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Homework answers / question archive / University of the East, Manila ACCOUNTING BAT 421 PSA 200 Revised and Redrafted Overall Objective of the Independent Auditor and the Conduct of an Audit in Accordance with PSA 1)Which of the following has the primary responsibility for the fairness of the representations made in the financial statements? a

University of the East, Manila ACCOUNTING BAT 421 PSA 200 Revised and Redrafted Overall Objective of the Independent Auditor and the Conduct of an Audit in Accordance with PSA 1)Which of the following has the primary responsibility for the fairness of the representations made in the financial statements? a

Accounting

University of the East, Manila

ACCOUNTING BAT 421

PSA 200 Revised and Redrafted Overall Objective of the Independent Auditor and the Conduct of an

Audit in Accordance with PSA

1)Which of the following has the primary responsibility for the fairness of the representations made in the financial statements?

a.            Client’s management.

b.            Audit committee.

c.             Independent auditor.

d.            Board of Accountancy

 

2.            An audit of financial statements of Toyota Corp. is being conducted by an external auditor. The external auditor is expected to

a.            Express an opinion as to the fairness of Toyota’s financial statements.

b.            Express an opinion as to the attractiveness of Toyota for investment purposes.

c.             Certify the correctness of Toyota’s financial statements.

d.            Examine all evidence supporting Toyota’s financial statements.

 

3.            Which of the following is one of the limitations of an audit?

a.            The possibility that management may prevent the auditor from performing the necessary audit procedures.

b.            The likelihood that the auditor may not be able to detect material misstatements in the

financial statements because the auditor is engaged only after the client’s year-end.

c.             The fact that most audit evidence is persuasive rather than conclusive in nature.

d.            The risk that the auditor may not possess the training and proficiency required by the engagement.

 

4.            The independent audit is important to readers of financial statements because it

a.            Determines the future stewardship of the management of the company whose financial statements are audited.

b.            Measures and communicates financial and business data involved in financial statements.

c.             Involves the objective examination of and reporting on management prepared information.

d.            Reports on the accuracy of all information in the financial statements.

 

5.            Which of the following is not one of the general principles governing the audit of financial statements?

a.            The auditor should plan and perform the audit with an attitude of professional skepticism.

b.            The auditor should obtain sufficient appropriate evidence primarily through inquiry and analytical procedures to be able to draw reasonable conclusion.

c.             The auditor should conduct the audit in accordance with PSA.

d.            The auditor should comply with the Philippine Code of Professional Ethics.

 

 

 

6.            Which one of the following is not among the conditions that give rise to a demand by external users for independent audits of financial statements? a. Remoteness of users.

b.            Complexity of making economic decisions.

c.             Potential conflict of interest between users and preparers of the statements. Consequence for making decisions.

 

7.            The primary reason for audit by an independent, external audit is

a.            To satisfy governmental regulatory requirements.

b.            To guarantee that there are no misstatements in the financial statements.

c.             To provide increased assurance to users as to the fairness of the financial statements.

d.            To ensure that any fraud will be discovered.

 

8.            When a CPA expresses an opinion on financial statements, his or her responsibilities extend to

a.            The underlying wisdom of the client’s management decisions.

b.            Whether the results of the client’s operating decisions are fairly presented in the financial

statements.

c.             Active participation in the implementation of the advice given to the client.

d.            An ongoing responsibility for the client’s solvency.

 

9.            In determining the primary responsibility of the external auditor for a company’s financial

statements, the auditor owes primary allegiance to:

a.            The management of the audit client because the auditor is hired and paid by management.

b.            The audit committee of the audit client because that committee is responsible for coordinating and reviewing all audit activities within the company.

c.             Stockholders, creditors and the investing public.

d.            The Auditing and Assurance Standards Council, because it determines auditing standards and auditor responsibility.

