1.Which of the following would notbe a consideration of a CPA firm in deciding whether to accept a new
client?
A.The client’s probability of achieving an unqualified opinion.
B.The client’s financial ability.
C.The client’s relations with its previous CPA firm.
D.The client’s standing in the business community.
2.After accepting an audit engagement, a successor auditor should make specific inquiries of the
predecessor auditor regarding:
A.The predecessor’s evaluation of matters of continuing accounting significance.
B.Disagreements which the predecessor had with the client concerning auditing procedures and
accounting principles.
C.The client’s ability to pay the fee for this engagement.
D.The predecessor’s assessments of inherent risk and judgments about materiality.
3.The objective and scope of the audit and the extent of the auditor’s responsibilities to the client are best
documented in a(n):
A.Client’s representation letterC.Audit engagement letter.
B.Independent auditor’s reportD.Management letter
4.Which of the following is not a valid reason why an auditor sends to his client an engagement letter?
A.Avoid misunderstanding with respect to the engagement
B.Confirms the auditor’s appointment
C.Discloses the objective and scope of the audit
D.Assures CPA’s compliance to PSAs
5. The secondary purpose of the engagement letter is to:
A.Remind management that the primary responsibility for the financial statements rests with
management.
B.Satisfy the requirements of the CPA’s liability insurance policy.
C.Provide a written record of the agreement with the client as to the services to be provided.
D.Provide a starting point for the auditor’s preparation of the preliminary audit program.
6. S1The engagement letter will include identification of significant dates throughout the engagement.
S2The engagement letter will inform the client about the audit procedures to be performed.
A.True, trueB.False, falseC.True, false D.False, true
7.Which of the following procedures is performed primarily during audit planning?
A.Risk assessment procedures
B.Tests of controls
C.Substantive tests
D.All of the above are performed primarily during audit planning
8. Which of the following is not a risk assessment procedure?
A.Inquiries of management and others within the entity
B.Analytical procedures
C.External confirmation with customers
D.Observation and inspection
9.S1Materiality judgments are made in light of surrounding circumstances and necessarily involve both
quantitative and qualitative judgments.
S2An auditor’s consideration of materiality is influenced by the auditor’s perception of the needs of a
reasonable person who will rely on the financial statements.
A.True, trueB.False, falseC.True, falseD.False, true
10.S1Analytical procedures are required to be used in planning a financial statement audit.
S2Analytical procedures are required to be used all throughout the audit.
A.True, trueB.False, falseC.True, falseD.False, true
11.S1In a financial statement audit, audit risk represents the probability that internal controls fail and the
failure is not detected by the auditor’s procedures.
S2Audit risk may be eliminated by 100% testing of the items in the population.
A.True, trueB.False, falseC.True, falseD.False, true
12.In a financial statement audit, detection risk represents:
A.The susceptibility of an account balance to error that could be material.
B.The risk that error could occur and not be prevented or detected by the internal control structure of
the client.
C.The risk that the auditor fails to modify materially misstated financial statements.
D.The risk that error could occur and not be detected by the auditor’s procedures.