Quiz #3: The Audit Process
1. Prior to the acceptance of an audit engagement with a client who has
terminated the services of the predecessor auditor, the CPA should
a. Contact the predecessor auditor without advising the prospective client and
request a complete report of the circumstance leading to the termination
with the understanding that all information disclosed will be kept confidential.
b. Accept the engagement without contacting the predecessor auditor since the
CPA can include audit procedures to verify the reason given by the client for
the termination.
c. Not communicate with the predecessor auditor because this would in effect
be asking the auditor to violate the confidential relationship between auditor
and client.
d. Advise the client of the intention to contact the predecessor auditor and
request permission for the contact.
2. Which of the following should an auditor obtain from the predecessor auditor
prior to accepting an audit engagement?
a. Analysis of balance sheet accounts
b. Analysis of income statement accounts
c. All matters of continuing accounting significance
d. Facts that might bear on the integrity of management
3. The objective and scope of the audit and the extent of the auditor’s
responsibilities to the client are best documented in
a. Independent auditor’s report c. Client’s representation letter
b. Audit engagement letter d. Audit program
4. Which of the following least likely requires the auditor to send a new
engagement letter?
a. An indication that the client misunderstands the objective and scope of the
audit.
b. Any revised or special terms of the engagement.
c. A recent change in the audit firm’s management.
d. Legal requirements and other government agencies’ pronouncements.
5. Which of the following is appropriately included in an audit engagement letter?
I. Because of the test nature and other inherent limitations of an audit, together
with the inherent limitations of any accounting and internal control system, there
is an unavoidable risk that even some material misstatements may remain
undiscovered.
II. The audit will be made with the objective of expressing an opinion on the
financial statements.
III. An audit also includes assessing the accounting procedures used and
significant estimates made by management.
a. I and II c. II and III
b. I and III d. I, II and III
6. When an independent auditor expresses an unqualified opinion he asserts
that:
(1) He performed the audit in accordance with generally accepted auditing
standards.
(2) The company is a profitable and viable entity.
(3) The financial statements examined are in conformity with GAAP.
(4) The financial statements are accurate and free of errors.
a. All of the above statements are true.
b. Only statements (1) and (3) are true.
c. Only statements (2) and (4) are true.
d. All of the above statements are false.
7. When management does not amend the financial statements in circumstances
where the auditor believes they need to be amended and the auditor’s report has
not been released to the entity, the auditor should express
a. Qualified or adverse opinion
b. Qualified or disclaimer of opinion
c. Unqualified opinion with explanatory paragraph
d. Unqualified opinion.
8. The most common type of audit report contains a(n):
a. Adverse opinion. c. Disclaimer of opinion
b. Qualified opinion. d. Unqualified
9. If the auditor concludes that the fraud or error has a material effect on the
financial statements and has not been properly corrected in the financial
statements, the auditor should issue a:
a. Unqualified opinion with explanatory paragraph.
b. Qualified or adverse opinion.
c. Qualified or disclaimer of opinion.
d. Adverse or disclaimer of opinion.
10. If the auditor is precluded by the entity from obtaining evidence to evaluate
whether fraud or error that may be material to the financial statements has, or is
likely to have, occurred, the auditor should issue a (n):
a. Unqualified opinion with explanatory paragraph.
b. Qualified or adverse opinion.
c. Qualified or disclaimer of opinion.
d. Adverse or disclaimer of opinion.
11. In an audit of financial statements, an auditor’s primary consideration
regarding a control is whether it
a. Reflects management’s philosophy and operating style.
b. Affects management’s financial statement assertions.
c. Provides adequate safeguards over access to assets.
d. Enhances management’s decision-making processes.
Quiz #3: The Audit Process
12. The primary responsibility for establishing and maintaining an internal control 19. Which of the following would be least likely to be included in the auditor’s
rests with engagement letter
a. The external auditors a. Forms of the report
b. The internal auditors b. Extent of his responsibilities
c. Management and those charged with governance c. Objectives and scope of the audit
d. The controller or the treasurer d. Type of opinion to be issued

