Which of the following factors most likely would cause a CPA to
accept a new audit
The prospective client has already completed its physical inventory
The CPA lacks an understanding of the prospective client's
operations and industry.
The CPA is unable to review the predecessor auditor's audit
The prospective client is unwilling to make all financial records
available to the CPA.
Choice "d" is correct. An auditor must consider the availability and adequacy of the client's
accounting records and the integrity of management in deciding whether or not to accept a
new audit engagement. A prospective client that is unwilling to provide all financial records
would give the auditor cause for concern about both of these issues.
Choice "a" is incorrect. The auditor may apply acceptable alternative procedures to audit
Choice "b" is incorrect. The auditor can accept the engagement and obtain an
understanding of the client's operations and industry after acceptance.
Choice "c" is incorrect. Inability to review the predecessor's audit documentation means
the auditor will expend greater effort auditing beginning balances. It does not mean the
engagement should be declined.
10 of 10
Which of the following matters generally is included in an auditor's engagement letter?
Management's responsibility for the entity's compliance with
laws and regulations.
The factors to be considered in setting preliminary judgments about
Management's vicarious liability for illegal acts committed by its
The auditor's responsibility to search for significant internal control
Choice "a" is correct. An understanding with the client should be established regarding
management's responsibilities, which include identifying and ensuring that the entity
complies with applicable laws and regulations. The understanding should be documented
through a written communication, such as an engagement letter.
Choice "b" is incorrect. Judgments about materiality are the auditor's responsibility and
would not be included in an engagement letter.
Choice "c" is incorrect. Management would not necessarily be responsible for illegal acts
committed by employees.
Choice "d" is incorrect. The auditor is not responsible for searching for significant internal
10 of 10
Which of the following is required documentation in an audit in accordance with generally
accepted auditing standards?
A flowchart or narrative of the information system relevant to financial
reporting describing the recording and classification of transactions
for financial reporting.
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