Question

QUESTION 1

A control deficiency that is less severe than a material weakness, but important enough to merit attention by those responsible for oversight of the company's financial reporting is referred to as a (n):

a-Control deficiency.

b-Inherent limitation.

c-Reportable deficiency.

d-Significant deficiency.

QUESTION 2

Auditors should consider materiality in the planning of an audit job. The materiality for planning is:

a- Preliminary estimation of the auditors of the largest number of misstatements that would be important for any of the client's financial statements.

b-Preliminary estimate of the auditors of the least amount of misstatements that would be important for any of the client's financial statements.

c-Preliminary estimate of the auditors of the amount of misstatements that would be important for the balance of the client.

d - An amount that can not be declared quantitatively since it depends on the nature of the article.

QUESTION 3

Which of the following is not an example of a likely adjustment in the auditor's overall audit approach when it is discovered that a significant risk exists?

a-Apply more professional skepticism about material transactions.

b-Increase the level of risk of detection assessed.

c-Assign personnel with special skills to high-risk areas.

d- Obtain more evidence about the convenience of the selection of accounting principles of the administration.

QUESTION 4

At least what level of probability of a material misstatement is required for a control deficiency to be considered a material weakness?

a-More than remote.

b-Probable.

c-Reasonable possibility.

d-Sufficient

QUESTION 5

CPA firms may use written narratives to describe internal control in their audit working papers.

True

False

  QUESTION 6

Which of the following situations would probably require special audit planning by the auditors?

a-Some factory items and office equipment do not carry identification numbers.

b-The depreciation methods used in the client's tax return differ from those used in the books.

c-Assets that cost less than $ 500 are charged to results although the expected life exceeds one year.

d-Inventory is composed of precious stones.

QUESTION 8

The risk that a material misstatement occurs in an account, assuming an absence of internal control, is called:

a-Risk of the account.

b-Control risk

c-Detection risk.

d-Inherent risk.

QUESTION 9

Before accepting an audit intervention, a successor auditor must make specific inquiries of the predecessor auditor with respect to the predecessor:

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

b-Evaluation of all matters of accounting continuity.

c-An opinion was issued on the subsequent events that have occurred since the publication of the previous audit report.

d-Understanding the reasons for the change of auditors.

  QUESTION 10

Which of the following factors would probably lead a CPA to conclude that a potential audit engagement should not be accepted?

a-There are important transactions between related parties that the management claims occurred in the normal course of business.

b-Internal control activities that require segregation of duties are subject to cancellation of management.

c-Management continues to employ an inefficient information technology system to record financial transactions.

d-It is unlikely that sufficient evidence is available to support an opinion on the financial statements.

Answer 1

1) (d) Significant Deficiency

significant deficiency , Reporatible deficiencies are types under control deficiency. Reportible deficiency, when there is high severiety on financial reporting.inherent limitations means which cannot assure the users of financial statements that financial statements are absolutely free of material misstatements.

2) (a) Preliminary estimation of the auditors of the largest number of misstatements that would be important for any of the client's financial statements.

Other three statements are contradicting purpose of materiality for planning. A option is the purpose of materiality in planning, Where matriality means higher amount of particular whhich effects financial statements.

3) (b)Increase the level of risk of detection assessed

Auditor can't increase the level of risk of detection assessed other three adjustments can be made by auditor during the audit approach.

4) (c) Reasonable possibility

Reasonable level of probability of a material misstatement is required for a control deficiency to be considered a material weakness.

5) True

CPA firms may use written narratives to describe internal control in their audit working papers.

6) (d) Inventory is composed of precious stones

In Option a, special audit planning is not required since missing of identification numbers is generally acceptable same as with other options. Inventory comprised of precious stones requires special audit planning to ensure method of inventory valuation done of company.

8) (d) Inherent risk

Inherent Risk is the risk of a material misstatement in the financial statements arising due to error or omission.

9) (d) Understanding the reasons for the change of auditors

Before accepting an audit intervention, a successor auditor must make specific inquiries of the predecessor auditor with respect to the predecessor change of auditors reasons since the same is the Proffesional ethics to be followed by auditor.

10) (d) It is unlikely that sufficient evidence is available to support an opinion on the financial statements.

Since for auditor to express an opinion on financial statements he/she has to ensure weather all supporting are available for each transaction made by the company.