Which of the following is performed before an auditor accepts the audit engagement?

Before the audit begins, the auditor performs pre-engagement acceptance or continuance procedures.This includes:

  • an independence assessment;
  • a pre-engagement assessment; and
  • communications with the previous auditor (if applicable).

 Throughout this process, you can expect:

  • a letter that communicates the auditor’s independence and compliance with relevant professional standards; and
  • disclosure of all relationships between the auditor and the entity and its related entities that may affect the auditor’s independence.

Once the pre-engagement assessment is complete, the auditor issues an Engagement Letter with:

  •  engagement objectives, scope and limitations;
  •  management's responsibilities;
  •  responsibility for adjustments;
  •  the auditor's responsibilities; and
  •  other matters, such as fees.
     

Which of the following is performed before an auditor accepts the audit engagement?
1
Which of the following is performed before an auditor accepts the audit engagement?
Which of the following is performed before an auditor accepts the audit engagement?

Which of the following factors most likely would cause an independent auditor to decide not to accept a new audit engagement?
Which of the following is performed before an auditor accepts the audit engagement?
A)
Which of the following is performed before an auditor accepts the audit engagement?
The auditor's lack of understanding of the prospective client’s internal audit function’s audit plan.
Which of the following is performed before an auditor accepts the audit engagement?
B)
Which of the following is performed before an auditor accepts the audit engagement?
Management's disregard of its responsibility to maintain an adequate internal control environment.
Which of the following is performed before an auditor accepts the audit engagement?
C)
Which of the following is performed before an auditor accepts the audit engagement?
The auditor's inability to determine whether related party transactions were consummated on terms equivalent to arm’s-length transactions.
Which of the following is performed before an auditor accepts the audit engagement?
D)
Which of the following is performed before an auditor accepts the audit engagement?
Management's refusal to permit the auditor to perform substantive tests before the year-end.
Which of the following is performed before an auditor accepts the audit engagement?
2
Which of the following is performed before an auditor accepts the audit engagement?
Which of the following is performed before an auditor accepts the audit engagement?

Which of the following statements is correct with regard to the predecessor- successor communications?
Which of the following is performed before an auditor accepts the audit engagement?
A)
Which of the following is performed before an auditor accepts the audit engagement?
The successor auditor has no responsibility to contact the predecessor auditor.
Which of the following is performed before an auditor accepts the audit engagement?
B)
Which of the following is performed before an auditor accepts the audit engagement?
The successor auditor should obtain permission from the entity before contacting the predecessor auditor.
Which of the following is performed before an auditor accepts the audit engagement?
C)
Which of the following is performed before an auditor accepts the audit engagement?
The successor auditor should contact the predecessor regardless of whether the prospective client authorizes contact.
Which of the following is performed before an auditor accepts the audit engagement?
D)
Which of the following is performed before an auditor accepts the audit engagement?
The successor auditor need not contact the predecessor if the successor is aware of all available relevant facts.
Which of the following is performed before an auditor accepts the audit engagement?
3
Which of the following is performed before an auditor accepts the audit engagement?
Which of the following is performed before an auditor accepts the audit engagement?

Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding the predecessor’s
Which of the following is performed before an auditor accepts the audit engagement?
A)
Which of the following is performed before an auditor accepts the audit engagement?
Awareness of the consistency in the application of accounting principles between periods.
Which of the following is performed before an auditor accepts the audit engagement?
B)
Which of the following is performed before an auditor accepts the audit engagement?
Evaluation of all matters of continuing accounting significance.
Which of the following is performed before an auditor accepts the audit engagement?
C)
Which of the following is performed before an auditor accepts the audit engagement?
Opinion of any subsequent events occurring since the predecessor’s audit report was issued.
Which of the following is performed before an auditor accepts the audit engagement?
D)
Which of the following is performed before an auditor accepts the audit engagement?
Understanding as to the reasons for the change of auditors.
Which of the following is performed before an auditor accepts the audit engagement?
4
Which of the following is performed before an auditor accepts the audit engagement?
Which of the following is performed before an auditor accepts the audit engagement?

