A primary advantage of using CAATs in the audit of an advanced computerized system is that it enables the auditor to

A primary advantage of using CAATs in the audit of an advanced computerized system is that it enables the auditor to

a. substantiate the accuracy of data through self-checking digits and hash totals
b. utilise the speed and accuracy of the computer
c. verify the performance of machine operations that leave visible evidence of occurrence
d. gather and store large quantities of supportive audit evidence in machine-readable form


Answer: b. utilise the speed and accuracy of the computer

An audit plan contains

a. specifications of audit standards relevant to the financial statements being audited
b. documentation of the assertions under audit, the evidence obtained, and the conclusions reached
c. specifications of procedures that auditors believe appropriate for the financial statements under audit
d. reconciliation of the account balances in the financial statements with the account balances in the client's general ledger


Answer: c. specifications of procedures that auditors believe appropriate for the financial statements under audit

If sales were overstated by recording a false credit sale at the end of the year, where could you find the false "dangling debit?"

a. cost of goods sold
b. inventory
c. bad debt expense
d. accounts receivable


Answer: d. accounts receivable

Confirmations of accounts receivable provide evidence primarily about which two assertions?

Confirmations of accounts receivable provide evidence primarily about which two assertions?

a. existence and rights & obligations
b. valuation and rights & obligations
c. completeness and valuation
d. existence and completeness

Answer: a. existence and rights & obligations

The revenue cycle of a company generally includes which accounts?

a. inventory, accounts payable, and general expenses
b. cash, notes payable, and capital stock
c. cash, accounts receivable, and sales
d. inventory, general expenses, and payroll


Answer: c. cash, accounts receivable, and sales

When auditing the existence assertion for an asset, auditors proceed from the

a. general ledger back to the supporting original transaction documents
b. supporting original transaction documents to the general ledger
c. financial statement amounts back to the potentially unrecorded items
d. potentially unrecorded items forward to the financial statement amounts


Answer: a. general ledger back to the supporting original transaction documents

Audit documentation that shows the detailed evidence and procedures regarding the balance in the accumulated depreciation account

Audit documentation that shows the detailed evidence and procedures regarding the balance in the accumulated depreciation account for the year under audit will be found in the

a. planning memorandum in the current file
b. administrative audit documentation in the current file
c. permanent file audit documentation
d. current file audit documentation


Answer: d. current file audit documentation

With respect to the concept of materiality, which one of the following statements is correct?

a. materiality is a matter or professional judgment
b. materiality depends on the nature of the transaction rather than the dollar amount of the transaction
c. materiality depends on the dollar amount of an item relative to other items in the financial statements
d. materiality is determined by reference to AICPA guidelines


Answer: a. materiality is a matter or professional judgment

An auditor's permanent file audit documentation most likely will contain

a. excerpts of the corporate charter and bylaws
b. the most recent engagement letter
c. memoranda of conference with management
d. internal control analysis for the current year


Answer: a. excerpts of the corporate charter and bylaws

Which of the following engagement planning procedures would most likely assist the auditor in identifying related-party transactions

Which of the following engagement planning procedures would most likely assist the auditor in identifying related-party transactions before the balance-sheet date?

a. inspecting communications with the client's legal counsel regarding recorded contingent liabilities
b. scanning the minutes for significant transactions with members of the board of directors
c. reviewing accounting records for recurring transactions occurring near year-end
d. interviewing internal auditors about their reporting responsibilities


Answer: b. scanning the minutes for significant transactions with members of the board of directors

Spreadsheet software would be most useful for which of the following audit activities?

a. drafting a planning memorandum
b. preparing a comparison of current-year expenses with those from the previous year
c. preparing an audit plan
d. testing internal controls over computerised accounting applications


Answer: b. preparing a comparison of current-year expenses with those from the previous year

Which of the following is an advantage of computer-assisted audit techniques (CAATs)?

a. the use of CAATs can be substituted for a relatively large part of the required testing
b. the software can be used for audits of clients that use differing computer equipment and file formats
c. the use of CAATs has reduced the need for the auditor to study input controls for computer-related procedures
d. the CAATs programs are well written in one computer language


Answer: b. the software can be used for audits of clients that use differing computer equipment and file formats

Which of the following communications is most likely to be written before the balance-sheet date?