 

10.          Which of the following would not represent one of the primary problems that would lead to the demand for independent audits of a company’s financial statements? a. Management bias in preparing financial statements.

b.            The downsizing of business and financial markets.

c.             The complexity of transactions affecting financial statements.

d.            The remoteness of the user from the organization and thus the inability of the user to directly obtain financial information from the company.

 

11.          Which of the following is a correct statement?

a.            An audit provides limited assurance by attesting to the fairness of the client’s assertions.

b.            A review provides positive assurance by attesting the reliability of the client’s assertions.

c.             Management consulting services provide attestation in all cases.

d.            Accounting services do not provide attestation.

 

12.          Financial statement audits:

a.            Reduce the cost of capital.

 

 

 

b.            Report on the compliance with laws and regulations.

c.             Assess management’s efficiency.

d.            Overlook information risk.

 

13.          The audit of historical financial statements should be conducted by the CPA professionals in accordance with a. Generally accepted accounting principles.

b.            Philippine Standards on Auditing.

c.             The auditor’s judgment.

d.            The audit program.

 

14.          An audit involves ascertaining the degree of correspondence between assertions and established criteria. In the case of financial statement audit, which of the following is not a valid criterion? a. Accounting standards generally accepted in the Philippines.

b.            International Accounting Standards.

c.             Authorative financial reporting framework.

d.            Philippine Standards on Auditing.

 

15.          The audit process is

a.            A special application of the scientific method of inquiry.

b.            Regulated by PICPA.

c.             The only service a CPA is allowed to perform by law.

d.            Performed only by CPAs.

 

16.          In performing a financial statement audit, which of the following would an auditor least likely consider? a. Internal control.

b.            Compliance with GAAP.

c.             Quality of management’s business decisions.

Fairness of the financial statements amounts.

 

17.          Which of the following is a difference between attestation standards and auditing standards?

a.            Attestation standards cover attest engagements, other than those involving GAAP financial statements.

b.            Attestation standards do not require independence in mental attitude.

c.             Auditing standards apply only to CPAs while attestation standards apply to all accountants.

d.            Attestation standards do not include standards of reporting.

 

18.          Professional skepticism dictates that when management makes statement to the auditors, the auditors should

a.            Disregard the statement because it ranks low of the evidence quality scale.

b.            Corroborate the evidence with other supporting documentation whenever possible.

c.             Require that the statement be put in writing.

d.            Believe the statement in order to maintain the professional client-auditor relationship.

 

19.          Information risk refers to the risk that

 

 

 

a.            The client’s financial statements may be materially false and misleading.

b.            The auditor may express an unqualified opinion on financial statements that are materially misstated. c.                The client may not be able to remain in business.

d. Errors and frauds would not be detected by the auditor’s procedures.

 

 

20.          The audit committee of the board of directors of a company is responsible for: a. Hiring the auditor.

b.            Preparing the financial statements.

c.             The audit working papers.

d.            Independence and obtaining evidence.

 

21.          The single feature that most clearly distinguishes auditing, attestation and assurance is a. Type of service.

b.            Training required to perform the service.

c.             Scope of services.

d.            CPA’s approach to the service.

 

22.          The Philippine Standards on Auditing (PSAs) require that a report be issued whenever a CPA firm

a.            Performs an audit.

b.            Is engaged to perform any services of any nature.

c.             Is associated with financial statements.

d.            Does SEC regulated work.

 

23.          Which one of the following is an example of management expectation for independent auditors?

a.            An expert providing a written communication as the product of the engagement.

b.            Individuals who perform day-to-day accounting functions on behalf of the company.

c.             An active participant in management decision making.

d.            An internal source of expertise on financial and other matters.

 

24.          An expectation of the public is that the auditor will recognize that the primary users of audit services are: a. The employees.

b.            The Securities and Exchange Commission.

c.             The investors and creditors.

d.            The board of directors.

