8. In accepting a client, auditing standards suggest that the auditor focus on four questions. Which of the following is not one of those four required questions of the predecessor?
(A)Integrity of management.
(B)The strength of the client’s internal control.
(C) Disagreements with management as to accounting principles, auditing standards, or other similarly significant matters.
(D)Any communications by the predecessor to the client’s management or audit committee concerning fraud, illegal acts by the client, and matters related to internal control.

4. A stipulation in an agreement between an entity and its creditor that places documented restrictions on the organization is referred to as: (A)debt covenants. (B)written representation. (C) engagement letters. (D)current maturities of long-term obligations.

5. Statistical sampling is best known for combining (A)binomial and confidence intervals. (B)random and haphazard selection. (C) hypergeometric distribution with audit risk. (D)probability and statistical inference with audit judgment.

6. A company employs three accounts payable clerks and one treasurer. Their responsibilities are as follows:   Which of the following would indicate a weakness in the company's internal controls? (A)Clerk 1 opens all of the incoming mail. (B)Clerk 2 reconciles the accounts payable ledger with the general ledger monthly. (C) Clerk 3 mails the checks and remittances after they have been signed. (D)The treasurer uses a stamp for signing checks.

7. When testing a company's cost accounting system, the auditor uses procedures that are primarily designed to determine that (A)quantities on hand have been computed based on acceptable cost accounting techniques that reasonably approximate actual quantities on hand. (B)physical inventories agree substantially with book inventories. (C) the system is in accordance with generally accepted accounting principles and is functioning as planned. (D)costs have been properly assigned to finished goods, work-in-process, and cost of goods sold.

9. In considering overall materiality for planning purposes, an auditor believes that misstatements aggregating $10,000 would have a material effect on an entity's income statement but that misstatements would have to aggregate $20,000 to materially affect the balance sheet. Ordinarily, it would be appropriate to design audit procedures that would be expected to detect misstatements aggregating (A)$10,000. (B)$15,000. (C) $20,000. (D)$30,000.

10. Which of the following procedures would a CPA most likely perform in the planning phase of a financial statement audit? (A)make inquiries of the client's lawyer concerning pending litigation. (B)perform cutoff tests of cash receipts and disbursements. (C) compare financial information with nonfinancial operating data. (D)recalculate the prior year's accruals and deferrals.

11. The process of vouching helps establishes that all recorded transactions (A)have been recorded. (B)are complete. (C) are valid. (D)are presented properly.

12. The auditor will send a standard bank confirmation to which of the following? (A)financial institutions of customers using the lockbox. (B)financial institutions for which the client has a balance greater than $0 at the end of the year.  (C) financial institutions with which the client has transacted during the year. (D)financial institutions used by significant shareholders.

13. Management of Megadile, Inc. refuses to sign the management representation letter given to them in the course of the audit on the grounds that it invades the company's privacy. Such actions will be considered by the auditors to be (A)a violation of full and fair disclosure. (B)securities law violation. (C) a scope limitation. (D)a breakdown in internal controls.

14. Which of the following is an example of a type of control that may be tested? (A)Interest accrued on notes payable. (B)Cash surrender value of life insurance classified as long-term asset. (C) A spreadsheet used to create a pivot table for the summarization of accounts receivable. (D)Reconciliations performed monthly on accounts.