Accounting 408 Test 2 Review

1. An auditor obtains knowledge about a new client's business and its industry to a. Make constructive suggestions concerning improvements in the client's internal control structure. b. Develop an attitude of professional skepticism concerning management's financial statement assertions. c. Evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated. d. Understand the events and transactions that may have an effect on the client's financial statements.

2. Prior to beginning the field work on a new audit engagement in which a CPA does not possess expertise in the industry in which the client operates, the CPA should a. Reduce audit risk by lowering the preliminary levels of materiality. b. Design special substantive tests to compensate for the lack of industry expertise. c. Engage financial experts familiar with the nature of the industry. d. Obtain a knowledge of matters that relate to the nature of the entity's business.

3. Which of the following factors most likely would cause an auditor not to accept a new audit engagement? a. An inadequate understanding of the entity's internal control structure. b. The close proximity to the end of the entity's fiscal year. c. Concluding that the entity's management probably lacks integrity. d. An inability to perform preliminary analytical procedures before assessing control risk.

4. Before accepting an engagement to audit a new client, an auditor is required to a. Make inquiries of the predecessor auditor after obtaining the consent of the prospective client. b. Obtain the prospective client's signature to the engagement