 

25.          Which of the following statements is true concerning an auditor’s responsibilities regarding financial statements?

a.            Making suggestions that are adopted about the form and content of an entity’s financial statements impairs auditor’s independence.

b.            An auditor may draft an entity’s financial statements based on information from management’s

accounting system.

c.             The fair presentation of audited financial statements in conformity with GAAP is an implicit part

of the auditor’s responsibilities.

 

 

 

d.            An auditor’s responsibilities for audited financial statements are not confined to the expression of the auditor’s opinion.

 

26.          Before accepting an engagement to audit a new client, an auditor is required to

a.            Make inquiries of the predecessor auditor after obtaining the consent of the prospective client

b.            Obtain the prospective client’s signature to the engagement letter

c.             Prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan

Discuss the management representation letter with the prospective client’s audit committee

 

27.          Which statement is correct relating to a potential successor auditor’s responsibility for communicating with

the predecessor auditors in connection with a prospective new audit client?

a.            The successor auditors have no responsibility to contact the predecessor auditors

b.            The successor auditors should obtain permission from the prospective client to contact the predecessor auditors

c.             The successor auditors should contact the predecessors regardless of whether the prospective client authorizes contact

d.            The successor auditors need not contact the predecessors if the successors are aware of all available relevant facts

 

28.          An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity, should

a.            Engage financial experts familiar with the nature of the business entity

b.            Obtain a knowledge of matters that relate to the nature of the entity’s business

c.             Refer a substantial portion of the audit to another CPA who will act as the principal auditor

d.            First inform management that an unqualified opinion cannot be issued

 

29.          Before accepting an audit engagement, a successor auditor should make specific inquiries of the

predecessor auditor regarding the predecessor’s

a.            Awareness of the consistency in the application of generally accepted accounting principles between periods

b.            Evaluation of all matters of continuing accounting significance

c.             Opinion of any subsequent events occurring since the predecessor’s audit report was issued

d.            Understanding as to the reasons for the change of auditors

 

30.          An auditor who has been invited to submit a proposal for an audit engagement is a a. Predecessor auditor

b.            Successor auditor

c.             Principal auditor

d.            Interim auditor

 

31.          Lions Inc. has engaged the services of Mr. Reyes, CPA, to make a project study on the expanded food vending operations of the corporation with the corresponding staffing and compensation package for its executive staff. Reyes, however, has primarily auditing expertise and only in general merchandising operations. Mr. Reyes may properly

a.            Accept the engagement and carry it out consistent with generally accepted auditing standards

b.            Accept the engagement but exercise due professional care

c.             Accept the engagement and acquire the necessary competence or consult with established authorities

d.            Decline the engagement for lack of experience or competence in an entirely new line of specialization

 

32.          Which of the following statements about independent financial statement audit is correct?

a.            The audit of financial statements relieves management of its responsibilities for the financial statements.

b.            An audit is designed to provide limited assurance that the financial statements taken as a whole are free from material misstatement.

c.             The procedures required to conduct an audit in accordance with psas should be determined by the client who engaged the services of the auditor.

d.            The auditor’s opinion is not an assurance  as to the future viability of the entity as well as the

effectiveness and efficiency with which management has conducted the affairs of the entity.

 

33.          The primary purpose of an independent financial statement audit is to

a.            Provide a basis for assessing management’s performance

b.            Comply with government regulatory requirements

c.             Assure management that the financial statements are unbiased and free from material error

d.            Provide users with an unbiased opinion about the fairness of information reported in the financial statements

 

34.          Financial statements need to be prepared in accordance with one or combination of:

Philippine            Philippine                            Other Authorative or                     Philippine Standards on Accounting                Comprehensive Financial             Financial

Auditing               Standards            Reporting Framework    Reporting Standard

a.            yes         yes         yes         yes

b.            no           yes         yes         yes

c.             no           yes         no           yes

 

d.            yes         no           no           no

 

35.          By providing high level of assurance on audit reports on financial statements, the auditor

a.            Guarantees the fair presentation of the financial statements.

b.            Confirms the accuracy of the financial statements.

c.             Enhances the credibility of the financial statements.

d.            Assures the readers that fraudulent activities of employees have been detected.

