Auditing Problem FA 2: Audit Planning
C
Adequate planning of the audit work helps the auditor of accomplishing the following objectives, except: a. Ensuring that appropriate attention is devoted to important areas of the audit. b. Identifying the areas that need a service of an expert. c. Gathering of all corroborating audit evidence. d. The audit work is completed efficiently.
Yes
Analytical procedures are required: (Y/N) As a risk assessment procedure performed during planning
No
Analytical procedures are required: (Y/N) As a substantive test procedure during evidence
Yes
Analytical procedures are required: (Y/N) As an overall review at audit completion
C
Analytical procedures used in planning an audit should focus on a. Reducing the scope of tests of controls and substantive tests. b. Providing assurance that potential misstatements will be identified. c. Enhancing the auditor's understanding of the client's business. d. Assuming the adequacy of the available evidential matter.
D
Analytical procedures used in planning an audit should focus on identifying: a. Material weaknesses in the internal control system b. The predictability of financial data from individual transactions c. The various assertions that are embodied in the financial statements d. Areas that may represent specific risks relevant to the audit
D
Audit procedures may be classified as risk assessment procedures and further audit procedures. Which of the following best describes risk assessment procedures? a. These procedures are used detect material misstatements at the assertion level. b. These procedures include tests of details of classes of transactions account balances, and disclosures and analytical procedures. c. These procedures test the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level. d. These are procedures for obtaining an understanding of the entity and its environment, including its internal control, to assess the risks of material misstatement at the financial statement and assertion levels.
B
Audit risk has three components: inherent risk, control risk and detection risk. Which of the following statements is correct? a. Detection risk is a function of the efficiency of an audit procedure. b. Cash is more susceptible to theft than an inventory of coal because it has a greater inherent risk. c. The risk that material misstatement will not prevent or detected on a timely basis by internal control can be reduced to a zero by effective controls. d. The existing levels of inherent risk, control risk and detection risk can be changed at the discretion of the auditor
C
Cost-benefit considerations are part of audit planning. In relation to this, which of the following audit procedures is usually the least costly to perform? a. Tests of balances b. Tests of transactions c. Analytical procedures d. Tests of controls
A
In considering materiality for planning purposes, Ash, auditor believes that misstatements aggregating P60,000 would have material effect on an entity's income statement, but that misstatements would have to aggregate P40,000 to materially affect the balance sheet. Ordinarily, it would be appropriate to design auditing procedures that would be expected to detect misstatements that aggregate: a. P40,000 b. P50,000 c. P60,000 d. P100,000
C
In designing audit programs, an auditor should establish specific audit objectives that related primarily to the a. Selected audit techniques b. Timing of audit procedures c. Financial statement assertions d. Cost-benefit gathering evidence
A
In developing the overall audit strategy, the focus of the engagement team's efforts is considered. Which of the following is not appropriately classified as a factor affecting the focus of the team's efforts? a. The financial reporting framework on which the financial informati0D to be audited has been prepared, including any need for reconciliation to another reporting framework. b. Setting materiality for planning purposes. c. Audit areas where there is a higher risk of material misstatement d. Volume of transactions, which may determine whether it is more efficient for the auditor to rely on internal control.
D
In performing an audit of financial statements, the auditor should obtain a sufficient knowledge of a client's business and industry to a. Develop an attitude of professional skepticism concerning management's financial statement assertions. b. Make constructive suggestions concerning improvements to the client's internal control. c. Evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated. d. Understand the events and transactions that may have an effect on the client's financial statements.
B
In planning stage of an audit engagement, the auditor is required to perform audit procedures to obtain an understanding of the entity and its environment, including its internal control. These procedures are called a. Substantive tests c. Test of controls b. Risk assessment procedures d. Dual-purpose tests
A
In planning the audit engagement, the auditor should consider each of the following except a. The kind of opinion (unqualified, qualified, or adverse) that is likely to be expressed. b. Matters relating to the entity's business and the industry in which it operates. c. The entity's accounting policies and procedures. d. Materiality level and audit risk
C
Inherent risk and control risk differ from detection risk in that inherent risk and control risk are: a. Elements of audit risk while detection risk is not. b. Changes at the auditor's discretion while detection risk is not. c. Functions of the client and its environment while detection risk is not d. Considered at the individual account balance level while detection risk is not.
B
It involves establishing the overall audit strategy for the engagement and developing an audit plan in order to reduce audit risk to an acceptably low level. a. Reporting b. Planning c. Field work d. Organizing
D
Some accounts balances, such as those for retirement benefits and finance lease, are the results of complex calculations. The susceptibility to material misstatements in these types of accounts is referred to as a. Audit risk b. Detection risk c. Control risk d. Inherent risk
Only 1 is correct
Statement 1: According to PSA 300, the auditor may discuss elements of planning with those charged with governance and the entity's management. Statement 2: The audit plan sets the scope, timing and direction of the audit guides the development of the more detailed overall audit strategy. Statement 3: The overall audit strategy is more detailed than the audit plan and includes the nature, timing and extent of audit procedures to be performed by engagement team members to obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.
