Analytical procedures used in planning an audit

Which of the following would cause you least concern when deciding to accept an audit engagement?
The potential client’s loss of a major customer
The existence of related party transactions
A substantial decrease in the price of the potential client’s stock
A trend of decreased cash flow

Which of the following would cause you the most concern about accepting an engagement?
The existence of related party transactions
Excessive turnover in the accounting department
A large percentage of the potential client’s income is generated overseas
The internal auditors report to the controller

Which of the following would likely result in a larger sample size?
Acceptable audit risk changes from .10 to .05
Control risk is increased
Detection risk decreases
All of the above would lead to a larger sample size

In attribute sampling which of the following statements should be true?
The tolerable rate is lower than the expected rate of deviations
The tolerable rate is higher than the expected rate of deviations
The tolerable rate is always equal to the expected rate of deviations
None of the above statements is true

Analytical procedures used in planning an audit should focus on
Assessing the adequacy of the available evidential matter
Assessing business risk
Providing assurance that potential material misstatements will be identified
None of the above

Which of the following documentation is not required for an audit in accordance with generally
accepted auditing standards?

Audit program
Engagement letter
Management representation letter
All of the above are required

Which of the following circumstances most likely would cause an auditor to consider whether material
misstatements exist in an entity’s financial statements?
Clerical errors are listed on a monthly computer-generated exception report
A key employee has not taken a vacation in 5 years
There are no internal audtiors
The client is a closely held company with no audit committee

Which of the following might lead to a Type 2 risk?
. Tolerable deviation rate increases
Making an incorrect rejection decision
A lower audit risk is chosen
Choose a lower detection risk

An auditor obtains knowledge about a new client’s business and its industry in order to:

To plan the audit
To make an acceptance decision
To help determine who is to be assigned to the audit
All of the above

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