 

36.          The auditor may accept or continue an audit engagement only when the basis upon which it is to be performed has been agreed, through

I.             Establishing whether the preconditions for an audit are present

II.            Confirming that there is a common understanding between the auditor and management, and where appropriate, those charged with governance of the terms of the audit engagement a. I only

b.            II only

c.             Both I and II

d.            Neither I nor II

 

37.          An audit is conducted on the premise that management and, where appropriate, those charged with governance, have acknowledged and understand that they have responsibilities that are fundamental to the conduct of an audit in accordance with PSAs. Which of the following is not one of those responsibilities?

a.            The preparation of financial statements in accordance with relevant pronouncements issued by the AASC

b.            The establishment and maintenance of an adequate internal control system that is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error

c.             To provide the auditor with access to all information that is relevant to the preparation of the financial statements such as records, documentation, and other matters

d.            To provide the auditor with unrestricted access to persons within the entity from which the auditor determines it necessary to obtain audit evidence

 

38.          The auditor shall undertake which of the following activities prior to starting an initial audit?

I.             Performing procedures required by PSA 220 (Quality Control for an Auditor of Financial Statements) regarding the acceptance of the client relationship and the specific audit engagement

II.            Communicating with the predecessor auditor, where there has been a change of auditors, in compliance with relevant ethical requirements

a.            I only

b.            II only

c.             Either I or II

d.            Both I and II

 

39.          The objective of the ordinary audit of financial statements is the expression of an opinion on:

a.            The fairness of the financial statements in all material respects.

b.            The accuracy of the financial statements.

c.             The accuracy of the annual report.

d.            The accuracy of the balance sheet and income statement.

 

40.          Auditors accumulate evidence to:

a.            Defend themselves in the event of a lawsuit.

b.            Justify the conclusions they have otherwise reached.

c.             Satisfy the requirements of the Securities and Exchange Commission.

d.            Enable them to reach conclusions about the fairness of the financial statements.

 

 

PSA 210 Redrafted “Agreeing the Terms of Audit Engagements”

 

1.            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)

a.            Memorandum to be placed in the permanent section of the working papers. b. Engagement letter.

c.             Client representation letter.

 

d.            Comfort letter.

 

2.            1st statement – The auditor and the client should agree on the terms of the engagement. Such an agreement may be in the form of audit engagement letter or other suitable form of contract.

 

2nd statement – Even in those countries where the scope of the audit is established by law, an engagement letter may be informative for the client.

 

a.            1st statement is true ; 2nd statement is false

b.            1st statement is false ; 2nd statement is true

c.             Both statements are true.

d.            Both statements are false.

 

3.            It documents and confirms the auditor’s acceptance of the appointment, the objective and scope of the audit, the extent of the auditor’s responsibilities to the client and the form of any reports. a. Representation letter

b.            Management letter

c.             Engagement letter

d.            Comfort letter

 

4.            Engagement letters are widely used in practice for professional engagements of all types. The primary purpose of the engagement letter is to

a.            Remind management that the primary responsibility for the financial statements rests with management.

b.            Satisfy the requirements of the CPA’s liability insurance policy.

c.             Provide a starting point for the auditor’s preparation of the preliminary audit program.

d.            Provide a written record of the agreement with the client as to services to be provided.

 

5.            Which of the following is (are) valid reasons why an auditor sends to his client an engagement letter?

                a              b             c              d

To avoid misunderstanding with respect to management             Yes         Yes         No          No

To confirm the auditor’s acceptance of the appointment              Yes         Yes         Yes         No

To document the objective and scope of the audit           Yes         Yes         Yes         Yes

To ensure CPA’s compliance to PSA         Yes         No          No          Yes

 

 

6.            In making arrangements for an audit, there should be a clear understanding between the auditor and the client as to the following except:

a.            The type of audit to be performed.

b.            Terms of settlement for audit services.

c.             Assurance of auditor’s independence.

d.            Official to whom audit report shall be addressed.

