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Quiz 3 PrE4
Financial Statement Audit

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1. In assessing whether to accept a client for an audit engagement, an auditor should consider the... *

1 point

A. I only

B. II only

C. Both I and II

D. Neither I nor II

2. Which of the following factors most likely would cause an auditor to decline a new audit engagement? *

1 point

A. Concluding that the entity's management probably lacks integrity.

B. An inability to perform preliminary analytical procedures before assessing control risk.

C. Am inadequate understanding of the entity's internal control.

D. The close proximity to the end of the entity's reporting period.

3. Before accepting an engagement to audit a new client, an auditor is required to... *

1 point

A. Obtain a copy of the client's financial statements.

B. Prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan.

C. Make inquiries of the predecessor auditor after obtaining the consent of the prospective client.
 D. Discuss the management representation letter with the client's audit committee.

4. Which of the following conditions most likely would pose the greatest risk in accepting a new audit
engagement? *

1 point

A. There will be a client-imposed scope limitation.

B. The client's financial reporting system has been in place for 10 years.

C. The firm will have to hire an expert in one audit area.

D. Staff will need to be rescheduled to cover this new client.

5. Which of the following circumstances would permit an independent auditor to accept an engagement after the
end of the reporting period? *

1 point

A. Expectation of the operating effectiveness of controls.

B. Issuance of a disclaimer of opinion as a result of inability to conduct certain tests required by PSAs due to the timing of the
acceptance of the engagement.

C. Remedy the limitations resulting from accepting the engagement after the end of the reporting period, such as those relating
to the existence of physical inventory.

D. Receipt of an assertion from the predecessor auditor that the entity will be able to continue as a going concern.

6. In an audit based on Philippine Standards on Auditing (PSAs), a successor auditor would normally become
satisfied with opening balances by... *

1 point

A. Performing analytic review procedures.

B. Reviewing the predecessor's working papers.

C. Auditing the previous year's working papers.

D. Interviewing client personnel.

7. A predecessor withdrew from the engagement after discovering that a client's financial statements are materially
misstated that it would not revise. If asked by the successor auditor about the termination of the engagement, the
predecessor should... *

1 point

A. Suggest that the successor auditor should obtain the client's consent to discuss the reasons.

B. Indicate that there was a misunderstanding.

C. State that the audit revealed material misstatement that the client would not revise.

D. Suggest that the successor auditor ask the client.

8. Which of the following is not correct regarding the communications between successor/incoming and
predecessor/previous auditor? *

1 point

A. The burden of initiating the communication rests with the predecessor auditor.

B. The burden of initiating the communication rests with the successor auditor.

C. The predecessor auditor may choose to provide a limited response to a successor auditor.

D. The predecessor auditor must receive his/her former client's permission prior to disclosing client information to the auditor.

9. The auditor may accept or continue an audit engagement only when the basis upon which it is to be performed
has been agreed, through... *
1 point

A. I only

B. II only

C. Both I and II

D. Neither I nor II

10. An audit is conducted on the premise that management and, where appropriate, those charged with
governance, have acknowledged and understand that they have responsibilities that are fundamental to the
conduct of an audit in accordance with PSAs. Which of the following is not one of those responsibilities? *

1 point

A. The preparation of financial statements in accordance with relevant pronouncements issued by the AASC.

B. The establishment and maintenance of an adequate internal control system that is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.

C. To provide the auditor with access to all information that is relevant to the preparation of the financial statements such as
records, documentation, and other matters.

D. To provide the auditor with unrestricted access to persons within the entity from which the auditor determines it necessary to
obtain audit evidence.

11. The auditor shall agree the terms of the audit engagement with management or those charged with governance,
as appropriate. The agreed terms shall be recorded in a/an... *

1 point

A. Engagement letter

B. Letter of audit inquiry

C. Management representation letter

D. Confirmation letter

12. The following matters are generally included in an auditor's engagement letter, except... *

1 point

A. The factors to be considered in determining the overall materiality.

B. The fact that because of the test nature and other inherent limitations of an audit, together with the inherent limitations of
internal control, there is an unavoidable risk that even some material misstatements may remain undiscovered.

C. The scope of the audit.

D. Management's responsibility for the financial statements.

13. The following are usually included in an auditor's engagement letter, except... *

1 point

A. List of audit procedures to be used in inventory observation.

B. The financial statements are the responsibility of the company's management.

C. A reference to PFRS.

D. A reference to PSAs.

14. Which of the following statements would least likely appear in an auditor's engagement letter? *
1 point

A. Our audit will be made with the objective of our expressing an opinion on the financial statements.

B. We remind you that the responsibility for the preparation of the financial statements including adequate disclosure is that of
the management of the entity.

C. After performing our preliminary analytical procedures, we will discuss with you the other procedures we consider necessary
to complete the engagement.

D. Our fees, which will be billed as work progresses, are based on the time required by the individuals assigned to the
engagement plus out-of-pocket expenses.

15. An auditor is required to establish an understanding with a client regarding the services to be performed for
each engagement. This understanding generally includes... *

1 point

A. The auditor's responsibility to apply the concept of materiality in planning and performing the audit.

B. Management's responsibility for providing the auditor with an assessment of the risk of material misstatement due to fraud.

C. The auditor's responsibility for ensuring that those charged with governance are aware of any significant deficiencies in
internal control that may come to the auditor's attention.

D. Management's responsibility for errors and the illegal activities of employees that may cause material misstatement.

16. If the auditor is unable to agree to a change of the engagement and is not permitted to continue the original
engagement, the auditor should... *

1 point

A. Insist on continuing the original engagement.

B. Express a qualified opinion.

C. Express an adverse opinion.

D. Withdraw from the engagement.

17. Planning an audit involves... *

1 point

A. I only

B. II only

C. Both I and II

D. Neither I nor II

18. Which of the following activities should be performed by the auditor at the beginning of the current audit
engagement? *

1 point
 A. I and II only

B. II and III only

C. I and III only

D. I, II and III

19. Initial audit planning involves the following matters, except... *

1 point

A. Identify the client's reason for the engagement.

B. Schedule engagement staff and auditor's experts.

C. Develop an overall strategy.

D. Request that bank balances be confirmed.

20. Which of the following statements concerning audit planning is incorrect? *

1 point

A. Planning is a discrete phase of an audit.

B. Planning is a continual and iterative process.

C. In a recurring audit, planning often begins shortly after (or in connection with) the completion of the previous audit and
continues until completion of the current audit engagement.

D. In planning an audit, the auditor considers the timing of certain planning activities and audit procedures that are to be
completed prior to the performance of further audit procedures.

A copy of your responses will be emailed to the address you provided.

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