stions

$5-46.$ Multiple Choice Questions

Select the best answer for each of the following questions. Explain the reasons for your selection.

LO $5-1$

a$.$ Which of the following is not a financial statement assertion made by management?

$(1)$ Existence of recorded assets and liabilities.

$(2)$ Completeness of recorded assets and liabilities.

$(3)$ Valuation of assets and liabilities.

$(4)$ Effectiveness of internal control.

LO $5-2$

b$.$ Which of the following business characteristics is not indicative of high inherent risk?

$(1)$ Operating results that are highly sensitive to economic factors.

$(2)$ Large likely misstatements detected in prior audits.

$(3)$ Substantial turnover of management.

$(4)$ A large amount of assets.

LO $5-4$

c$.$ As part of their audit, auditors obtain a representation letter from their client. Which of the following is not a valid purpose of such a letter?

$(1)$ To increase the efficiency of the audit by eliminating the need for other audit procedures.

$(2)$ To remind the client's management of its primary responsibility for the financial statements.

$(3)$ To document in the audit working papers the client's responses to certain verbal inquiries made by the auditors during the engagement.

$(4)$ To provide evidence in those areas dependent upon management's future intentions.

LO $5-4$

d$.$ Which of the following statements best describes why auditors investigdte related party transactions?

$(1)$ Related party transactions generally are illegal acts.

$(2)$ The substance of related party transactions may differ from their form.

$(3)$ All related party transactions must be eliminated as a step in preparing consolidated financial statements.

$(4)$ Related party transactions are a form of management fraud.