The preliminary engagement activities include all of the following except:
Which of the following is performed before an auditor accepts the audit engagement?
A)
Which of the following is performed before an auditor accepts the audit engagement?
Determine the audit engagement team requirements.
Which of the following is performed before an auditor accepts the audit engagement?
B)
Which of the following is performed before an auditor accepts the audit engagement?
Ensure that the audit team is independent.
Which of the following is performed before an auditor accepts the audit engagement?
C)
Which of the following is performed before an auditor accepts the audit engagement?
Ensure that there is an independent audit committee.
Which of the following is performed before an auditor accepts the audit engagement?
D)
Which of the following is performed before an auditor accepts the audit engagement?
Ensure that the audit firm is independent.
Which of the following is performed before an auditor accepts the audit engagement?
5
Which of the following is performed before an auditor accepts the audit engagement?
Which of the following is performed before an auditor accepts the audit engagement?

When establishing an understanding with the entity regarding the terms of the engagement, all of the following should be discussed, except:
Which of the following is performed before an auditor accepts the audit engagement?
A)
Which of the following is performed before an auditor accepts the audit engagement?
The engagement letter.
Which of the following is performed before an auditor accepts the audit engagement?
B)
Which of the following is performed before an auditor accepts the audit engagement?
The internal audit function.
Which of the following is performed before an auditor accepts the audit engagement?
C)
Which of the following is performed before an auditor accepts the audit engagement?
The audit committee.
Which of the following is performed before an auditor accepts the audit engagement?
D)
Which of the following is performed before an auditor accepts the audit engagement?
The agreed upon limits on auditor liability for an improper audit.
Which of the following is performed before an auditor accepts the audit engagement?
6
Which of the following is performed before an auditor accepts the audit engagement?
Which of the following is performed before an auditor accepts the audit engagement?

Which of the following statements best represents the reason why auditors prepare engagement letters to be signed by their auditees?
Which of the following is performed before an auditor accepts the audit engagement?
A)
Which of the following is performed before an auditor accepts the audit engagement?
They provide documentation of management’s responsibility for the financial statements.
Which of the following is performed before an auditor accepts the audit engagement?
B)
Which of the following is performed before an auditor accepts the audit engagement?
They document the audit fees and deadlines that have been agreed upon.
Which of the following is performed before an auditor accepts the audit engagement?
C)
Which of the following is performed before an auditor accepts the audit engagement?
They communicate and clarify the expectations and responsibilities of both the auditee and the auditor.
Which of the following is performed before an auditor accepts the audit engagement?
D)
Which of the following is performed before an auditor accepts the audit engagement?
They help to limit auditor liability in the event of misunderstandings.
Which of the following is performed before an auditor accepts the audit engagement?
7
Which of the following is performed before an auditor accepts the audit engagement?
Which of the following is performed before an auditor accepts the audit engagement?

A written understanding between the auditor and the entity concerning the auditor’s responsibility for the discovery of non-compliance with laws and regulations is usually set forth in a(n)
Which of the following is performed before an auditor accepts the audit engagement?
A)
Which of the following is performed before an auditor accepts the audit engagement?
Internal control letter.
Which of the following is performed before an auditor accepts the audit engagement?
B)
Which of the following is performed before an auditor accepts the audit engagement?
Letter of audit inquiry.
Which of the following is performed before an auditor accepts the audit engagement?
C)
Which of the following is performed before an auditor accepts the audit engagement?
Management letter.
Which of the following is performed before an auditor accepts the audit engagement?
D)
Which of the following is performed before an auditor accepts the audit engagement?
Engagement letter.
Which of the following is performed before an auditor accepts the audit engagement?
8
Which of the following is performed before an auditor accepts the audit engagement?
Which of the following is performed before an auditor accepts the audit engagement?

