A1 Final Review Flashcards
A successor auditor’s inquiries of the predecessor auditor should include questions
regarding:
A. The number of engagement personnel the predecessor assigned to the engagement.
B. The assessment of the objectivity of the client’s internal audit function.
C. Communications to management and those charged with governance regarding significant deficiencies in internal control.
D. The response rate for confirmations of accounts receivable
Choice “C” is correct.
A successor auditor’s inquiries of the predecessor auditor should include questions regarding communications to management and those charged with governance
regarding significant deficiencies (and material weaknesses) in internal control.
Choice “A” is incorrect. The successor auditor generally would not inquire about the number of personnel assigned to the predecessor’s engagement.
Choice “B” is incorrect. The successor auditor is responsible for making his or her own judgments regarding the audit, and would not typically inquire regarding the predecessor auditor’s judgments with respect to the internal audit function.
Choice “D” is incorrect. The successor auditor generally would not specifically inquire about the response rate for confirmations of accounts receivable. However, the
successor auditor would be able to obtain this information when reviewing the predecessor’s workpapers.
MCQ-09844
According to professional standards, audit documentation should:
A. Be prepared in enough detail so that a new staff auditor who has no previous
connection with the audit can understand the conclusions reached and any
significant judgments made to reach those conclusions.
B. Monitor the effectiveness of the CPA firm’s quality control activities.
C. Show who performed the work and the date the work was completed.
D. Include a flowchart to show the design and implementation of internal control.
Choice “C” is correct.
Audit documentation should show who performed the work and the date the work was
completed.
Choice “A” is incorrect. Audit documentation should be prepared in enough detail so
that an experienced auditor, not necessarily a new staff auditor, who has no previous
connection with the audit can understand the conclusions reached and any significant
judgments made to reach those conclusions.
Choice “B” is incorrect. Audit documentation should enable quality performance
reviews and inspections to be performed on the specific audit but does not necessarily
by itself “monitor” the effectiveness of the CPA firm’s quality control activities.
Monitoring is performed at the firm level, not at the individual audit engagement level.
Choice “D” is incorrect. The auditor’s understanding of internal control can be
documented in a variety of different ways. There is no requirement in professional
standards that the design and implementation of internal control must include a
flowchart depicting the internal control process.
MCQ-15156
Which of the following statements is true regarding the communication with a predecessor
auditor?
A. Contact with the predecessor auditor before client acceptance is not mandatory, but encouraged, and client permission is required.
B. Contact with the predecessor auditor before client acceptance is mandatory, but client permission is required.
C. Contact with the predecessor auditor should not take place prior to engagement acceptance, but such communications may take place after testwork has begun.
D. Contact with the predecessor auditor before client acceptance is mandatory and based on this requirement, client permission is not required prior to communication.
Choice “B” is correct. Prior to accepting a new client, the auditor must communicate with the predecessor auditor, but the client is required to grant permission before such
communications take place. If the client will not grant such permission, the client should not accept the engagement.
Choice “A” is incorrect. The auditor is required to communicate with the predecessor auditor prior to accepting a new engagement. Client permission is required.
Choice “C” is incorrect. The auditor is required to communicate with the predecessor auditor prior to accepting a new engagement. Client permission is required.
Additionally, after client acceptance, the auditor should also request that management authorize a review of the predecessor auditor’s workpapers from the most recent audit.
Choice “D” is incorrect. The auditor is required to communicate with the predecessor auditor prior to accepting a new engagement. Client permission is required.
MCQ-15159
Which of the following types of documentation are typically provided by the predecessor auditor for review?
I. Results of the audit procedures
II. Prior period engagement letter
III. Risk assessment procedures
IV. Client’s significant accounting policies
A. I and III
B. I, II, and III
C. I, III, and IV
D. II and IV
Choice “A” is correct. Typically, the predecessor auditor will allow a review of audit documentation related to planning, risk assessment, audit procedures, audit results, and matters of continuing audit significance.
Choice “B” is incorrect. The prior period engagement letter would not typically be provided to the successor auditor.
Choice “C” is incorrect. The client’s significant accounting policies would be provided to the auditor by the client and not by the predecessor auditor.
Choice “D” is incorrect. The engagement letter and significant accounting policies would not typically be provided by the predecessor auditor.
MCQ-15164
Which of the following would not be included as audit documentation?