Which of the following communications is most likely to be written before the balance-sheet date?

a. a report to the audit committee on the results of testing of internal control over cash receipts
b. an attorney's letter regarding contingent liabilities
c. confirmation letters to vendors confirming the amounts they owe to the client
d. an engagement letter


Answer: d. an engagement letter

Prior to accepting a new engagement, a public accounting firm should

a. assess the firm's resources to ensure that they are sufficient to permit them to accept the engagement
b. attempt to contact the predecessor auditors
c. all of the answers are correct
d. evaluate the integrity of management


Answer: c. all of the answers are correct

Which of the following procedures would most likely be performed during planning?

a. performing a search for unrecorded liabilities
b. reporting internal control deficiencies to the audit committee
c. surprise counts of the client's petty cash fund
d. identifying related parties


Answer: d. identifying related parties

When auditing Vandalay Jewelry, Costanza CPA was not familiar with the quality and cut of the company's precious jewel inventory

When auditing Vandalay Jewelry, Costanza CPA was not familiar with the quality and cut of the company's precious jewel inventory. To address this shortcoming, Costanza hired Benes, an expert in jewel valuation, to assist in the inventory valuation. Should Costanza refer to Benes's work in the audit report?

a. the auditors' report should mention that use of a specialist only when the specialist's findings affect the auditors' conclusion
b. the use of a specialist need not be mentioned if the auditors decide to take responsibility for the specialist's findings
c. yes, the auditors' report should mention that fact that a specialist was used
d. the auditors' report should mention the specialist only if Vandalay agrees with specialist's findings


Answer: a. the auditors' report should mention that use of a specialist only when the specialist's findings affect the auditors' conclusion

An audit engagement letter should normally include which of the following matters of agreement between the auditor and the client?

a. methods of statistical sampling the auditor will use
b. schedules and analyses to be prepared by the client's employees
c. client representations about availability of all minutes of meetings of the board of directors
d. specification of litigation in progress against the client


Answer: b. schedules and analyses to be prepared by the client's employees

Which of the following is not a benefit claimed for the practice of determining materiality in the initial planning stage of an audit?

a. avoiding the problem of doing too little work (under-auditing)
b. being able to fine-tune the audit work for effectiveness and efficiency
c. being able to decide early what type of audit opinion to issue
d. avoiding the problem of doing more work than necessary (over-auditing)


Answer: c. being able to decide early what type of audit opinion to issue

When planning an audit, which of the following is not a factor that affects auditors' decisions about the quantity,

When planning an audit, which of the following is not a factor that affects auditors' decisions about the quantity, type, and content of audit documentation?

a. the auditors' judgment about materiality
b. the auditors' judgment about their independence with regard to the client
c. the existence of new sales contracts important for the client's business
d. the auditors' need to document compliance with generally accepted auditing standards


Answer: b. the auditors' judgment about their independence with regard to the client

When initiating communications with predecessor auditors, prospective auditors should expect

a. to take responsibility for obtaining the client's consent for the predecessor to give information about prior audits
b. to obtain copies of some or all of the predecessor auditor's audit documentation
c. to conduct interviews with the partner and manager in charge of the predecessor public accounting firm's engagement
d. all of the answers are correct


Answer: d. all of the answers are correct

Generally accepted auditing standards require that auditors always prepare and use

a. the written time budgets and schedules for performing each audit
b. a written audit plan
c. a written client consent to discuss audit matters with prospective auditors
d. a written planning memorandum explaining the auditors' understanding of the client's business


Answer: b. a written audit plan