Which of the following factors would be of least importance to an auditor in determining how much reliance can be placed on the work of internal auditors?
Which of the following is performed before an auditor accepts the audit engagement?
A)
Which of the following is performed before an auditor accepts the audit engagement?
The competence and objectivity of the internal audit function.
Which of the following is performed before an auditor accepts the audit engagement?
B)
Which of the following is performed before an auditor accepts the audit engagement?
The materiality or significance of the accounts examined by the internal audit function.
Which of the following is performed before an auditor accepts the audit engagement?
C)
Which of the following is performed before an auditor accepts the audit engagement?
The audit risk associated with the accounts examined by the internal auditors.
Which of the following is performed before an auditor accepts the audit engagement?
D)
Which of the following is performed before an auditor accepts the audit engagement?
The nature of the audit software documentation used by the internal auditors.
Which of the following is performed before an auditor accepts the audit engagement?
9
Which of the following is performed before an auditor accepts the audit engagement?
Which of the following is performed before an auditor accepts the audit engagement?

Which of the following would most likely indicate the existence of related parties?
Which of the following is performed before an auditor accepts the audit engagement?
A)
Which of the following is performed before an auditor accepts the audit engagement?
Failing to write down inventory to market value just before year-end.
Which of the following is performed before an auditor accepts the audit engagement?
B)
Which of the following is performed before an auditor accepts the audit engagement?
Depending on one or a few products for nearly all of a firm’s operating revenues.
Which of the following is performed before an auditor accepts the audit engagement?
C)
Which of the following is performed before an auditor accepts the audit engagement?
Borrowing money at an interest rate substantially below the prevailing market rate of interest.
Which of the following is performed before an auditor accepts the audit engagement?
D)
Which of the following is performed before an auditor accepts the audit engagement?
Selling goods to a major customer of your main competitor.
Which of the following is performed before an auditor accepts the audit engagement?
10
Which of the following is performed before an auditor accepts the audit engagement?
Which of the following is performed before an auditor accepts the audit engagement?

For which laws and regulations does the auditor have the same responsibility as that for errors and fraud?
Which of the following is performed before an auditor accepts the audit engagement?
A)
Which of the following is performed before an auditor accepts the audit engagement?
Laws and regulations that have an indirect effect on the determination of financial statement amounts.
Which of the following is performed before an auditor accepts the audit engagement?
B)
Which of the following is performed before an auditor accepts the audit engagement?
Laws and regulations that have a material but indirect effect on the determination of financial statement amounts.
Which of the following is performed before an auditor accepts the audit engagement?
C)
Which of the following is performed before an auditor accepts the audit engagement?
Laws and regulations that have a direct and material effect on the financial statements.
Which of the following is performed before an auditor accepts the audit engagement?
D)
Which of the following is performed before an auditor accepts the audit engagement?
Laws and regulations that have a direct and material effect on the financial statements as well as laws and regulations that have material but indirect effect on the determination of financial statement amounts.
Which of the following is performed before an auditor accepts the audit engagement?
11
Which of the following is performed before an auditor accepts the audit engagement?
Which of the following is performed before an auditor accepts the audit engagement?

During the initial planning phase of an audit, an independent auditor most likely would
Which of the following is performed before an auditor accepts the audit engagement?
A)
Which of the following is performed before an auditor accepts the audit engagement?
Identify specific internal control activities that are likely to prevent fraud.
Which of the following is performed before an auditor accepts the audit engagement?
B)
Which of the following is performed before an auditor accepts the audit engagement?
Evaluate the reasonableness of the entity’s accounting estimates.
Which of the following is performed before an auditor accepts the audit engagement?
C)
Which of the following is performed before an auditor accepts the audit engagement?
Discuss the timing of the audit procedures with the entity’s management.
Which of the following is performed before an auditor accepts the audit engagement?
D)
Which of the following is performed before an auditor accepts the audit engagement?
Inquire of the entity’s lawyer if it is probable that any unrecorded claims will be asserted.
Which of the following is performed before an auditor accepts the audit engagement?
12
Which of the following is performed before an auditor accepts the audit engagement?
Which of the following is performed before an auditor accepts the audit engagement?

