Question 1

The predecessor auditor is required to respond to the request of the successor auditor for information; however, the response can be limited to stating that no information will be provided when:

Accepted Answer

A)   the predecessor believes the client lacks integrity.
B)   the client is dissatisfied with the predecessor's work.
C)   there are legal problems between the client and the predecessor.
D)   the predecessor auditor has poor relations with the successor auditor.

Question 2

Adjusting and reclassification entries are normally included in the current files of the auditor's working papers.

Accepted Answer

A) True 
 B)False

Question 3

ACL is a software package which assists auditors by performing tests on a client's electronic data.

Accepted Answer

A) True 
 B)False

Question 4

A company's constitution does NOT usually include rules and procedures for:

Accepted Answer

A)   issuing shares.
B)   calling general meetings.
C)   appointment and retirement of directors.
D)   implementing internal control systems.

Question 5

Client business risk is the risk that the audit client will fail to achieve its objectives.

Accepted Answer

A) True 
 B)False

Question 6

What is the purpose of performing preliminary analytical procedures? Provide an example of an analytical procedure used.

Accepted Answer

Analytical procedures are undertaken for...

Question 7

The permanent section of the auditor's working papers generally should include:

Accepted Answer

A)   a copy of key customer confirmations.
B)   a copy of the engagement letter.
C)   time and expense reports.
D)   names and addresses of all audit staff personnel on the engagement.

Question 8

Distinguish between the type of data contained in an auditor's permanent files as compared to current files.

Accepted Answer

Permanent files contain data of a histor...

Question 9

When an auditor decides there is higher inherent risk for an account, one potential effect is that less audit evidence will be required for that account.

Accepted Answer

A) True 
 B)False

Question 10

An example of a reclassification entry would be an entry to:

Accepted Answer

A)   increase the allowance for doubtful accounts when it was discovered that a customer had filed for bankruptcy.
B)   increase the income tax liability account when it was discovered that the tax rate would be higher than originally estimated.
C)   reduce inventory when the client failed to write down its obsolete raw materials.
D)   change material credit balances in accounts receivable accounts to accounts payable accounts.

Question 11

The auditor plans the engagement to keep costs reasonable.This is essential to:

Accepted Answer

A)   minimise legal liability and maintain the firm's good reputation in the business community.
B)   help the firm remain competitive.
C)   facilitate good client relations.
D)   all of the above

Question 12

What is required by auditors according to ASA 210?

Accepted Answer

A)   Document their understanding of the engagement in working papers.
B)   Communicate with the previous auditor.
C)   Obtain knowledge of the business.
D)   Use analytical procedures in the planning stage.

Question 13

Only those adjusting and reclassification entries that significantly affect the fair presentation of financial statements (i.e.material entries)should be documented or summarised in the auditor's working papers.

Accepted Answer

A) True 
 B)False

Question 14

For prospective clients that have previously been audited by another firm, the new auditor is required to communicate with the previous auditor.

Accepted Answer

A) True 
 B)False

Question 15

When a successor (new)auditor contacts a company's previous auditor, the predecessor (old)auditor is required to respond to the request for information.

Accepted Answer

A) True 
 B)False

Question 16

What are the three main reasons why the auditor should properly plan engagements?
1) to enable the auditor to obtain sufficient appropriate evidence
2) to help keep audit costs reasonable
3) to avoid misunderstandings with the client
4) to earn audit fees for the firm.

Accepted Answer

A)   1, 2, 3
B)   1, 2, 4
C)   1, 3, 4
D)   2, 3, 4

Question 17

Investigation of new clients and re-evaluation of existing ones is an essential part of deciding:

Accepted Answer

A)   acceptable audit risk.
B)   financial risk.
C)   statistical risk.
D)   inherent risk.

Question 18

A related-party transaction is a:

Accepted Answer

A)   transaction with the auditor.
B)   transaction at an undervalue.
C)   non arm's-length transaction.
D)   all of the above

Question 19

Which of the following characteristics of the client's management affects the risk of material misstatements in the financial report?

Accepted Answer

A)   ability to respond to risk
B)   ability to identify risk
C)   philosophy and operating style
D)   all of the above

Question 20

Identify the three primary reasons an auditor should obtain a good understanding of the client's industry, and discuss specific ways an auditor can obtain this understanding.

Accepted Answer

The three primary reasons an auditor sho...

Exam 6: Audit planning and documentation

What is required by auditors according to ASA 210?

Correct AnswerverifiedShow Answer

What are the three main reasons why the auditor should properly plan engagements? 1) to enable the auditor to obtain sufficient appropriate evidence 2) to help keep audit costs reasonable 3) to avoid misunderstandings with the client 4) to earn audit fees for the firm.

Correct AnswerverifiedShow Answer

Identify the three primary reasons an auditor should obtain a good understanding of the client's industry, and discuss specific ways an auditor can obtain this understanding.

Correct AnswerverifiedThe three primary reasons an auditor sho...View AnswerShow Answer

Investigation of new clients and re-evaluation of existing ones is an essential part of deciding:

Correct AnswerverifiedShow Answer

Which of the following characteristics of the client's management affects the risk of material misstatements in the financial report?

Correct AnswerverifiedShow Answer

A related-party transaction is a:

Correct AnswerverifiedShow Answer

For prospective clients that have previously been audited by another firm, the new auditor is required to communicate with the previous auditor.

Correct AnswerverifiedShow Answer

When an auditor decides there is higher inherent risk for an account, one potential effect is that less audit evidence will be required for that account.

Correct AnswerverifiedShow Answer

ACL is a software package which assists auditors by performing tests on a client's electronic data.

Correct AnswerverifiedShow Answer

The auditor plans the engagement to keep costs reasonable.This is essential to:

Correct AnswerverifiedShow Answer

Only those adjusting and reclassification entries that significantly affect the fair presentation of financial statements (i.e.material entries)should be documented or summarised in the auditor's working papers.

Correct AnswerverifiedShow Answer

The predecessor auditor is required to respond to the request of the successor auditor for information; however, the response can be limited to stating that no information will be provided when:

Correct AnswerverifiedShow Answer

What is the purpose of performing preliminary analytical procedures? Provide an example of an analytical procedure used.

Correct AnswerverifiedAnalytical procedures are undertaken for...View AnswerShow Answer

An example of a reclassification entry would be an entry to:

Correct AnswerverifiedShow Answer

A company's constitution does NOT usually include rules and procedures for:

Correct AnswerverifiedShow Answer

Client business risk is the risk that the audit client will fail to achieve its objectives.

Correct AnswerverifiedShow Answer

The permanent section of the auditor's working papers generally should include:

Correct AnswerverifiedShow Answer

Distinguish between the type of data contained in an auditor's permanent files as compared to current files.

Correct AnswerverifiedPermanent files contain data of a histor...View AnswerShow Answer

When a successor (new)auditor contacts a company's previous auditor, the predecessor (old)auditor is required to respond to the request for information.

Correct AnswerverifiedShow Answer

Adjusting and reclassification entries are normally included in the current files of the auditor's working papers.

Correct AnswerverifiedShow Answer

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The three primary reasons an auditor sho...
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Analytical procedures are undertaken for...
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Permanent files contain data of a histor...
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