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Unformatted text preview: Chapter 04 - Engagement Planning CHAPTER 4 Engagement Planning SOLUTIONS FOR MULTIPLE-CHOICE QUESTIONS 4.26 a. Incorrect. Confirmation is not an analytical procedure. b. Incorrect. Physical observation is not an analytical procedure. c. Correct. Analytical procedures incorporate information from a variety of sources. d. Incorrect. Tests of details are not analytical procedures. 4.27 a. Incorrect. Analytical procedures are performed after the engagement letter is obtained. b. Correct. This is the attention-directing purpose. c. Incorrect. All the assertions are always important. d. Incorrect. This answer could be good even though it evokes the control risk assessment standard, but restriction to inventory makes it a poor choice. 4.28 a. Incorrect. Physical production statistics are not a source of information for comparison of current account balances with prior periods. b. Correct. A clients budgets and forecasts are sources of information for comparison of current account balances with expected balances. c. Incorrect. Published industry ratios are not a source of information for evaluation of current account balances with relation to predictable historical patterns. d. Incorrect. The companys own historical financial statements are not a good source of information for evaluation of current account balances in relation to nonfinancial information. 4.29 d. Correct. (All of the above). Analytical procedures can be used when planning the audit, when performing substantive procedures during an audit, and as a method of overall review at the end of an audit. 4.30 a. Incorrect. Weaknesses in the companys internal control are not a subject for preliminary analytical procedures because auditors cant examine the internal controls at this particular time with these kinds of analyses. b. Incorrect. Individual transactions are not used in preliminary analytical procedures. c. Incorrect. Management assertions in financial statements are not the direct object of preliminary attention-directing analytical procedures. d. Correct. With preliminary analytical procedures, the auditors are looking for signs of accounts and relationships that may represent specific potential problems and risks in the financial statements. 4.31 a. True. The successor must take responsibility for obtaining the clients consent for the predecessor to give information about prior audits. b. True. Cooperation from the predecessor is expected. c. True. Cooperation includes obtaining copies of some or all of the predecessor auditors documentation. d. Correct. All of the above are expected. 4-1 Chapter 04 - Engagement Planning 4.32 a. Incorrect. Although strongly encouraged, U.S. GAAS do not require a written engagement letter for audits....
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- Spring '10