When planning an audit, an auditor should
Which of the following is performed before an auditor accepts the audit engagement?
A)
Which of the following is performed before an auditor accepts the audit engagement?
Consider whether the extent of substantive procedures may be reduced based on the results of the internal control questionnaire.
Which of the following is performed before an auditor accepts the audit engagement?
B)
Which of the following is performed before an auditor accepts the audit engagement?
Determine overall materiality for audit purposes.
Which of the following is performed before an auditor accepts the audit engagement?
C)
Which of the following is performed before an auditor accepts the audit engagement?
Conclude whether changes in compliance with prescribed internal controls justify reliance on them.
Which of the following is performed before an auditor accepts the audit engagement?
D)
Which of the following is performed before an auditor accepts the audit engagement?
Prepare a preliminary draft of the management representation letter.
Which of the following is performed before an auditor accepts the audit engagement?
13
Which of the following is performed before an auditor accepts the audit engagement?
Which of the following is performed before an auditor accepts the audit engagement?

Which of these statements concerning non-compliance with laws and regulations by clients is correct?
Which of the following is performed before an auditor accepts the audit engagement?
A)
Which of the following is performed before an auditor accepts the audit engagement?
An auditor’s responsibility to detect non-compliance with laws and regulations that have a direct and material effect on the financial statements is the same as that for errors and fraud.
Which of the following is performed before an auditor accepts the audit engagement?
B)
Which of the following is performed before an auditor accepts the audit engagement?
An audit in accordance with the international standards on auditing normally includes audit procedures specifically designed to detect non-compliance with laws and regulations that have an indirect but material effect on the financial statements.
Which of the following is performed before an auditor accepts the audit engagement?
C)
Which of the following is performed before an auditor accepts the audit engagement?
An auditor considers non-compliance with laws and regulations from the perspective of the reliability of management’s representations rather than their relation to audit objectives derived from financial statement assertions.
Which of the following is performed before an auditor accepts the audit engagement?
D)
Which of the following is performed before an auditor accepts the audit engagement?
An auditor has no responsibility to detect non-compliance with laws and regulations by clients that have an indirect effect on the financial statements.
Which of the following is performed before an auditor accepts the audit engagement?
14
Which of the following is performed before an auditor accepts the audit engagement?
Which of the following is performed before an auditor accepts the audit engagement?

The engagement partner reviews the work of engagement team members to evaluate which of the following?
Which of the following is performed before an auditor accepts the audit engagement?
A)
Which of the following is performed before an auditor accepts the audit engagement?
The work was performed and documented.
Which of the following is performed before an auditor accepts the audit engagement?
B)
Which of the following is performed before an auditor accepts the audit engagement?
The objectives of the procedures were achieved.
Which of the following is performed before an auditor accepts the audit engagement?
C)
Which of the following is performed before an auditor accepts the audit engagement?
The results of the work support the conclusions reached.
Which of the following is performed before an auditor accepts the audit engagement?
D)
Which of the following is performed before an auditor accepts the audit engagement?
All of the above are correct.
Which of the following is performed before an auditor accepts the audit engagement?
15
Which of the following is performed before an auditor accepts the audit engagement?
Which of the following is performed before an auditor accepts the audit engagement?

