recorded in different journals with the general ledger balances that result from those transactions. C) is the only way of segmenting an audit. D) assumes that each account has two or more cycles associated with it. - CORRECT ANSWER A Auditors have found that generally the most efficient and effective way to conduct audits is to: A) obtain complete assurance about the correctness of each class of transactions affecting the account. B) obtain some combination of assurance for each class of transactions and for the ending balance in the related accounts. C) obtain assurance about the ending balance of the account only. D) verify each entry that was made into an account. - CORRECT ANSWER B The term audit objective refers to all of the following EXCEPT for: A) transaction-related audit objectives. B) presentation and disclosure-related audit objectives. C) balance-related audit objectives. D) cycle-related audit objectives. - CORRECT ANSWER D Two determinants of the persuasiveness of evidence are: A) competence and sufficiency. B) relevance and reliability. C) appropriateness and sufficiency. D) independence and effectiveness. - CORRECT ANSWER C The two characteristics of the appropriateness of evidence are: A) relevance and timeliness. B) relevance and accuracy. C) relevance and reliability. D) reliability and accuracy. - CORRECT ANSWER C Which of the following statements is NOT correct? A) It is possible to vary the sample size from one unit to 100% of the items in the population. B) The decision of how many items to test should not be influenced by the increased costs of performing the additional tests. C) The decision of how many items to test must be made by the auditor for each audit procedure. D) The sample size for any given procedure is likely to vary from audit to audit. - CORRECT ANSWER B The evaluations of financial information through analysis of plausible relationships among financial and nonfinancial data is the definition of: A) analytical procedures. B) tests of transactions. C) tests of balances. D) auditing. - CORRECT ANSWER A Which of the following generally provides the most reliable evidence? A) Confirmations B) Recalculation C) Reperformance D) Observations - CORRECT ANSWER A A benefit obtained from using industry averages is that it provides a(n): A) benchmark to compare the company's results. B) indication where errors exist in the statements. C) benchmark to be used in evaluating a client's budgets. D) comparison of "what is" with "what should be." - CORRECT ANSWER A Physical examination: A) is a direct means of verifying that an asset really exists. B) is sufficient evidence to verify that the existing assets are owned by the client. C) can be used for both tangible assets and documents. D) is not generally a reliable type of audit evidence. - CORRECT ANSWER A 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 is the: A) inherent risk. B) acceptable audit risk. C) statistical risk. D) financial risk. - CORRECT ANSWER B A measure of the auditor's assessment of the likelihood that there are material misstatements in an account before considering the effectiveness of the client's internal control is called: A) control risk. B) acceptable audit risk. C) statistical risk. D) inherent risk. - CORRECT ANSWER D An engagement letter sent to a publicly held audit client usually would NOT include a: A) reference to the auditor's responsibility for the detection of errors or irregularities. B) estimation of the time to be spent on the audit work by audit staff and management. C) statement that management advisory services would be made available upon request. D) reference to management's responsibility for the financial statements. - CORRECT ANSWER C The preliminary audit strategy: A) is set before the auditor understands the client's reasons for the audit. B) guides the development of the audit plan. C) is determined after the engagement staffing is set. D) is the detailed steps to be followed for the substantive audit tests. - CORRECT ANSWER B Which of the following would most likely not be classified as a related-party transaction? A) An advance of one week's salary to an employee B) Sales of merchandise between affiliated companies C) Loans or credit sales to the principal owner of the client company D) Exchanges of equipment between two companies owned by the same person - CORRECT ANSWER A Which of the following best describes the corporate minutes of an entity? A) Official record of the meetings of the board of directors and the stockholders B) Unofficial record of the meeting of the board of directors C) Official record of management meeting with investors and creditors of the company D) Unofficial record of the board of directors meetings - CORRECT ANSWER A During audit planning, the auditor uses analytical procedures primarily to: A) identify weaknesses in internal control. B) determine if the company's financial statements appear reasonable and are free of material misstatement. C) determine the correspondence of the company's financial statements to the valuation and accuracy audit objectives. D) determine the nature, extent, and timing of audit procedures. - CORRECT ANSWER D Which of the following is most correct with respect to the use of analytical procedures? A) Analytical procedures may be used in evaluating balances in the testing phase as long as the auditor also uses them in assessing the going concern assumption. B) Analytical procedures must be used throughout the audit. C) Analytical procedures used in the testing phase of the audit are primarily used to direct an auditor's attention so that the auditor's understanding of the business is improved. D) Analytical procedures are performed by studying plausible relationships between financial and non financial data. - CORRECT ANSWER D Analytical procedures: A) are not a type of audit evidence. B) are not required during the completion phase of the audit. C) performed during the planning phase of the audit are used as a substantive test in support of account balances. D) performed in the completion phase serve as a final review for material misstatements or financial problems. - CORRECT ANSWER D Audit standards require the auditor to consider materiality early in the audit. Which statement(s) regarding preliminary materiality are true? I. Preliminary materiality may change during the engagement. II. Preliminary materiality is the maximum amount by which the auditor believes the financials could be misstated and still not affect the decisions of reasonable users. A) I only B) II only C) both I and II D) neither are true - CORRECT ANSWER C Why do auditors establish a preliminary judgment about materiality? A) To determine the appropriate level of staff to assign to the audit B) So that the client can know what records to make available to the auditor C) To help plan the appropriate evidence to accumulate D) To finalize the control risk assessment - CORRECT ANSWER C When auditors allocate the preliminary judgment about materiality to account balances, the materiality allocated to any given account balance is referred to as: A) the materiality range. B) the error range. C) tolerable materiality. D) performance materiality. - CORRECT ANSWER D The concept of reasonable assurance indicates that the auditor is: A) not a guarantor of the correctness of the financial statements. B) not responsible for the fairness of the financial statements. C) responsible only for issuing an opinion on the financial statements. D) responsible for finding all misstatements. - CORRECT ANSWER A