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Inherent risk is defined as:
Inherent risk is defined as risk that exists outside the audit process. It is sometimes termed industry risk.
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Materiality levels are set by:
Materiality levels are set by the judgment of the auditor. The auditor may use industry standards to help in determining the materiality level, however, experience and judgment are the final determinants.
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Auditors document the terms of engagement in:
An engagement letter outlines the terms of the engagement including management's expected responsibilities and the responsibilities of the auditor.
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A properly developed engagement letter should include:
A properly constructed engagement letter should discuss the responsibilities of the auditors, management as well as the risks and limitations of the audit engagement.
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Preplanning audit documentation includes
A preplanning audit document will discuss the overall audit strategy. Planning an audit will include an internal control assessment, but not in the preplanning stage. Confirmation letters and substantive testing are part of the audit process.
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An audit supervisor reviewed the work performed by the staff to determine if the audit was adequately performed. The supervisor accomplished this by primarily reviewing which of the following?
Audit documentation, or working papers, comprises the principal record of audit procedures performed, evidence obtained, and conclusions reached. Reviewing the working papers allows a supervisor to understand the work performed and the evidence obtained, and to evaluate whether the audit was adequately performed.
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At the completion of an audit, which of the following entities has ownership of the audit working papers?
The CPA firm that performed the audit has ownership of the audit working papers. These work papers provide support for the audit opinion and contain information detailing the audit work performed.
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A ______ is specifically someone who performs work on an engagement of a component's financial information that will be used as audit evidence of a group audit.
A component auditor rightfully conducts audit procedures of a component of a larger group audit.
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In addressing materiality, the auditor should:
In addressing materiality, the auditor should decide whether the omission or misstatement would change the judgment of the reader.
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“Performance Materiality” is defined as
Performance Materiality is defined as the amount that is less than the overall materiality level. Performance materiality is set to respond to smaller misstatements or omissions that in aggregate may affect the materiality level.
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In developing an overall audit strategy, the auditor should consider:
In developing an overall audit strategy, an auditor should consider preliminary evaluations of materiality, audit risk, and internal control.
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During the initial planning phase of an audit, the auditor would most likely:
Procedures that an auditor may consider in planning the audit include discussing the type, scope, and timing of the audit with the client's management.
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The users of a company's set of financial statements would be:
Both creditors and shareholders would need access to reliable financial statements in order to decide if the company is worth investing in or lending money to.
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Sufficient evidence refers to:
Sufficient evidence refers to the amount of evidence. It is sufficient in quantity to enable the auditor to express a reasonable judgment.
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John Anderson CPA is in the process of auditing a client. In terms of “reliability of evidence”, evidence pertaining to cash records should be obtained through:
In the hierarch of evidence, evidence from independent sources is deemed most appropriate. In this scenario, the independent source of evidence is the bank statements as this document comes from an outside source (the bank).
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An “assertion” in terms of the financial statement includes:
An “assertion” in terms of the financial statement includes the completeness, existence, valuation, rights and obligations, and presentation and disclosure.
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After fieldwork audit procedures are completed, a partner of the CPA firm who has not been involved in the audit performs a second or wrap up review of the audit documentation. This second review usually focuses on:
The primary purpose of a second partner review is to evaluate the significant judgments made by the engagement team and the related conclusions reached in forming the overall conclusion.
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The purpose of establishing quality control policies and procedures for deciding whether to accept or continue a client relationship is to:
The purpose of establishing quality control policies and procedures for deciding whether to accept or continue a client relationship is to minimize the likelihood of associating with clients whose management lacks integrity.
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Risk is communicated in the audit report as:
The concept of reasonable assurance is used to guide the auditor when assigning and assessing risk in the audit process.
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Risk of material misstatement exists at:
The risk of misstatement appears at the transactional level as well as the financial statement level. The statements can be materially misstated in the aggregate based on a series of misstated transactions or on the whole.
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