Which of the following factors would most likely decrease the risk of material misstatement on an audit?

A. The client's Board of Directors is controlled by the majority stockholder, who also acts as the chief executive officer.

B. An initial public offering of the client's stock is planned for later in the year.

C. The accounting department has experienced a high rate of turnover in key personnel.

D. The client and the auditor have never had disagreements over the appropriate application of GAAP.

While performing the audit of the financial statements for the year ended December 31, 20X1, the auditor notes that the company's sales increased substantially in December, 20X1 with a corresponding decrease in January, 20X2. In assessing the risk of fraudulent financial reporting or misappropriation of assets, what should be the auditor's initial indication about the potential for fraud at the client?

A. There is an increased risk of theft of inventory by an employee.

B. There is an indication of over statement of inventory and understatement of cost of sales.

C. There is an increased risk that employees are embezzling cash receipts.

D. There is an increased risk of fraudulent financial reporting of sales revenue.

Which of the following statements best describes the concept of materiality?

A. Materiality is determined by following specific calculations dictated by the AICPA.

B. Materiality depends only on the dollar amount of an item relative to other items in the financial statements.

C. Materiality is the amount of misstatement that will influence a reasonable person relying on the financial statements.

D. Materiality depends on the nature of an item but not on the dollar amount of the item.

Which of the following is theleastpersuasive type of audit evidence?

A. Inquiries made by the auditor with the client's controller regarding the allowance for doubtful accounts.

B. Confirmations mailed by outsiders to the auditors.

C. Prenumbered receiving reports completed by the client's employees.

D. Canceled checks returned in the year-end bank statement to the client.

Which of the following factors most likely would cause a CPA to not accept a new audit client?

A. The prospective client is unwilling to allow the CPA to contact the predecessor auditor.

B. The CPA lacks a thorough understanding of the prospective client's operations and industry.

C. The prospective client has fired its prior auditor

D. The CPA is unable to review the predecessor auditor's working papers due to a major fire that destroyed both hard copies and electronic copies of the documentation.

Generally accepted auditing standards state that

A. performing analytical procedures results in the most reliable form of evidence.

B. analytical procedures are used in risk assessment, as a substantive procedure for specific accounts, and near the completion of the audit of the audited financial statements.

C. analytical procedures are tests of controls used to evaluate the quality of a client's internal control.

D. analytical procedures are used for planning, but they should not be used to obtain evidence as to the reasonableness of specific account balances.