Answered: 1)An auditor’s engagement letter most…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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11)An auditor’s engagement letter most likely will include

A.A request for permission to contact the client’s lawyer for assistance in identifying litigation, claims, and assessments.

B.A reminder that management is responsible for illegal acts committed by employees.

C.The auditor’s preliminary assessment of the risk factors relating to misstatements arising from fraudulent financial reporting.

D.Management’s acknowledgment of its responsibility for such internal control as it determines is necessary to enable the preparation of financial statements that are free from material misstatement.

12)Early appointment of the independent auditor will enableA.

A more thorough examination to be performed.

B.A proper study and evaluation of internal control to be performed.

C.Sufficient competent evidential matter to be obtained.

D.A more efficient examination to be planned.

13)An auditor who accepts an audit engagement and does not possess the industryexpertise of the business entity, should

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

B.Obtain 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.

14)Engagement letters are widely used in practice for professional engagement 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.

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

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

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

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

D.The predecessor’s assessments of inherent risk and judgments about materiality.

16)Which of the following factors would most likely cause a CPA to decide not to accept a new audit engagement?A.The CPA’s lack of understanding of the prospective client’s internal auditor’s computer-assisted audit techniques.

B.Management’s disregard of its responsibility to maintain an adequate internal control environment.

C.The CPA’s inability to determine whether related-party transactions were consummated on terms equivalent to arm’s length transaction.

D.Management’s refusal to permit the CPA to perform substantive tests before the year-end.

17)Which of the following is not normally performed in the preplanning or pre-engagement phase?

A.Deciding whether to accept or reject an audit engagement

B.Inquiring from predecessor auditor

C.Preparing an engagement letter

D.Making a preliminary estimate of materiality

18)The following are considered by a CPA firm in deciding whether to accept a new client, except

A.The client’s probability of achieving an unmodified opinion

B.The client’s financial ability

C.The client’s relations with its previous CPA firm

D.The client’s standing in the business community

19)If a change in the type of engagement from higher to lower level of assurance is reasonably justified, the report based on the revised engagement

A.Omits reference to the original engagement

B.Should always refer to any procedures that may have been performed in the original engagement.

C.Should refer to the original engagement in a separate paragraph preceding the opinion paragraph.

D.Should qualify the opinion due to a scope limitation.

20)One of the first things that the auditor will do after accepting a new client is

A.Tour the client’s facilities

B.Study the client’s internal control structure

C.Communicate with predecessor auditor

D.Contact client’s attorney to discover legal obligations

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