Chapter 3

When initiating communications with predecessor auditors, prospective auditors should expect

• To take responsibility for obtaining the client's consent for the predecessor to give information about prior audits.

• To conduct interviews with the partner and manager in charge of the predecessor public accounting firm's engagement.

• To obtain copies of some or all of the predecessor auditors' audit documentation.

• All of the above

An auditor's permanent file audit documentation most likely will contain

• Internal control analysis for the current year.

• The most recent engagement letter.

• Memoranda of conference with management.

•     Excerpts of the corporate charter and bylaws.

Which of the following is an advantage of computer-assisted audit techniques (CAATs)?

• All the CAATs programs are written in one computer language.

• The software can be used for audits of clients that use differing computer equipment and file formats.

• The use of CAATs has reduced the need for the auditor to study input controls for computer-related procedures.

• The use of CAATs can be substituted for a relatively large part of the required testing.

An audit engagement letter should normally include which of the following matters of agreement between the auditor and the client?

• Schedules and analyses to be prepared by the client's employees.

• Methods of statistical sampling the auditor will use.

• Specification of litigation in progress against the client.

• Client representations about availability of all minutes of meetings of the board of directors.

When auditing Vandalay Jewelry, Costanza, CPA, was not familiar with the quality and cut of the company's precious jewel inventory. To address this shortcoming, Costanza hired Benes, an expert in jewel valuation, to assist as an audit specialist for the inventory valuation. Should Costanza refer to Benes's work in the audit report?

• Yes, the auditors' report should mention the fact that an audit specialist was used.

• The auditors' report should mention the use of the audit specialist only when the audit specialist's findings affect the auditors' conclusions.

• The use of an audit specialist need not be mentioned if the auditors decide not to take responsibility for the audit specialist's findings.

• The auditors' report should mention the audit specialist only if Vandalay agrees with the audit specialist's findings.

Which of the following engagement planning procedures would most likely assist the auditor in identifying related-party transactions before the balance-sheet date?

• Interviewing internal auditors about their reporting responsibilities

• Reviewing accounting records for recurring transactions occurring near year-end

• Inspecting communications with the client's legal counsel regarding contingent liabilities

• Scanning the minutes for significant transaction with members of the board of directors

Which of the following procedures would most likely be performed during planning?

• Surprise counting of the client's petty cash fund

• Reporting internal control deficiencies to the audit committee

• Performing a search for unrecorded liabilities

• Identifying related parties

Prior to accepting a new audit engagement, a public accounting firm should

• Attempt to contact the predecessor auditors

• Evaluate the integrity of management

• Assess the firm's resources to ensure that they are sufficient to permit the firm to accept the engagement

• All of the above

An audit plan contains

• Specifications of audit standards relevant to the financial statements being audited

• Specifications of procedures the auditors believe appropriate for the financial statements under audit

• Documentation of the assertions under audit, the evidence obtained, and the conclusions reached

• Reconciliation of the account balances in the financial statements with the account balances in the client's general ledger

When auditing the existence assertion for an asset, auditors proceed from the

• Financial statement amounts back to the potentially unrecorded items

• Potentially unrecorded items forward to the financial statement amounts

• General ledger back to the supporting original transaction documents

• Supporting original transaction documents to the general ledger