A. A copy of the financial statements agreed back to supporting schedules.
B. Copies of significant contracts reviewed related to subsequent events.
C. A schedule of expected engagement team hours to actual hours billed.
D. The auditor’s write-up related to fraud discussions held with members of the client’s management team.
Choice “C” is correct. Audit documentation should include a written record of the work performed, evidence obtained, and conclusions reached. Although a schedule of expected to actual hours would be of interest to the audit engagement partner, such a schedule would not be included in the audit working papers.
Choice “A” is incorrect. Audit documentation should include an indication that the
accounting records reconcile with the financial statements, including disclosures.
Choice “B” is incorrect. Audit documentation should include audit evidence obtained,
such as significant contracts or agreements.
Choice “D” is incorrect. Audit documentation should include evidence obtained, which
includes information obtained through discussions with the client.
MCQ-09799
An auditor’s engagement letter most likely would include a statement regarding:
A. The advantages of statistical sampling.
B. The inherent limitations of an audit.
C. Billings to be paid in the form of stock of the entity.
D. The assessment of risk of material misstatemen
Choice “B” is correct.
The engagement letter should include a statement regarding the inherent limitations of
the audit. This inherent limitation statement describes the unavoidable risk that some
material misstatements may not be detected, even though the audit is properly planned
and performed in accordance with GAAS.
Choice “A” is incorrect. The engagement letter generally would not describe the
advantages of statistical sampling.
Choice “C” is incorrect. An auditor may not be paid in stock of the entity because this
would impair the auditor’s independence.
Choice “D” is incorrect. The assessment of risk of material misstatement is not included
in the engagement letter. The risk of material misstatement is part of the planning
process that occurs after engagement acceptance.
MCQ-15162
Which of the following is not true regarding the contents of a written engagement letter?
A. The contents of the engagement letter should be reassessed from year to year for recurring audits.
B. The engagement letter should continue to be revised as the auditor obtains more information on risk assessment throughout the course of the audit.
C. The engagement letter should contain statements regarding the division of responsibility between management and the auditor.
D. The engagement letter should identify the applicable financial reporting framework and establish the form and content of any reports to be issued by the auditor.
Choice “B” is correct. The engagement letter is established and signed at the start of the audit to establish an agreed-upon set of engagement terms between the auditor and management. The engagement letter is not continuously revised as the audit
progresses and risk assessment is performed.
Choice “A” is incorrect. The contents of the engagement letter for a recurring audit
should be reassessed year to year to ensure no revision is necessary.
Choice “C” is incorrect. The engagement letter should include a description of the
responsibilities of both management and the auditor.
Choice “D” is incorrect. The engagement letter should identify the applicable financial
reporting framework and establish the form and content of any reports to be issued by
the auditor.
MCQ-15160
Obtaining a signed engagement letter would most likely help the auditor to avoid which of the following?
A. A disagreement between management and the auditor on the terms of the contingent portion of the audit fee agreement.
B. The auditor assumed that all subsequent events had been disclosed by management, but management failed to communicate a transaction that closed
just before the audit report was issued.
C. The auditor believed that management intended to correct an identified material misstatement, however, management determined that the misstatement should
be left as uncorrected.
D. Management needed to obtain an audit report in accordance with a special purpose framework other than U.S. GAAP, but the auditor does not have the appropriate training and knowledge to perform the required engagement.
Choice “D” is correct. The main purpose of the engagement letter is to establish an agreement between the auditor and the client and to reduce the risk of misinterpretation. The engagement letter should include the identification of the
applicable financial reporting framework to be used for the report.
Choice “A” is incorrect. Although the engagement letter would contain fee and billing arrangement information, contingent fees are not allowable between an auditor and a
client.
Choice “B” is incorrect. The representation letter (not the engagement letter), obtained at the end of an engagement prior to the issuance of the auditor’s report, would include
a confirmation by management that all subsequent events have been disclosed.
Choice “C” is incorrect. The representation letter (not the engagement letter), obtained at the end of an engagement prior to the issuance of the auditor’s report, would include
a confirmation by management that the effects of uncorrected misstatements are immaterial to the financial statements as a whole.
MCQ-15165
Which of the following items should be included in the auditor’s communication of the planned scope and timing of the audit to those charged with governance?