Which of the following would NOT be a typical supervisory activity for an audit?
Which of the following is performed before an auditor accepts the audit engagement?
A)
Which of the following is performed before an auditor accepts the audit engagement?
Perform detailed testing of the accounts payable account.
Which of the following is performed before an auditor accepts the audit engagement?
B)
Which of the following is performed before an auditor accepts the audit engagement?
Inform engagement team of the nature, timing, and extent of audit procedures.
Which of the following is performed before an auditor accepts the audit engagement?
C)
Which of the following is performed before an auditor accepts the audit engagement?
Review the work of other engagement team members.
Which of the following is performed before an auditor accepts the audit engagement?
D)
Which of the following is performed before an auditor accepts the audit engagement?
Evaluate the results of the work and whether it supports the conclusions reached.
Which of the following is performed before an auditor accepts the audit engagement?
16
Which of the following is performed before an auditor accepts the audit engagement?
Which of the following is performed before an auditor accepts the audit engagement?

Tests of controls include all of the following except:
Which of the following is performed before an auditor accepts the audit engagement?
A)
Which of the following is performed before an auditor accepts the audit engagement?
Inspection of documents, files, etc.
Which of the following is performed before an auditor accepts the audit engagement?
B)
Which of the following is performed before an auditor accepts the audit engagement?
Analytical procedures.
Which of the following is performed before an auditor accepts the audit engagement?
C)
Which of the following is performed before an auditor accepts the audit engagement?
Walk-throughs.
Which of the following is performed before an auditor accepts the audit engagement?
D)
Which of the following is performed before an auditor accepts the audit engagement?
Observation.
Which of the following is performed before an auditor accepts the audit engagement?
17
Which of the following is performed before an auditor accepts the audit engagement?
Which of the following is performed before an auditor accepts the audit engagement?

A dual-purpose test is
Which of the following is performed before an auditor accepts the audit engagement?
A)
Which of the following is performed before an auditor accepts the audit engagement?
A procedure that provides evidence about two different account balances at the same time.
Which of the following is performed before an auditor accepts the audit engagement?
B)
Which of the following is performed before an auditor accepts the audit engagement?
A procedure that serves as both a test of control and a substantive test of transactions.
Which of the following is performed before an auditor accepts the audit engagement?
C)
Which of the following is performed before an auditor accepts the audit engagement?
A procedure that provides evidence about two different accounting periods at the same time.
Which of the following is performed before an auditor accepts the audit engagement?
D)
Which of the following is performed before an auditor accepts the audit engagement?
A procedure that serves as both a substantive test of transactions and a substantive test of balances.
Which of the following is performed before an auditor accepts the audit engagement?
18
Which of the following is performed before an auditor accepts the audit engagement?
Which of the following is performed before an auditor accepts the audit engagement?

The concept of materiality as it applies to a financial statement audit
Which of the following is performed before an auditor accepts the audit engagement?
A)
Which of the following is performed before an auditor accepts the audit engagement?
Relates primarily to the audit fees involved.
Which of the following is performed before an auditor accepts the audit engagement?
B)
Which of the following is performed before an auditor accepts the audit engagement?
Generally involves less professional judgement for public companies.
Which of the following is performed before an auditor accepts the audit engagement?
C)
Which of the following is performed before an auditor accepts the audit engagement?
Is determined, in part, based on how financial statement users may be influenced in making decisions.
Which of the following is performed before an auditor accepts the audit engagement?
D)
Which of the following is performed before an auditor accepts the audit engagement?
Relates primarily to the quantity of audit procedures performed.
Which of the following is performed before an auditor accepts the audit engagement?
19
Which of the following is performed before an auditor accepts the audit engagement?
Which of the following is performed before an auditor accepts the audit engagement?

According to the text, the first step in applying materiality to an audit is
Which of the following is performed before an auditor accepts the audit engagement?
A)
Which of the following is performed before an auditor accepts the audit engagement?
To determine performance materiality for each account balance.
Which of the following is performed before an auditor accepts the audit engagement?
B)
Which of the following is performed before an auditor accepts the audit engagement?
To determine a materiality level for the overall financial statements.
Which of the following is performed before an auditor accepts the audit engagement?
C)
Which of the following is performed before an auditor accepts the audit engagement?
To aggregate the misstatements found in each account and determine their overall affect on the financial statements.
Which of the following is performed before an auditor accepts the audit engagement?
D)
Which of the following is performed before an auditor accepts the audit engagement?
To ask management what constitutes a material amount in their business.
Which of the following is performed before an auditor accepts the audit engagement?
20
Which of the following is performed before an auditor accepts the audit engagement?
Which of the following is performed before an auditor accepts the audit engagement?

