Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
1. The first phase of audit planning is risk assessment.
2. When the prospective client has previously been audited, auditing standards require that the
successor auditor make certain inquiries of the predecessor auditor before accepting the
engagement.
3. The Code of Professional Conduct does not allow an auditor to disclose confidential client
information without the client’s consent.
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
4. If the prospective client refuses to allow the predecessor auditor to communicate with the
successor auditor, the successor auditor should have reservations about accepting the client.
5. In order to properly preplan the audit, the auditor must determine the engagement team
requirements and ensure the independence of the audit team and audit firm.
6. If the internal auditor is competent and objective, the auditor may generally rely on the
work of an internal auditor in certain areas to reduce the amount of external audit work in
these areas.
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
7. All companies must have an audit committee.
8. The audit committee is directly responsible for the appointment, compensation, and
oversight of the work of any accounting firm employed by a public company.
9. The external auditor is required to make a number of important communications to the
audit committee during or at the end of the audit engagement.
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
10. The engagement partner is typically responsible for doing the detailed audit testing.
11. There are five general types of audit tests.
12. Materiality significantly impacts the auditor’s decisions about how much and what kind of
evidence to gather.
13. Materiality is based only on a quantitative analysis of the financial statements.
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
14. Hawkins requested permission to communicate with the predecessor auditor and review
certain portions of the predecessor auditor’s working papers. The prospective client’s refusal
to permit this will bear directly on Hawkins’ decision concerning the
15. In assessing whether to accept a client for an audit engagement, a CPA should consider
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
16. Evaluating a prospective client requires the following step(s):
17. An auditor has withdrawn from an audit engagement of a publicly held company after
finding fraud that may materially affect the financial statements. The auditor should set forth
the reasons and findings in correspondence with the
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
18. When a CPA is approached to perform an audit for the first time, the CPA should make
inquiries of the predecessor auditor. This is a necessary procedure because the predecessor
may be able to provide the successor with information that will assist the successor in
determining
19. Which of the following should an auditor obtain from the predecessor auditor prior to
accepting an audit engagement?
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
20. Which of the following factors most likely would cause a CPA not to accept a new audit
engagement?
21. An auditor who discovers that a client’s employees paid small bribes to municipal officials
most likely would withdraw from the engagement if
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
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22. A successor auditor should request the new client to authorize the predecessor auditor to
allow a review of the predecessor’s
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
24. Which of the following factors most likely would lead a CPA to conclude that a potential
audit engagement should be rejected?
25. Which of the following factors most likely would cause a CPA to decide not to accept a
new audit engagement?
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
26. Before accepting an engagement to audit a new client, a CPA is required to obtain
27. Which of the following situations would most likely require special audit planning?
28. During the initial planning phase of an audit, a CPA most likely would
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
29. An auditor is required to establish an understanding with a client regarding the
responsibilities for each engagement. This understanding generally includes
30. A written understanding between the auditor and the client concerning the auditor’s
responsibility for the discovery of illegal acts is usually set forth in a(n)
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
31. Engagement letters include all of the following except:
32. Which of the following matters generally is included in an auditor’s engagement letter?
33. To provide for the greatest degree of independence in performing internal audit functions,
an internal auditor most likely should report to the
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
34. All of the following refer to an internal auditor’s competence except:
35. An independent auditor might consider the procedures performed by the internal auditors
because
36. As generally conceived, the audit committee of a publicly held company should be made
up of
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
37. To emphasize auditor independence from management, publicly traded corporations are
required to
38. An auditor obtains knowledge about a new client’s business and its industry in order to
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
39. Which of the following is an example of a related party transaction?
40. An independent auditor finds that Holdaway Corporation occupies office space, at no
charge, in an office building owned by a shareholder. This finding likely indicates the
existence of
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
41. Which of the following would not necessarily be a related party transaction?
42. The existence of a related party transaction may be indicated when another entity
43. In the context of an audit of financial statements, substantive procedures are audit
procedures that