Audit Theory Exam 1 - Questions With Accurate
Solutions
What are the two preconditions for an audit? Correct Answer - 1)
Acceptable financial reporting framework must be in place
2) Management must acknowledge it's responsibility for preparing FS,
maintaining IC, and promises to provide access to information necessary to
complete the audit
Audit __ __ need to be documented in writing so that they can be referred back
to Correct Answer - Audit Engagement Terms
What 6 things must be covered in the engagement letter? Correct Answer
- -Scope and Objective of audit
-Responsibilities of auditor
-Responsibilities of management
-Disclaimer that ROMM still exists
-Identification of Reporting Framework used to prepare FS
-Expected form and content of auditor reports
Prior to accepting the client, if the auditor believes that management will limit
the scope of the audit they should Correct Answer - Not accept the
engagement
Initial Audits: before accepting a client the auditor should request that
management- Correct Answer - Authorize the predecessor auditor to
respond to the new auditors inquiries
Changes to the terms of the audit engagement should not be permitted unless
Correct Answer - Management can provide a reasonable justification for the
change (Change in ownership or size of entity, change in regulatory
requirements, etc.)
Why does a new auditor need to speak with the predecessor auditor before
accepting the engagement? Correct Answer - Gives them an outsider's
perspective of the entity
, May make the auditor aware of new risks
Is it required to speak with the predecessor auditor before accepting an
engagement? Correct Answer - Management MUST agree to let the
auditor's talk
The predecessor auditor is NOT required to respond
What might a new auditor discuss with the predecessor auditor? Correct
Answer - -Management's integrity
-Disagreements with management
-Communications regarding fraud, illegal acts and internal control
-External auditor's understanding for the change in auditor
Recurring audit: Before accepting an existing client, the auditor should
Correct Answer - Consider what has changed since last year: New
management? New ownership? New accounting framework? Different
nature/ size of the entity?
The audit strategy addresses the audit's (SO SI RR) Correct Answer -
Scope
Objective
Significant accounting and auditing issues
Required resources (staff, time, expertise)
We use the audit strategy to develop the Correct Answer - Audit Plan
The audit plan should include Correct Answer - NTE of risk assessment
and substantive audit procedures
Both the audit strategy and audit plan must be Correct Answer -
Documented, along with any changes made to them during the audit
The audit plan is a __ __ , that may be reevaluated when new information is
found Correct Answer - continuous process
Why should we obtain an understanding of the client? Correct Answer -
To better identify areas subject to a high risk of misstatement
Solutions
What are the two preconditions for an audit? Correct Answer - 1)
Acceptable financial reporting framework must be in place
2) Management must acknowledge it's responsibility for preparing FS,
maintaining IC, and promises to provide access to information necessary to
complete the audit
Audit __ __ need to be documented in writing so that they can be referred back
to Correct Answer - Audit Engagement Terms
What 6 things must be covered in the engagement letter? Correct Answer
- -Scope and Objective of audit
-Responsibilities of auditor
-Responsibilities of management
-Disclaimer that ROMM still exists
-Identification of Reporting Framework used to prepare FS
-Expected form and content of auditor reports
Prior to accepting the client, if the auditor believes that management will limit
the scope of the audit they should Correct Answer - Not accept the
engagement
Initial Audits: before accepting a client the auditor should request that
management- Correct Answer - Authorize the predecessor auditor to
respond to the new auditors inquiries
Changes to the terms of the audit engagement should not be permitted unless
Correct Answer - Management can provide a reasonable justification for the
change (Change in ownership or size of entity, change in regulatory
requirements, etc.)
Why does a new auditor need to speak with the predecessor auditor before
accepting the engagement? Correct Answer - Gives them an outsider's
perspective of the entity
, May make the auditor aware of new risks
Is it required to speak with the predecessor auditor before accepting an
engagement? Correct Answer - Management MUST agree to let the
auditor's talk
The predecessor auditor is NOT required to respond
What might a new auditor discuss with the predecessor auditor? Correct
Answer - -Management's integrity
-Disagreements with management
-Communications regarding fraud, illegal acts and internal control
-External auditor's understanding for the change in auditor
Recurring audit: Before accepting an existing client, the auditor should
Correct Answer - Consider what has changed since last year: New
management? New ownership? New accounting framework? Different
nature/ size of the entity?
The audit strategy addresses the audit's (SO SI RR) Correct Answer -
Scope
Objective
Significant accounting and auditing issues
Required resources (staff, time, expertise)
We use the audit strategy to develop the Correct Answer - Audit Plan
The audit plan should include Correct Answer - NTE of risk assessment
and substantive audit procedures
Both the audit strategy and audit plan must be Correct Answer -
Documented, along with any changes made to them during the audit
The audit plan is a __ __ , that may be reevaluated when new information is
found Correct Answer - continuous process
Why should we obtain an understanding of the client? Correct Answer -
To better identify areas subject to a high risk of misstatement