 

7.            An auditor who has been invited to submit a proposal for an audit engagement is a a. Predecessor auditor.

b.            Successor auditor.

c.             Principal auditor.

d.            Interim auditor.

 

8.            Engagement letter that documents and confirms the auditor’s acceptance of the engagement would normally be sent to the client.

a.            Before the auditor report is issued.

b.            After the audit report is issued.

c.             At the end of the fieldwork.

d.            Before the commencement of the engagement.

 

9.            The nature of an audit engagement changes when there is

a.            A change in circumstances.

b.            A misunderstanding as to the nature of the audit.

c.             A restriction on the scope of the engagement, whether imposed by management or caused by circumstances.

 

d.            All of the above

 

10.          The form and content of the audit engagement letters may vary for each client, but they would generally include reference to:

a.            Management’s responsibility for all the financial statements

b.            Restricted access to whatever records, documentation and other information requested in connection with the audit.

c.             The fact that 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 avoidable risk that even some material misstatements may remain undiscovered.

d.            The type of opinion that may be given out by the auditor.

 

11.          The form and content of the audit engagement letters may vary for each client, but they would generally include reference to except:

a.            Management’s responsibility for all the financial statements.

b.            The scope of the audit, excluding reference to applicable legislation, regulations, or pronouncements of professional bodies to which the auditor adheres.

c.             The form of any reports or any communication of results of engagement.

d.            Unrestricted access to whatever records, documentation and other information requested in connection with the audit.

 

12.          Which of the following matters is generally included in an auditor’s engagement letter?

a.            Management’s responsibility for the entity’s compliance with laws and regulations.

b.            The factors to be considered in setting preliminary judgments about materiality.

c.             Management’s vicarious liability for illegal acts committed by its employees.

d.            The auditor’s responsibility to search for significant internal control deficiencies.

 

13.          1st statement – On recurring audits, the auditor should consider whether circumstances require the terms of the engagement to be revised and whether there is a need to remind the client of the existing terms of engagement.

 

2nd statement – The auditor should send a new engagement letter each year to an established client.

 

 

a.            1st statement is true ; 2nd statement is false

b.            1st statement is false ; 2nd statement is true

c.             Both statements are true.

d.            Both statements are false.

 

14.          On recurring audits, the auditor may decide not to send a new engagement letter each period. In which of the following situations will there be no need to send a new letter? a. Revision or special terms of the engagement.

b.            Significant change in nature or size of the client’s business.

c.             Recent change of middle management and rank and file organization structure.

d.            Indications of misunderstanding of the objective and scope of the audit.

 

15.          Which of the following will not necessarily lead the client to request for the auditor to change the engagement to one which provides a lower level of assurance?

a.            Restrictions on the scope of engagement, whether imposed by management or caused by circumstances.

b.            Misunderstanding as to the nature of the audit or related service originally requested.

c.             Recent changes in senior management, board of directors or ownership.

d.            Change in circumstances affecting the need for the service.

 

16.          Examples of changes in the nature of an audit engagement include the following except: a. A change in circumstances

b.            A misunderstanding as to the nature of an audit

c.             A restriction on the scope of the engagement, whether imposed by management or caused by circumstances

d.            None of the above

 

17.          This is a gap that exists between what the public, especially users of financial statements, believe auditors do (or ought to do) and what the auditors actually do is known as: a. Auditor’s gap

b.            User’s gap

 

c.             Business gap

d.            Expectation gap

 

18.          1st statement – Where the terms of the engagement are changed, the auditor and the client should agree on the new terms.

 

2nd statement – The auditor should not agree to a change of engagement when there is no reasonable justification for doing so.

