Advanced Audit Test 1 UPDATED ACTUAL
Exam Questions and CORRECT Answers
Which of the following auditor concerns most likely could be so serious that the auditor
concludes that a financial statement audit cannot be performed?
A) Management fails to modify prescribed internal controls for changes in information
technology
B) Internal control activities requiring segregation of duties are rarely monitored by management
C) Management is dominated by one person who is also the majority stockholder
D) There is a substantial risk of intentional misapplication of accounting principles - CORRECT
ANSWER -D
Which of the following factors most likely would lead a CPA to conclude that a potential audit
engagement should not be accepted?
A) There are significant related party transactions that management claims occurred in the
ordinary course of business
B) Internal control activities requiring the segregation of duties are subject to management
override
C) Management continues to employ an inefficient system of information technology to record
financial transactions
D) It is unlikely that sufficient appropriate audit evidence is available to support an opinion on
the financial statements - CORRECT ANSWER -D
Which of the following activities would be most helpful to a CPA in deciding whether to accept
a new audit client?
A) Reviewing industry benchmarking data
B) Considering the client's compensation methods
C) Evaluating the CPA's ability to property service the client
,D) Evaluating the most recent peer review of the client's previous auditor - CORRECT
ANSWER -C
An auditor's engagement letter most likely would include a statement that:
A) Lists potential significant deficiencies discovered during the prior year's audit
B) Explains the analytical procedures that the auditor expects to apply
C) Describes the auditor's responsibility to evaluate going concern issues
D) Limits the auditor's responsibility to detect errors and fraud - CORRECT ANSWER -
D
A successor auditor's inquiries of the predecessor auditor should include questions regarding:
A) The predecessor's evaluation of audit risk and judgement about materiality
B) Subsequent events that occurred since the predecessor's audit report was issued
C) The predecessor's understanding as to the reasons for the change in auditors
D) The predecessor's knowledge of accounting matters of continuing significance - CORRECT
ANSWER -C
Which of the following matters does an auditor usually communicate to management?
A) Arrangements involving a predecessor auditor
B) Indication of adverse key financial ratios
C) An agreement regarding preliminary materiality thresholds
D) Identification of recurring operating losses - CORRECT ANSWER -A
Which of the following conditions most likely would pose the greatest risk in accepting a new
audit engagement?
, A) Staff will need to be rescheduled to cover this new client
B) There will be client-imposed scope limitation
C) The firm have to hire a specialist in once audit area
D) The client's financial reporting system has been in place for 10 years - CORRECT
ANSWER -B
Before accepting an engagement to audit a new client, a CPA is required to obtain:
A) An assessment of fraud factors likely to cause material misstatements
B) An understanding of the prospective client's industry and business
C) The prospective client's signature to a written engagement letter
D) The prospective client's consent to make inquiries of the predecessor - CORRECT
ANSWER -D
The understanding with the client regarding a financial statement audit generally includes which
of the following matters?
A) The expected opinion to be issued
B) The responsibilities of the auditor
C) The contingency fee structure
D) The preliminary judgement about materiality - CORRECT ANSWER -B
If the predecessor auditor refuses to give the current auditor of a nonissue access to the
documentation, what should the current auditor do?
A) Review the risk assessment of the opening balances of the financial statements
B) Withdraw from the engagement
C) Disclaim an opinion due to a scope limitation
D) Discuss the matter with the client's legal counsel - CORRECT ANSWER -A
Exam Questions and CORRECT Answers
Which of the following auditor concerns most likely could be so serious that the auditor
concludes that a financial statement audit cannot be performed?
A) Management fails to modify prescribed internal controls for changes in information
technology
B) Internal control activities requiring segregation of duties are rarely monitored by management
C) Management is dominated by one person who is also the majority stockholder
D) There is a substantial risk of intentional misapplication of accounting principles - CORRECT
ANSWER -D
Which of the following factors most likely would lead a CPA to conclude that a potential audit
engagement should not be accepted?
A) There are significant related party transactions that management claims occurred in the
ordinary course of business
B) Internal control activities requiring the segregation of duties are subject to management
override
C) Management continues to employ an inefficient system of information technology to record
financial transactions
D) It is unlikely that sufficient appropriate audit evidence is available to support an opinion on
the financial statements - CORRECT ANSWER -D
Which of the following activities would be most helpful to a CPA in deciding whether to accept
a new audit client?
A) Reviewing industry benchmarking data
B) Considering the client's compensation methods
C) Evaluating the CPA's ability to property service the client
,D) Evaluating the most recent peer review of the client's previous auditor - CORRECT
ANSWER -C
An auditor's engagement letter most likely would include a statement that:
A) Lists potential significant deficiencies discovered during the prior year's audit
B) Explains the analytical procedures that the auditor expects to apply
C) Describes the auditor's responsibility to evaluate going concern issues
D) Limits the auditor's responsibility to detect errors and fraud - CORRECT ANSWER -
D
A successor auditor's inquiries of the predecessor auditor should include questions regarding:
A) The predecessor's evaluation of audit risk and judgement about materiality
B) Subsequent events that occurred since the predecessor's audit report was issued
C) The predecessor's understanding as to the reasons for the change in auditors
D) The predecessor's knowledge of accounting matters of continuing significance - CORRECT
ANSWER -C
Which of the following matters does an auditor usually communicate to management?
A) Arrangements involving a predecessor auditor
B) Indication of adverse key financial ratios
C) An agreement regarding preliminary materiality thresholds
D) Identification of recurring operating losses - CORRECT ANSWER -A
Which of the following conditions most likely would pose the greatest risk in accepting a new
audit engagement?
, A) Staff will need to be rescheduled to cover this new client
B) There will be client-imposed scope limitation
C) The firm have to hire a specialist in once audit area
D) The client's financial reporting system has been in place for 10 years - CORRECT
ANSWER -B
Before accepting an engagement to audit a new client, a CPA is required to obtain:
A) An assessment of fraud factors likely to cause material misstatements
B) An understanding of the prospective client's industry and business
C) The prospective client's signature to a written engagement letter
D) The prospective client's consent to make inquiries of the predecessor - CORRECT
ANSWER -D
The understanding with the client regarding a financial statement audit generally includes which
of the following matters?
A) The expected opinion to be issued
B) The responsibilities of the auditor
C) The contingency fee structure
D) The preliminary judgement about materiality - CORRECT ANSWER -B
If the predecessor auditor refuses to give the current auditor of a nonissue access to the
documentation, what should the current auditor do?
A) Review the risk assessment of the opening balances of the financial statements
B) Withdraw from the engagement
C) Disclaim an opinion due to a scope limitation
D) Discuss the matter with the client's legal counsel - CORRECT ANSWER -A
