Which of the following statements is not correct about materiality?
Answer(s): B
Choice "b" is correct. Materiality levels include an overall level for each statement; however, because the statements are interrelated, and for reasons of efficiency, the auditor ordinarily considers materiality for planning purposes in terms of the smallest aggregate level of misstatements that could be considered material to any one of the financial statements. Choice "a" is incorrect. The concept of materiality recognizes that some matters, either individually or in the aggregate, are important for the fair presentation of financial statements in conformity with GAAP, while other matters are not important.Choice "c" is incorrect. Materiality judgments are made in light of the surrounding circumstances and necessarily involve both quantitative and qualitative considerations. Choice "d" is incorrect. The auditor's consideration of materiality is influenced by his or her perception of the needs of a reasonable person relying on the financial statements.
Which of the following documentation is not required for an audit in accordance with generally accepted auditing standards?
Answer(s): D
Choice "d" is correct. The auditor is not required to evaluate operating effectiveness as part of obtaining an understanding of internal control, and therefore need not document the basis for this decision.Choice "a" is incorrect. The auditor is required to prepare a written audit plan. Choice "b" is incorrect. Audit documentation should be sufficient to show that the accounting records agree or reconcile with the financial statements.Choice "c" is incorrect. Establishing an understanding with the client is required by GAAS, and an engagement letter is a presumptively mandatory requirement.
When assessing the internal auditors' competence, the independent CPA should obtain information about the:
Choice "b" is correct. When assessing the internal auditors' competence, the auditor should obtain information about such factors as educational level, experience, professional certification, continuing education, supervision, review, and evaluation of performance. Choice "a" is incorrect. The organizational level to which the internal auditors report is related to their objectivity.Choice "c" is incorrect. Policies prohibiting internal auditors from auditing areas where relatives are employed are related to objectivity.Choice "d" is incorrect. Access to sensitive records and information is related to the overall objectives of the internal audit function, not to internal auditor competence.
Which of the following statements is correct about the auditor's use of the work of a specialist?
Choice "d" is correct. Although the appropriateness and reasonableness of methods or assumptions used and their application are the responsibility of the specialist, the auditor should obtain an understanding of the methods or assumptions used in order to determine whether the findings are suitable for corroborating the representations in the financial statements. Choice "a" is incorrect. An understanding should exist among the auditor, the client, and the specialist as to the nature of the work to be performed. Choice "b" is incorrect. The auditor may consider performing substantive procedures to verify the specialist's findings if the specialist is related to the client, but is not required to do so. Choice "c" is incorrect. An understanding should exist among the auditor, the client, and the specialist as to the nature of the work to be performed.
In assessing the competence and objectivity of an entity's internal auditor, an independent auditor least likely would consider information obtained from:
Choice "d" is correct. Analytical procedures may be used to enhance the auditor's understanding of the client's business or to evaluate financial statement assertions, but generally would not be helpful in assessing the competence and objectivity of an entity's internal auditor. Choice "a" is incorrect. In assessing competence and objectivity, the auditor usually considers information obtained from discussions with management personnel.Choice "b" is incorrect. In assessing competence and objectivity, the auditor usually considers information obtained from external quality reviews of internal audit activities. Choice "c" is incorrect. In assessing competence and objectivity, the auditor usually considers information obtained from previous experience with the internal audit function.
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