Answered: 21)An audit engagement letter A.May not…

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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21)An audit engagement letter

A.May not be prepared each period for a recurring audit engagement

B.Is prepared for the benefit of the audit, audit client and general public

C.Shall include specific audit procedures to be performed by the auditor

D.Is usually sent by auditor to the client upon the commencement of the audit

22)The engagement letter

A.Can affect legal responsibility to the client

B.Can be used to alter the auditor’s responsibilities under the standards on auditing

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

D.Affects the CPA firm’s responsibility to external users of audited financial statements

23)Which of the following is notinvolved during pre-planning phase?

A.Obtaining information about client’s legal obligation

B.Obtaining an engagement letter

C.Selecting staff for engagement

D.Deciding whether to accept or continue an audit engagement

24)Which of the following matters is least likely to be discussed in an engagement letter?

A.The fact that the auditor does not plan to detect material irregularities

B.The fact that the financial statements are the responsibility of management

C.Assistance to be provided by client personnel

D.Timingof the performance of the examination

25)To obtain an understanding of a continuing client’s business in planning an audit, an auditor most likely would

A.Review prior year working papers and the permanent file for the client

B.Read specialized industry journals

C.Perform tests of details of transactions and balances

D.Reevaluate the client’s internal control environment

26)It is a type of an engagement in which the financial statements for the prior period were not audited.

A.Initial audit engagement

B.Continuing audit engagement

C.Previous audit engagement

D.Future audit engagement

27)Who is responsible for the prevention and detection of material misstatements in the financial statements?A.Management and those charged with governance

B.Internal auditor

C.Independent external auditor

D.Government auditor

28)Which of the following statements concerning materiality as regards to audit is incorrect?

A.It may be viewed as the largest amount of misstatements that the auditor could tolerate in the financial statements or the smallest aggregate amount that could misstate the financial statements.

B.In designing an audit plan, the auditor should make a preliminary estimate of materiality for use during the examination as some matters are important for fair presentation of financial statements while other matters are not important.

C.It is specifically provided and quantified in the Philippine Standards on Auditing (PSAs) for each industry.

D.It is a matter of professional judgment and necessarily involves quantitativeand qualitative factors.

29)The following are the uses of materiality in an audit, except

A.In the planning stage, to determine the scope of audit procedures.

B.In the testing stage, to determine the amount of evidence to accumulate.

C.In the completion phase, toevaluate the effect of misstatement on the financial statements.

D.In the pre-engagement phase, to determine the capability of the client to pay audit fees.

30)The following statements concerning the planning stage are correct, except

A.The auditor should designaudit procedures to provide reasonable assurance that the financial statements taken as a whole are free from material misstatements whether due to fraud or error.

B.Reasonable assurance means that the auditor can possibly expect to detect all material misstatements.

C.Reasonable assurance means that the auditor should perform audit procedures to increase the likelihood of detecting material misstatements.

D.The auditor should use professional judgment to assess audit risk and to design audit procedures to ensure that it is reduced to an acceptably low level.

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