The Auditors Are Planning an Audit Engagement for a New

question 46

Multiple Choice

The auditors are planning an audit engagement for a new client in a business that is unfamiliar to the auditors. Which of the following would be the most useful source of information for the auditors during the preliminary planning stage when they are trying to obtain a general understanding of audit problems that might be encountered?

• A) Client manuals of accounts and charts of accounts.
• B) AICPA Industry Audit Guides.
• C) Prior-year working papers of the predecessor auditors.
• D) Latest annual and interim financial statements issued by the client.

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Definitions:

Owner's Equity Account

An account on a company's balance sheet that represents the total amount invested by the owners plus any retained earnings or losses.

Real Accounts

Accounts related to assets, liabilities, and equity that are not closed at the end of the accounting period and are carried forward to the next period.

Nominal Accounts

Accounts that are used in accounting to record expenses, incomes, losses, and gains; these accounts are closed at the end of the accounting period.

Closing Entry

A journal entry made at the end of an accounting period to transfer the balances in temporary accounts to permanent accounts.