 

3rd statement – If the auditor is unable to agree to a change of the engagement and is not permitted to continue the original engagement, the auditor should withdraw and consider whether there is any obligation, either contractual or otherwise, to report to other parties, such as the board of directors or shareholders, the circumstances necessitating the withdrawal.

 

a.            1st and 2nd statements are correct; 3rd statement is incorrect.

b.            1st and 3rd statements are correct; 2nd statement is incorrect.

c.             2nd and 3rd statements are correct; 1st statement is incorrect.

d.            All statements are correct.

 

19.          Which of the following factors do not influence the decision of the auditor to send a separate engagement letter to the parent entity and its component (subsidiary, branch or division) assuming the same auditor handles both entities?

a.            Legal requirements

b.            Degree of ownership by parent

c.             Ethical requirements

d.            Whether a separate audit report is to be issued on the component

 

20.          The engagement letter will do one, some, or all of the following:

1.            State whether the CPA will perform audit, review, or compilation services.

2.            State whether the CPA will perform tax or management advisory or other services.

3.            State any restriction to be imposed on the CPA’s work.

4.            Identify deadlines for completing the work.

5.            State the amount and type of work to be done by client’s personnel in generating auditor’s work papers.

6.            State the CPA’s fees for the engagement.

7.            Inform the client that the CPA does not have responsibility for detecting fraud.

 

The engagement letter will do

a.            Numbers 1, 2, 4 and 6.

b.            Numbers 1, 2, 3 4 and 6.

c.             Numbers 1, 3, 5 and 7.

d.            All seven of the above stated items.

 

21.          The engagement letter

a.            Does affect the CPA firm’s responsibility to external users of audited financial statements.

b.            Can affect legal responsibilities to the client.

c.             Can be used to alter the auditor’s responsibilities under generally accepted auditing standards.

d.            Is useful only if it is an engagement, but has no effect for review or compilation services.

 

22.          Audit engagement letters generally include reference to the following except

a.            Objective of the audit of financial statements.

b.            Management’s responsibility for the financial statements.

c.             Scope of the audit.

d.            Identification of the audit team members.

 

23.          When a professional accountant is the auditor of a parent entity and also the auditor of its subsidiary, branch or division (component), which of the following factors need not be considered in deciding whether to send the separate engagement letter to the component?

a.            Who appoints the auditor of the component.

b.            Whether a separate audit report is to be issued on the component.

c.             Legal requirements.

d.            Number of reports to be prepared during the peak audit season.

 

24.          Which of the following would most likely cause a CPA not to accept an audit engagement?

a.            Determining that the entity’s management lacks integrity.

b.            The inability to perform audit procedures prior to year end.

c.             Determining that the entity’s internal control is weak.

d.            Appointment after the close of the fiscal year.

 

25.          Which of the following helps prevent misunderstandings during audit planning?

a.            Auditor involvement in the preparation of the client’s financial records.

b.            Client involvement in determining specific audit planning issues.

c.             A preliminary meeting conference with the client to discuss fees, timing, client assistance and related issues.

d.            Involvement of the client’s internal auditors in setting materiality levels and determining the scope of

audit tests.

26.          The auditor’s understanding with a client as to the scope and nature of services to be provided is usually

documented in:

a.            The preliminary planning memorandum.

b.            The engagement letter.

c.             Communications with the audit committee

d.            The audit report

 

27.          A major difference of opinion concerning an accounting issue has risen between an assistant on an audit engagement and the auditor with final responsibility for the engagement. If after the consultation, the assistant believes it necessary to disassociate himself from the resolution of the matter, both the auditor and his assistant must

a.            Refer the matter to the firm’s peer review committee.

b.            Inform management of the nature of disagreement.

c.             Inform the company’s audit committee of the nature of disagreement.

d.            Document the details of the disagreement and the basis of resolution.