Which of the following is not a qualitative factor that may affect an auditor’s establishment of materiality?
Which of the following is performed before an auditor accepts the audit engagement?
A)
Which of the following is performed before an auditor accepts the audit engagement?
Potential for fraud.
Which of the following is performed before an auditor accepts the audit engagement?
B)
Which of the following is performed before an auditor accepts the audit engagement?
The company is close to violating loan covenants.
Which of the following is performed before an auditor accepts the audit engagement?
C)
Which of the following is performed before an auditor accepts the audit engagement?
Firm policy sets materiality at four per cent of profit before tax.
Which of the following is performed before an auditor accepts the audit engagement?
D)
Which of the following is performed before an auditor accepts the audit engagement?
A small misstatement would interrupt an earnings trend.
Which of the following is performed before an auditor accepts the audit engagement?
21
Which of the following is performed before an auditor accepts the audit engagement?
Which of the following is performed before an auditor accepts the audit engagement?

Performance materiality is
Which of the following is performed before an auditor accepts the audit engagement?
A)
Which of the following is performed before an auditor accepts the audit engagement?
The amount of misstatement that management is willing to accept in the financial statements.
Which of the following is performed before an auditor accepts the audit engagement?
B)
Which of the following is performed before an auditor accepts the audit engagement?
Materiality for the balance sheet as a whole.
Which of the following is performed before an auditor accepts the audit engagement?
C)
Which of the following is performed before an auditor accepts the audit engagement?
Materiality for the income statement as a whole.
Which of the following is performed before an auditor accepts the audit engagement?
D)
Which of the following is performed before an auditor accepts the audit engagement?
Materiality used to establish a scope for the audit procedures for the individual account balance or disclosures.
Which of the following is performed before an auditor accepts the audit engagement?
22
Which of the following is performed before an auditor accepts the audit engagement?
Which of the following is performed before an auditor accepts the audit engagement?

When misstatements are greater than overall materiality, the auditor should
Which of the following is performed before an auditor accepts the audit engagement?
A)
Which of the following is performed before an auditor accepts the audit engagement?
Require that the auditee adjust the financial statements.
Which of the following is performed before an auditor accepts the audit engagement?
B)
Which of the following is performed before an auditor accepts the audit engagement?
Issue an unqualified opinion.
Which of the following is performed before an auditor accepts the audit engagement?
C)
Which of the following is performed before an auditor accepts the audit engagement?
Modify the opinion if the auditee will not adjust the financial statements.
Which of the following is performed before an auditor accepts the audit engagement?
D)
Which of the following is performed before an auditor accepts the audit engagement?
Both A) and C).

Which is the first step in the audit engagement?

Step 1: Define Audit Objectives Prior to the audit, AMAS conducts a preliminary planning and information gathering phase. The assigned auditor defines the audit objectives and likely scope of the audit. The auditor starts to develop the audit program to define the audit testing procedures.

What are the steps in audit engagement?

Although every audit process is unique, the audit process is similar for most engagements and normally consists of four stages: Planning (sometimes called Survey or Preliminary Review), Fieldwork, Audit Report and Follow-up Review.

When an auditor accepts an audit engagement?

When an auditor accepts an audit engagement but does not possess the industry expertise of the business entity involved, the auditor should: Refer a substantial portion of the audit to another CPA who will act as the principal auditor. Obtain a knowledge of matters that relate to the nature of the entity's business.

What factors should an auditor consider prior to accepting an engagement letter?

Client acceptance evaluation should include General Considerations, Management Integrity, Management Commitment to GAAP, Management Internal Control Consciousness, Financial Strength of the Client, and Other Risk Factors.