University of Michigan ACCOUNTING

ACC 575

CHAPTER 5

1)This consists of checking the mathematical accuracy of documents of records.

1. 1. Reperformance
   2. Confirmation
   3. Recalculation
   4. Inspection

2. Which of the following assertions does not relate to balances at period end?
   1. Existence
   2. Occurrence
   3. Valuation or allocation
   4. Rights and obligations

3. Which of the following assertions does not relate to classes of transactions and events for the period?
   1. Completeness
   2. Valuation
   3. Cut-off
   4. Accuracy

4. An assertion that transactions are recorded in the proper accounting period is:
   1. Classification
   2. Occurrence
   3. Accuracy
   4. Cut-off

5. Which of the following is not normally performed in the preplanning or pre-engagement phase?
   1. Deciding whether to accept or reject an audit engagement
   2. Inquiring from predecessor auditor
   3. Preparing an engagement letter

1. 4. Making a preliminary estimate of materiality

6. Before accepting an engagement to audit a new client, a CPA is required to obtain
   1. A preliminary understanding of the prospective client’s industry and business
   2. The prospective client’s signature to the engagement letter
   3. An understanding of the prospective client’s control environment
   4. A representation letter from the prospective client

7. Preliminary knowledge about the client’s business and industry must be obtained prior to the acceptance of the engagement primarily to
   1. Determine the degree of knowledge and expertise required by the engagement
   2. Determine the integrity of management
   3. Determine whether the firm is independent with the client
   4. Gather evidence about the fairness of the financial statements

8. In an audit, communication between the predecessor and incoming auditor should be
   1. Authorized in an engagement letter
   2. Acknowledged in a representation letter
   3. Either written or oral
   4. Written and included in the working papers

9. Arnel, CPA, is succeeding Von, CPA, on the audit engagement of Almar Corporation. Arnel plans to consult Von and to review Von’s prior year working papers. Arnel may do so if
   1. Von and Almar consent
   2. Almar consents
   3. Von consents
   4. Von and Arnel consent

10. An incoming auditor should request the new client to authorize the predecessor auditor to allow a review of the predecessor’s

Engagement letter                                          Working Paper

1. 1. Yes                                                                    Yes
   2. Yes                                                                     No
   3. No                                                                     Yes
   4. No                                                                     No

11. Engagement letter that documents and confirms the auditor’s acceptance of the engagement would normally be sent to the client
    1. Before the audit report is issued
    2. After the audit report is issued
    3. At the end of fieldwork
    4. Before the commencement of the engagement

12. Which of the following is not one of the principal contents of an engagement letter?
    1. Objective of the financial statements
    2. Unrestricted access to records and documents
    3. Limitations of the engagement

1. 4. Management’s responsibility for the financial statements

13. Arrangements concerning which of the following are least likely to be included in engagement letter?
    1. Auditor’s responsibilities
    2. Fees and billing
    3. CPA investment in client securities
    4. Other forms of reports to be issued in addition to the audit report

14. The audit engagement letter should generally include a reference to each of the following except
    1. The expectation of receiving a written management representation letter
    2. A request for the client to confirm the terms of engagement
    3. A description of the auditor’s method of sample selection
    4. The risk that material misstatements may remain undiscovered

15. Which of the following would be least likely to be included in the auditor’s engagement letter
    1. Forms of the report
    2. Extent of his responsibilities
    3. Objectives and scope of the audit
    4. Type of opinion to be issued

16. According to PSA 210, the auditor and the client should agree on the terms of engagement. The agreed terms would need to be recorded in a(n)
    1. Memorandum to be placed in the permanent section of the auditing working papers
    2. Engagement letter
    3. Client representation letter
    4. Comfort letter

17. Which of the following factors most likely would influence an auditor’s determination of the auditability of the entity’s financial statements
    1. The complexity of the accounting systems
    2. The existence of related party transactions
    3. The adequacy of the accounting records
    4. The operating effectiveness of control procedures

18. Which of the following factors most likely would cause an auditor not to accept a new audit engagement?
    1. An inadequate understanding of the entity’s interval control structure
    2. The close proximity to the end of the entity’s fiscal year
    3. Concluding that the entity’s management probably lacks integrity
    4. An inability to perform preliminary analytical procedures before assessing control risk

19. Which of the following should an auditor obtain from the predecessor auditor prior to accepting an audit engagement
    1. Analysis of balance short accounts
    2. Analysis of income statements accounts
    3. All matters of continuing accounting significance
    4. Facts that might bear on the integrity of management