 

28.          Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding

a.            The predecessor’s assessments of inherent risk and judgment about materiality.

b.            The predecessor’s evaluation of matters of continuing accounting significance.

c.             The degree of cooperation the predecessor received concerning the inquiry of client’s lawyer.

d.            Disagreements the predecessor had with the client concerning auditing procedures and accounting principles.

 

29.          A successor auditor should request the new client to authorize the predecessor auditor to allow a review of

the predecessor’s

Engagement letter          Working papers

a.            Yes         Yes

b.            Yes         No

d.            No          No

30.          Arrangements concerning with which of the following are least likely to be included in the engagement letter? a. A predecessor auditor

b.            Fees and billing

c.             CPA investment in client securities

d.            Other services to be provided in addition to the audit

 

31.          An engagement letter should ordinarily include information on the objectives of the engagement and

CPA’s    Client’s                 Limitations of Responsibilities    Responsibilities                 Engagement

 

b.            Yes         No          Yes

c.             Yes         No          No

d.            No          No          No

32.          Before performing any audit procedures, the auditor and the client should agree on the

                Type of opinion to be expressed              Terms of engagement   a,

Yes         Yes         b.            No                         

                Yes

 

c.             Yes         No

d.            No          No

 

33.          Which of the following statements would least likely appear in an auditor’s engagement letter?

a.            “Fees for our services are based on regular per diem rates, plus travel and other out-of-pocket

expenses.”

b.            “During the course of our audit, we may observe opportunities for economy in, or improved controls over your operations.”

c.             “Our engagement is subject to the risk that material misstatements of fraud, if they exist, will not be

detected.”

d.            “After performing our preliminary analytical procedures we will discuss with you the other procedures

we consider necessary to complete the engagement.”

 

34.          Which of the following is not a key issue which need to agreed by the auditor and the client as part of the

“terms of engagement”? a. Expectation gap

b.            Issues of risk assessment

c.             Use of experts

d.            All of the above are key issues.

 

35.          An engagement letter would not normally include

a.            Billing arrangements.

b.            Arrangements concerning client’s assistance.

c.             Details of procedures that will be performed.

d.            Expectation of receiving a representation letter from management.

 

36.          Audit engagement letters generally include reference to the following except

a.            Objective of the audit of financial statements

b.            Management’s responsibility for the financial statements

c.             Scope of the audit

d.            Identification of the audit team members

 

37.          When a professional accountant is the auditor of a parent entity and also the auditor of its subsidiary, branch or division (component), which of the following factors need not be considered in deciding whether to send the separate engagement letter to the component?

a.            Who appoints the auditor of the component

b.            Whether a separate audit report is to be issued on the component

c.             Legal requirements

d.            Number of reports to be prepared during the peak audit season

 

38.          On recurring audits, the auditor may decide not to send a new engagement letter each period. In which of the following situations will there be no need to send a new letter? a. Revision or special terms of the engagement

b.            Significant change in nature or size of the client’s business

c.             Recent change of middle management and rank and file organization structure

d.            Indications of misunderstanding of the objective and scope of the audit

 

??C

 

 

39.          Which of the following will not necessarily lead the client to request for the auditor to change the engagement to one which provides a lower level of assurance?

a.            Restrictions on the scope of the engagement, whether imposed by management or caused by circumstances

b.            Misunderstanding as to the nature of an audit or related service originally requested

c.             Recent changes in senior management, board of directors or ownership

d.            Change in circumstances affecting the need for the service

 

40.          For initial engagements, the auditor should obtain sufficient appropriate audit evidence for the following, except

a.            That the opening balances do not contain misstatement that materiality affect the current period’s

financial statements

b.            That the prior period’s closing balances have been correctly brought forward to the current period, or,

when appropriate, have been restated

 

c.             That appropriate accounting policies are consistently applied or changes in accounting policies have been properly accounted for or adequately disclosed

d.            That the client has informed the predecessor auditor of his appointment as the new auditor

 

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