(c) The requirement is to determine whether a successor auditor should request a new client to authorize the predecessor auditor to allow a review of the predecessor’s engagement letter, working papers, or both. Answer (c) is correct because AU-C 510 states that it is advisable that a successor auditor request to be allowed to review the predecessor’s working papers.
(b) The requirement is to identify the audit procedure that an auditor will most likely perform during risk assessment for a financial statement audit. Answer (b) is correct because AU-C 315 requires that an auditor perform analytical procedures such as comparing the financial statements to anticipated results during the planning stage of an audit. Answers (a), (c), and (d) are all incorrect because these procedures will all occur subsequent to planning.
(c) The requirement is to determine the proper focus of analytical procedures used during risk assessment of an audit. Answer (c) is correct because analytical procedures used during risk assessment may enhance the auditor’s understanding of the client’s business and significant transactions and events that have occurred since the prior audit and also may help to identify the existence of unusual transactions or events and amounts, ratios, and trends that might indicate matters that have audit implications.
(a) The requirement is to identify a primary purpose of performing analytical procedures during an audit’s risk assessment. Answer (a) is correct because analytical procedures used during risk assessment may enhance the auditor’s understanding of the client’s business and significant transactions and events that have occurred since the prior audit and also may help to identify the existence of unusual transactions or events and amounts, ratios, and trends that might indicate matters that have audit implications. Answers (b), (c), and (d) are all incorrect because while analytical procedures may lead to the discovery of illegal acts, related-party transactions, and unauthorized transactions, this is not the primary objective.
(c) The requirement is to identify the type of nonfinancial information an auditor would most likely consider in performing analytical procedures during the risk assessment phase of an audit. Answer (c) is correct because the square footage of selling space may be used in considering the overall reasonableness of sales. Answer (a) is incorrect because while the turnover of personnel in the accounting department may provide a measure of risk relating to the accounting function, it is not ordinarily used in performing analytical procedures. Similarly, answer (b) is incorrect because while the objectivity of audit committee members is an important consideration, it is not ordinarily used in performing analytical procedures. Answer (d) is also incorrect because management’s plans to repurchase stock is not directly related to analytical procedures. See AU-C 315 and AU-C 520 for information on analytical procedures.
(b) The requirement is to identify the information that is most likely to be communicated by a supervisor to staff assistants. Answer (b) is correct because staff assistants must be aware of how their procedures should be evaluated in order to perform these procedures effectively. Answer (a) is incorrect because some immaterial fraud may be reported to the client’s audit committee. Answer (c) is incorrect because the emphasis in an audit must be on performing the audit effectively and not merely on adhering to time budgets. Answer (d) is incorrect because decisions regarding transferring documents from the current file to the permanent file are generally of less importance than the procedure suggested by answer (b).
(b) The requirement is to determine why the work of each assistant should be reviewed. Answer (b) is correct because AU-C 300 suggests that the work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the results are consistent with the conclusions to be presented in the auditor’s report. Answer (a) is incorrect because CPA firms, not individual auditors within the firms, have systems of quality control. Answer (c) is incorrect because the professional standards do not in general approve specific audit procedures. Answer (d) is incorrect because while determining that the audit has been performed by persons having adequate technical training and proficiency as auditors is important, it should be addressed prior to the commencement of fieldwork.
(c) The requirement is to identify the next step in assessing the risks of material misstatement after auditors identify risks, relate risks to what could go wrong, and consider the magnitude of risks. Answer (c) is correct because the professional standards suggest that auditors should then consider the likelihood that risks involved could result in material misstatements. Answer (a) is incorrect because the assessment is not limited to illegal acts. Answer (b) is incorrect because the complexity of transactions is not next to be considered. Answer (d) is incorrect because determining materiality levels occurs prior to this stage of the audit.
(b) The requirement is to identify the procedure that is least likely to be considered a risk assessment procedure. Answer (b) is correct because confirmation is a substantive test, rather than a risk assessment procedure. Answers (a), (b), and (c) are all risk assessment procedures, as are certain inquiries of others outside the entity.
(d) Answer (d) is correct because significant risks often involve accounting estimates or complex accounting that involves significant judgments. Answer (a) is incorrect because routine, high-volume transactions typically have lower risk. Answer (b) is incorrect because significant risks do require special audit attention. Answer (c) is incorrect because significant risks involve items with high levels of inherent risk.
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