AUDIT COMPLETE EXAM REVIEW WITH
FULL SOLUTIONS
●● The audit committee of a company must be made up of:
Representatives from the client's management, investors, suppliers, and
customers.
The audit partner, the chief financial officer, the legal counsel, and at
least one outsider.
Representatives of the major equity interests, such as preferred and
common stockholders.
Members of the board of directors who are not officers or employees.
Answer: Members of the board of directors who are not officers or
employees.
●● Which portion of an audit is least likely to be completed before the
balance sheet date?
Tests of controls.
,Issuance of an engagement letter.
Substantive procedures.
Assessment of control risk.
Answer: Substantive procedures.
●● Which of the following should not normally be included in the
engagement letter for an audit?
A description of the responsibilities of client personnel to provide
assistance.
An indication of the amount of the audit fee.
A description of the limitations of an audit..
A listing of the client's branch offices selected for testing.
Answer: A listing of the client's branch offices selected for testing.
●● Which of the following should the auditors obtain from the
predecessor auditors before accepting an audit engagement?
,Analysis of balance sheet accounts.
Analysis of income statement accounts.
All matters of continuing accounting significance.
Facts that might bear on the integrity of management.
Answer: Facts that might bear on the integrity of management.
●● As one step in testing sales transactions, a CPA traces a random
sample of sales journal entries to debits in the accounts receivable
subsidiary ledger. This test provides evidence as to whether:
Each recorded sale represents a bona fide transaction.
All sales have been recorded in the sales journal.
All debit entries in the accounts receivable subsidiary ledger are
properly supported by sales journal entries.
Recorded sales have been properly posted to customer accounts.
, Answer: Recorded sales have been properly posted to customer
accounts.
●● The primary objective of tests of details of transactions performed as
substantive procedures is to:
Comply with generally accepted auditing standards.
Attain assurance about the reliability of the accounting system.
Detect material misstatements in the financial statements.
Evaluate whether management's policies and procedures are operating
effectively.
Answer: Detect material misstatements in the financial statements.
●● The risk that the auditors will conclude, based on substantive
procedures, that a material misstatement does not exist in an account
balance when, in fact, such misstatement does exist is referred to as
Business risk.
FULL SOLUTIONS
●● The audit committee of a company must be made up of:
Representatives from the client's management, investors, suppliers, and
customers.
The audit partner, the chief financial officer, the legal counsel, and at
least one outsider.
Representatives of the major equity interests, such as preferred and
common stockholders.
Members of the board of directors who are not officers or employees.
Answer: Members of the board of directors who are not officers or
employees.
●● Which portion of an audit is least likely to be completed before the
balance sheet date?
Tests of controls.
,Issuance of an engagement letter.
Substantive procedures.
Assessment of control risk.
Answer: Substantive procedures.
●● Which of the following should not normally be included in the
engagement letter for an audit?
A description of the responsibilities of client personnel to provide
assistance.
An indication of the amount of the audit fee.
A description of the limitations of an audit..
A listing of the client's branch offices selected for testing.
Answer: A listing of the client's branch offices selected for testing.
●● Which of the following should the auditors obtain from the
predecessor auditors before accepting an audit engagement?
,Analysis of balance sheet accounts.
Analysis of income statement accounts.
All matters of continuing accounting significance.
Facts that might bear on the integrity of management.
Answer: Facts that might bear on the integrity of management.
●● As one step in testing sales transactions, a CPA traces a random
sample of sales journal entries to debits in the accounts receivable
subsidiary ledger. This test provides evidence as to whether:
Each recorded sale represents a bona fide transaction.
All sales have been recorded in the sales journal.
All debit entries in the accounts receivable subsidiary ledger are
properly supported by sales journal entries.
Recorded sales have been properly posted to customer accounts.
, Answer: Recorded sales have been properly posted to customer
accounts.
●● The primary objective of tests of details of transactions performed as
substantive procedures is to:
Comply with generally accepted auditing standards.
Attain assurance about the reliability of the accounting system.
Detect material misstatements in the financial statements.
Evaluate whether management's policies and procedures are operating
effectively.
Answer: Detect material misstatements in the financial statements.
●● The risk that the auditors will conclude, based on substantive
procedures, that a material misstatement does not exist in an account
balance when, in fact, such misstatement does exist is referred to as
Business risk.
