Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding the predecessor's:
Answer(s): B
Choice "b" is correct. Before accepting an engagement, the auditor should make specific inquiries of the predecessor auditor in order to assist the auditor in deciding whether or not to accept the engagement.Inquiry should include the predecessor's understanding of the reasons for the change in auditors. Choice "a" is incorrect. The predecessor generally does not provide an opinion on events occurring subsequent to the issuance of the audit report.Choice "c" is incorrect. The successor (and not the predecessor) evaluates the consistency in the application of GAAP. This evaluation occurs after acceptance. Choice "d" is incorrect. The predecessor generally allows the successor to review audit documentation related to matters of continuing accounting significance, but this occurs subsequent to acceptance.
Which of the following factors most likely would cause an auditor not to accept a new audit engagement?
Answer(s): C
Choice "c" is correct. A conclusion that management lacks integrity would probably cause the auditor not to accept a new engagement.Choice "a" is incorrect. Inadequate understanding of the client's internal control would not prevent the auditor from accepting the engagement, since that understanding could be obtained later. Choice "b" is incorrect. Proximity to year-end would not prevent an auditor from accepting a new audit engagement.Choice "d" is incorrect. While analytical procedures are required during planning, this generally occurs subsequent to accepting the engagement.
The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the:
Choice "b" is correct. Review of assistants' work is necessary to determine whether it was performed in a satisfactory manner and to determine whether the work supports the conclusions presented in the auditor's report.Choice "a" is incorrect. The responsibility of a firm to establish review procedures (a system of quality control) is distinct from the auditor's responsibility to adequately plan and supervise the work on a particular engagement. Quality control standards relate to the conduct of the firm's audit practice as a whole; GAAS relates to the conduct of individual audits. Choice "c" is incorrect. Specific audit procedures are performed based on the auditor's judgment and would not necessarily be approved in the professional standards. Choice "d" is incorrect. Review of an assistant's work would not necessarily be indicative of that assistant's technical training and proficiency. The review process is to determine whether the audit is being performed in a satisfactory manner.
An auditor obtains knowledge about a new client's business and its industry to:
Answer(s): D
Choice "d" is correct. The auditor should obtain knowledge of the client's business and its industry in order to determine the effect of transactions, events, and practices on the client's financial statements.Choice "a" is incorrect. Constructive suggestions concerning improvements in the new client's internal control are generally made after the study and evaluation of the client's internal control, performed subsequent to planning. Knowledge about the new client's business and its industry is generally obtained during planning.Choice "b" is incorrect. The auditor should have an attitude of professional skepticism in conducting the engagement, but this attitude is not necessarily related to the auditor's knowledge of the new client's business and its industry.Choice "c" is incorrect. The auditor should evaluate whether the aggregation of known misstatements materially affects the financial statements, but this is done near the audit's conclusion. Knowledge about the new client's business and its industry is generally obtained during planning.
The objective of performing analytical procedures in planning an audit is to identify the existence of:
Answer(s): A
Choice "a" is correct. The objective of performing analytical procedures during planning is to discover unusual transactions or events that may have an impact on the planning of the financial statement audit.Choice "b" is incorrect. Analytical procedures are not effective in identifying illegal acts that went undetected due to internal control weaknesses.Choice "c" is incorrect. Analytical procedures are not effective in identifying related party transactions.Choice "d" is incorrect. Analytical procedures are not effective as tests of controls to identify unauthorized transactions.
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