I. An overview of which documents will be considered part of the auditor’s permanent file
II. Preliminary views on key audit matters
III. Plan for using the work of internal audit or other specialists
IV. All the audit areas that will be covered and the related planned procedures
A. II and III
B. I and III
C. I, II, and III
D. II and IV
Choice “A” is correct. Among other items, both the preliminary views on key audit matters and the plan for using internal audit or specialists should be communicated to
those charged with governance as a part of the planned scope and timing of the audit.
Choices “B” and “C” are incorrect. An overview of which documents will become part of
the auditor’s permanent file need not be communicated to those charged with
governance.
Choice “D” is incorrect. The auditor should not communicate the specific audit areas
and related procedures to those charged with governance as it could compromise the
effectiveness of the overall audit. Preliminary views on key audit matters would be
communicated to those charged with governance.
MCQ-15166
The function of an audit committee includes all the following except:
A. Appointing the independent auditor.
B. Approving the audit conclusions.
C. Helping to resolve any disagreements between the auditor and management.
D. Reviewing the scope of the audit.
Choice “B” is correct. The audit committee is not responsible for approving the conclusions reached by the audit engagement team. This would be the responsibility of
the engagement partner. The audit committee would be responsible for reviewing the quality of the auditor’s work to ensure the work performed was done so in an appropriate manner.
Choice “A” is incorrect. The audit committee is responsible for selecting and appointing
the independent auditor.
Choice “C” is incorrect. The audit committee is responsible for helping to resolve any
disagreements related to the accounting treatment of significant items and to provide a
bridge between the board of directors and the auditor.
Choice “D” is incorrect. The audit committee is responsible for reviewing the scope of
the audit to ensure that the audit report and the related conclusions will meet the needs
of the specific engagement
Which of the following is an auditor required to do when conducting a financial statement only audit?
A. If the auditor becomes aware of a significant deficiency, communicate in writing to management and those charged with governance.
B. Plan and design procedures to identify deficiencies that are less severe than a material weakness.
C. Express an opinion on internal control.
D. Report the absence of significant deficiencies
Choice “A” is correct. An auditor is required to communicate significant deficiencies and material weaknesses in writing to management and to those charged with governance
within 60 days of the report release date.
Choice “B” is incorrect. The auditor is not required to search for deficiencies that are
less severe than a material weakness when conducting a financial statement only
audit. Identification of deficiencies that are less than a material weakness would be
required in an audit of internal controls.
Choice “C” is incorrect. The auditor is not required to express an opinion on internal
control when performing a financial statement only audit.
Choice “D” is incorrect. The auditor may not report the absence of significant
deficiencies but may report on the absence of material weaknesses.
MCQ-15169
Which of the following is not true related to establishing policies and procedures in accordance with the quality control standards?
A. To ensure that firms consistently achieve a high level of performance
B. To ensure that engagements are properly supervised
C. To ensure that engagement documentation is retained
D. To improve audit efficiency
Choice “D” is correct. Adopting a system of quality control standards should improve the conduct of a firm’s professional practice but it does not necessarily improve audit
efficiency.
Choice “A” is incorrect. Policies and procedures should be established to ensure that the firm consistently achieves a high level of performance.
Choice “B” is incorrect. Policies and procedures should be established to ensure that engagements are properly supervised.
Choice “C” is incorrect. Policies and procedures should be established to ensure that the retention of engagement documentation is maintained.
A CPA firm should adopt a system of quality control:
A. For all audit and attest services, but not necessarily for accounting and review services.
B. That encompasses human resource policies and practices.
C. Because it maximizes audit efficiency.
D. Because it ensures that all audit engagements will be conducted in accordance
with generally accepted auditing standards.
Choice “B” is correct.
A system of quality control should include human resource policies and practices, such as recruitment and hiring, determining capabilities and competencies, assigning
personnel to engagements, professional development, and performance evaluation, compensation and advancement.
Choice “A” is incorrect. A CPA firm is required to adopt a system of quality control for its auditing, attestation, and accounting and review services.
Choice “C” is incorrect. A system of quality control should be designed, implemented,
and maintained to improve the overall conduct of the firm’s professional practice;
however, this does not necessarily improve audit efficiency.
Choice “D” is incorrect. While an effective system of quality control is conducive to
complying with generally accepted auditing standards, it does not necessarily ensure
that such standards are followed on every individual audit engagement.
