CPA Auditing Multiple Choice Questions and Case Study Analysis

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CPA Auditing Multiple Choice Questions and Case Study AnalysisChapter 8 CPA Multiple Choice Questions8-1Which of the following is an effective audit planning procedure that helps prevent misunderstandingsand inefficient use of auditpersonnel?(1) Arrange to make copies, for inclusion in the audit files, of those client supporting documentsexamined by the auditor.(2) Arrange to provide the client with copies of the audit programs to be used during the audit.(3) Arrange a preliminary conference with the client to discuss audit objectives, fees, timing, and otherinformation.(4) Arrange to have the auditor prepare and post any necessary adjusting or reclassification entries priorto the final closing.8-2When auditing related party transactions, an auditor places primary emphasis on(1) Confirming the existence of the related parties.(2) Verifying the valuation of related party transactions.(3) Evaluating the disclosure of the related party transactions.(4) Ascertaining the rights and obligations of the related parties.8-3Which of the following will most likely indicate the existence of related parties?(1) Writing down obsolete inventory prior to year end.(2) Failing to correct weaknesses in the client’s internal control.(3) An unexplained increase in gross margin.(4) Borrowing money at a rate significantly below the market rate.8-4When using the work of a specialist, the auditor may identify and refer to the specialist in the auditor’sreport if the(1) Auditor expresses a qualified opinion as a result of the specialist’s findings.(2) Specialist is not independent of the client.(3) Auditor wishes to indicate a division of responsibility.(4) Specialist’s work provides the auditor greater assurance ofreliability.8-5In assessing whether to accept a client for an audit engagement, a CPA should considerClient Business Risk Acceptable Audit Risk(1) Yes Yes(2) Yes No

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(3) No Yes(4) No No8-6When approached to perform an audit for the firsttime, the CPA should make inquiries of thepredecessor auditor. This is a necessary procedure because the predecessor may be able to provide thesuccessor with information that will assist the successor in determining whether(1) The predecessor’s work should be used.(2) The company follows the policy of rotating its auditors.(3) In the predecessor’s opinion internal control of the company has been satisfactory.(4) The engagement should be accepted.8-7A successor would most likely make specific inquiries of the predecessor auditor regarding(1) Specialized accounting principles of the clients industry.(2) The competency of the client’s internal auditing staff.(3) The uncertainty inherent in applying sampling procedures.(4) Disagreements with management as to auditing procedures.8-8Analytical procedures used in planning an audit should focus on identifying(1) Material weaknesses of internal control.(2) The predictability of financial data from the individual transactions.(3) The variousassertions that are embodied in the financial statements.(4) Areas that may represent specific risks relevant to the audit.8-9For all audits of financial statements made in accordance with generally accepted auditing standards,the use of analytical procedures is required to some extentIn the As a In thePlanning Stage Substantive Test Completion Stage(1) Yes No Yes(2) No Yes No(3) No Yes Yes(4) Yes No No8-10Which of the following is least likely to be comparable between similar corporations in the sameindustry line of business?(1) Accounts receivable turnover.(2) Earnings per share.(3) Gross profit percent.

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