Question: MULTIPLE CHOICE QUESTIONS 1 Which of the following statements is false

1. Which of the following statements is false concerning engagement quality reviews?
a. The purpose of the engagement quality review is to provide reasonable assurance that the audit and audit documentation are complete and that they support the audit opinion on the financial statements.
b. The engagement quality review must be documented, and the documentation should include who performed the review, which documents were reviewed, and the date the engagement quality reviewer provided approval of the issuance of the audit opinion.
c. Engagement quality reviews are required for both publicly traded companies and private companies in the U.S.
d. One of the procedures that would be performed during the engagement quality review is to determine if appropriate consultations have taken place on difficult or contentious matters.

2. Which of the following is not a procedure that would be performed during an engagement quality review?
a. Evaluating whether or not to continue providing audit services to the client in the subsequent year, based on information gained during the current period audit.
b. Discussing significant matters related to the financial statements and internal controls.
c. Evaluating judgments about materiality and the disposition of corrected and uncorrected identified misstatements.
d. Reviewing the engagement team's evaluation of the firm's independence in relation to the engagement.

3. Which of the following is not a typical communication between the auditor and the audit committee?
a. Discussion of the auditor's responsibility under GAAS.
b. Discussion of the client continuance decision.
c. Discussion about auditor independence.
d. Discussion about management judgments and accounting estimates.

4. Which of the following is not a typical communication between the auditor and the audit committee?
a. Discussion of the cash confirmation process.
b. Discussion of significant audit adjustments.
c. Discussion of significant accounting policies.
d. Discussion about the quality of the company's accounting principles.

5. In completing the audit, the auditor communicates with management via the management letter. Which of the following is false about management letters?
a. The management letter is used to make significant operational or control recommendations to management.
b. Many audit firms consider management's inattention to addressing comments in the letter to be an important risk factor in subsequent-year audits.
c. The management letter is required for publicly traded companies in the U.S., but not privately held companies.
d. All of the above are false.

6. In the Auditing in Practice feature, "An Example Management Letter to a College Foundation," which of the following items is not present in the management letter?
a. The auditor's observations and recommendations to management.
b. Management's response.
c. The issue of whether/how management responded to the management letter related to the prior year's audit.
d. What actions the auditor will take in the subsequent year audit to help management address the identified weaknesses.

7. With regard to client continuance decisions, which of the following is false?
a. Client continuance decisions are one part of the audit firm's overall portfolio management activities.
b. The primary driver of the client continuance decision is the level of audit fees that can be charged to the client.
c. One can view an individual audit client like an individual stock in an investment portfolio.
d. Existing clients for which the audit firm provided services in the preceding period are evaluated by the audit firm and individual engagement partner at the completion of the audit to determine whether the audit firm should continue to provide services again in the next period.

8. Which of the following is an example of a risk relevant to the client continuance decision?
a. Client entity characteristics.
b. Independence risk factors.
c. Third party/due diligence risk factors.
d. All of the above.

9. Which of the following statements is true regarding audit partner rotation and audit firm rotation?
a. Having a longstanding relationship with the client management could impair the willingness or ability to perform an unbiased assessment of audit evidence.
b. Rules are essentially the same around the world in terms of requirements regarding audit partner rotation and audit firm rotation.
c. A cooling off period is put in place when there is a disagreement between client management and the auditor; it is required to be one year for publicly traded companies according to SOX.
d. The IAASB requires mandatory audit firm rotation after 10 years.

10. In the Auditing in Practice feature, "KPMG and General Electric Company: A Relationship that has Lasted Over 100 Years," there is a letter from the United Brotherhood of Carpenters Pension Fund to General Electric. In this letter, the Fund requests that General Electric establish an audit firm rotation policy that requires that at least every seven years the Company's audit firm rotate off the engagement for a minimum of three years. Which of the following is not a rationale used in that letter?
a. One important reform to advance the independence, skepticism, and objectivity accounting firms have toward their audit clients is a mandatory auditor rotation requirement.
b. For the largest 100 companies based on market capitalization, auditor tenure averages 28 years. These long term financial relationships result in the payment to audit firms of substantial amounts of dollars over the average period of the engagement.
c. General Electric paid KPMG over $900 million in total fees over the last 7 years.
d. There is substantive evidence that the large audit fees paid to KPMG have resulted in low audit quality.

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