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Chapter 6
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Multiple Choice Quiz
Out of 12 questions, you answered 7 correctly with a final grade of 58%
7 correct (58%)
3 incorrect (25%)
2 unanswered (17%)
Your Results:
The correct answer for each question is indicated by a .

1 CORRECT Adequate planning and design of an audit is necessary for an auditor to restrict which type of audit risk?

A) Control Risk.

B) Detection Risk.

C) Sufficiency Risk.

D) Inherent Risk.
2 B&M auditors have been accepted as the auditors of World Wide Widgets (3W). What are B&M's responsibilities with
UNANSWERED regard to contacting 3W's predecessor auditors?

A) If 3W had a disagreement with its predecessor auditors, B&M should not contact the predecessor auditors.

B) B&M is not required to attempt communication with the predecessor auditors under any circumstances.
B&M should attempt communications with the predecessor auditors and ask if they had any accounting policy
C) disagreements with 3W.

D) It would be unethical for B&M to ask the predecessor auditors about the integrity of 3W's management.
3 CORRECT An engagement letter is best described as which of the following?

A letter from company management to the auditors specifying management's expectations for completion of
A) the audit on a timely basis and the fees.
A letter from the auditors to company management specifying that management is responsible for the financial
B) statements, and the auditors will issue an opinion on the financial statements.
A letter from the auditors to company management that specifies the responsibilities of both the company and
C) the auditors in completing the audit and the timing for its completion.
A letter from the Board of Directors' audit committee to the auditor that indicates the auditor has been engaged
D) to perform the audit and the fees to be paid.
4 CORRECT Materiality can best be described as which of the following?

A) Materiality is typically measured as a fixed percentage of assets.

B) Materiality is typically measured as a fixed percentage of net income.

C) Materiality does not depend on the company being audited, but is solely dependent on the auditors discretion.

D) Materiality is the amount at which judgments based on the financial statements may be altered.
5 CORRECT Prior to beginning fieldwork, an auditor usually discusses the general audit strategy with the client's management. Which
of the following matters do the auditor and management agree upon at this time?

A) The appropriateness of the entity's plans for dealing with adverse economic conditions.

B) The coordination of the assistance of the client's personnel in data preparation.

C) The control weaknesses to be included in the communication with the audit committee.

D) The determination of the fraud risk factors that exist within the client's operations.
6 INCORRECT In which circumstance would a CPA be most likely to decline to accept a new audit engagement?

A) Management acknowledges that the entity has had recurring operating losses.

B) Management is unwilling to permit inquiry of its legal counsel.

C) The CPA does not understand the entity's operations and industry.

D) A predecessor auditor exists.

7 CORRECT Which of the following is least likely to be required on an audit?

A) Test appropriateness of journal entries and adjustment.

B) Review accounting estimates for biases

C) Evaluate the business rationale for significant, unusual transactions.

D) Make a legal determination of whether fraud has occurred.

8 INCORRECT Which of the following is most likely to be an overall response to fraud risks identified in an audit?

A) Supervise members of the audit team less closely and rely more upon judgment.

B) Use less predictable audit procedures.

C) Only use certified public accountants on the engagement.

 Place increased emphasis on the audit of objective transactions rather than subjective transactions.
D)
9 CORRECT Which of the following is most likely to be presumed to represent a fraud risk on an audit?

A) Capitalization of repairs and maintenance expense into the property, plant and equipment asset account.

B) Improper revenue recognition.

C) Improper interest expense accrual.

D) Introduction of significant new products.

10 Which of the following is least likely to be included in an auditor's inquiry of management while obtaining information to
INCORRECT identify the risks of material misstatement due to fraud?
A) Are financial reporting operations controlled by and limited to one location?

B) Does it have knowledge of fraud or suspect fraud?

C) Does it have programs to mitigate fraud risks?

D) Has it reported to the audit committee the nature of the company's internal control?
11 Which statement best describes the interaction of the systems and substantive approaches in the audit plan?
UNANSWERED
The systems approach focuses on testing controls to make sure they are effective, while the substantive
A) approach is the detailed testing of specific accounts for accuracy.
The systems approach focuses on detailed testing of specific accounts for accuracy, while the substantive
B) approach is the testing controls to make sure they are effective.
The systems approach focuses on the use of computer systems to aid in the audit while the substantive
C)
approach focuses on more manual tests.
D) A thoroughly designed systems approach to auditing can eliminate the need for any substantive procedures.
12 CORRECT Tracing from source documents to journals most directly addresses which financial statement assertion?

A) Completeness.

B) Existence.

C) Valuation.

D) Rights.

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