13. Which of the following assertions does not relate to balances at period end? 20. According to PSA 210, the auditor and the client should agree on the terms
a. Existence of engagement. The agreed terms would need to be recorded in a(n)
b. Occurrence a. Memorandum to be placed in the permanent section of the auditing
c. Valuation or allocation working papers
d. Rights and obligations b. Engagement letter
14. Which of the following assertions does not relate to classes of transactions c. Client representation letter
and events for the period? d. Comfort letter
a. Completeness
b. Valuation 21. Which of the following factors most likely would cause an auditor not to
c. Cut-off accept a new audit engagement?
d. Accuracy a. An inadequate understanding of the entity’s interval control structure
b. The close proximity to the end of the entity’s fiscal year
15. An assertion that transactions are recorded in the proper accounting period c. Concluding that the entity’s management probably lacks integrity
is: d. An inability to perform preliminary analytical procedures before
a. Classification assessing control risk
b. Occurrence
c. Accuracy 22. Which of the following should an auditor obtain from the predecessor auditor
d. Cut-off prior to accepting an audit engagement
a. Analysis of balance short accounts
16. Before accepting an engagement to audit a new client, a CPA is required to b. Analysis of income statements accounts
obtain c. All matters of continuing accounting significance
a. A preliminary understanding of the prospective client’s industry and d. Facts that might bear on the integrity of management
business
b. The prospective client’s signature to the engagement letter 23. An incoming auditor most likely would make specific inquiries of the
c. An understanding of the prospective client’s control environment predecessor auditor regarding
d. A representation letter from the prospective client a. Specialized accounting principles of the client’s industry
b. The competency of the client’s internal audit staff
17. Preliminary knowledge about the client’s business and industry must be c. The uncertainty inherent in applying sampling procedures
obtained prior to the acceptance of the engagement primarily to d. Disagreements with management as to auditing procedures
a. Determine the degree of knowledge and expertise required by the
engagement
b. Determine the integrity of management 24. This consists of checking the mathematical accuracy of documents of
c. Determine whether the firm is independent with the client records.
d. Gather evidence about the fairness of the financial statements a. Reperformance
b. Confirmation
18. In an audit, communication between the predecessor and incoming auditor c. Recalculation
should be d. Inspection
a. Authorized in an engagement letter
b. Acknowledged in a representation letter
c. Either written or oral
d. Written and included in the working pap
Quiz #3: The Audit Process
25. Which of the following is not normally performed in the preplanning or pre-
engagement phase?
a. Deciding whether to accept or reject an audit engagement
b. Inquiring from predecessor auditor
c. Preparing an engagement letter
d. Making a preliminary estimate of materiality

26. Two determinants of the persuasiveness of evidence are:

a. competence and sufficiency.
b. relevance and reliability.
c. appropriateness and sufficiency.
d. independence and effectiveness.

27. “Evaluations of financial information made by a study of plausible

relationships among financial and nonfinancial data involving comparisons of
recorded amounts to expectations developed by the auditor” is a definition of:
a. analytical procedures.
b. tests of transactions.
c. tests of balances.
d. auditing.

28. A listing of all the things which the auditor will do to gather sufficient,
competent evidence is the:
a. audit strategy.
b. audit program.
c. audit procedure.
d. audit risk model.

29. The reliance placed on substantive tests in relation to the reliance placed on
internal control varies in a relationship that is ordinarily:
a. Parallel
b. Inverse
c. Direct
d. No relationship

30. Which of the following ultimately determines the specific audit procedures
necessary to provide an independent auditor with a reasonable basis for the
expression of an opinion?
a. The audit program.
b. The auditor’s judgment.
c. Generally accepted auditing standards.
d. The auditor’s working papers.