Both are correct
Statement 1: Obtaining knowledge of the entity business is an important part of the planning the audit work. Statement 2: The auditor's knowledge of the entity's business assists in the identification of events, transactions and practices which may have a material effect on the financial statements.
both incorrect
Statement 1: Supervision involves developing an overall strategy' for the expected conduct and scope of the audit. Statement 2: Planning involves directing the efforts of assistants who are involved in accomplishing the objectives of the audit and determining whether those objectives were accomplished.
only 2 is correct
Statement 1: The client should plan the audit work so that the audit will be performed in an effective manner. Statement 2: The auditor should develop and document an overall audit plan describing the scope and conduct of the audit.
only 2 is correct
Statement 1: The overall audit plan and the audit program should not be revised during the course of the audit. Statement 2: The auditor should develop and document an audit program setting out the nature, timing and extent of planned audit procedures required to implement the overall audit plan.
D
The audit program should contain the following, except: a. Audit objective b. Set of planned audit procedures c. Time budget for the various audit areas d. The combined assessed level of inherent and control risk
C
The auditor should design the written audit program, so that: a. All material transactions will be selected for substantive testing. b. Substantive tests prior to the balance sheet date will be minimized. c. The audit procedures selected will achieve specific audit objectives, d. Each account balance will be tested under either tests of controls tests of transactions.
C
The auditor should document the overall audit strategy and the audit plan including significant changes made during the audit engagement. Which of the following statements on documentation is incorrect? a. Documentation of the overall audit strategy may be made in the form of a memorandum that contains key decisions regarding the overall scope timing and conduct of the audit. b. The auditor may use standard audit programs or audit completion checklists, but such programs and checklists need to be tailored to the particular client. c. The auditor's documentation of any significant changes to the originally planned overall audit strategy and to the detailed audit plan need not include the reasons for the significant changes. d. The form and extent of documentation depend on such matters as the size and complexity of the entity, materiality, the extent of other documentation, and the circumstances of the specific engagement.
C
The auditor should plan the audit work so that the audit will be performed in an effective manner. The extent of planning will vary according to any of the following, except: a. Auditor's experience with the entity and knowledge of the business. b. The nature and complexity of the audit engagement c. The assessed level of control risk. d. Size of the audit client.
Yes
The auditor's plan should (Y/N) Be flexible
No
The auditor's plan should (Y/N) Succeed Action
Yes
The auditor's plan should (Y/N) be cost-beneficial
B
The objective of performing analytical procedures in planning an audit engagement is to identify the existence of: a. Related party transactions b. Unusual transactions and events c. Recorded transactions that were not properly authorized d. Illegal acts that went undetected because of internal control weaknesses
C
There is an inverse relationship that exist between the acceptable level of detection risk and the a. Risk of falling to discover material misstatement b. Preliminary judgments about materiality levels c. Assurance provided by substantive tests d. Risk of misapplying audit process
C
This serves as the set of instructions to assistants involved in the audit and as a means to control and record the proper execution of the work of the personnel involved in the service. a. Audit procedures b. Audit plan c. Audit program d. Audit risk model
I to III
Which of the following activities should be performed by the auditor at the beginning of the current audit engagement? I. Perform procedures regarding the continuance of the client relationship and the specific audit engagement. II. Evaluate compliance with the requirements of the Code of Ethics for Professional Accountants in the Philippines, including independence. III. Establish an understanding of the terms of the engagement.
D
Which of the following is least likely considered by the CPA when he makes an overall audit plan? a. The nature and timing of reports and other communication with the entity that are expected under the engagement b. Identification of complex accounting areas including those involving accounting estimates c. The effect of information technology on the audit d. The content of the representation letters
D
Which of the following matters should be considered by the auditor in developing the overall audit strategy? a. Important characteristics of the entity, its business, its financial performance and its reporting requirements including changes since the date of the prior audit b. Conditions requiring special attention, such as the existence of the related parties c. The setting of materiality level for audit purposes d. All of the above
D
Which of the following procedures is not performed as a part of planning an audit engagement? a. Reviewing working papers of the prior year b. Performing analytical procedures c. Designing an audit program d. Test of controls
Both
Which of the following procedures should be performed by the auditor prior to starting an initial audit? I. Perform procedures regarding the acceptance of the client relationship and the specific audit engagement. II. Communicate with the previous auditor, where there has been a change of auditors, in compliance with relevant ethical requirements.
C
Which of the following procedures would an auditor least likely perform in planning a financial statement audit? a. Coordinating the assistance of entity personnel in data preparation. b. Discussing matters that may affect the audit with firm personnel responsible for non-audit services to the entity. c. Selecting a sample of vendor's invoices for comparison to receiving reports. d. Reading the current year's interim financial statements.
B
Which of the following procedures would an auditor most likely perform in planning an audit of financial statements? a. Inquiring of the client's legal counsel concerning pending litigation. b. Comparing the financial statements to anticipated results. c. Examining computer generated exception reports to verify the effectiveness of internal controls. d. Searching for unauthorized transactions that may aid in detecting unrecorded liabilities.
D
Which of the following statements is incorrect? a. The auditor should plan the audit so that the engagement will be performed in an effective manner. b. Planning an audit involves establishing the overall audit strategy for the engagement and developing the audit plan, in order to reduce audit risk to an acceptably low level. c. Planning involves the engagement partner and other key members of the engagement team to benefit from their experience and insight and to enhance the effectiveness and efficiency of the planning process. d. Planning is not a discrete phase of an audit, but rather a continual and iterative process that often begins shortly after (or in connection with) the completion of the previous audit and continues until the finalization of the audit program.
B
Which of the following statements is not correct about materiality? a. The concept of materiality recognizes that some matters are important for fair presentation of financial statements in conformity with GMP, while other matters are not important. b. An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements. c. Materiality judgments are made in light of surrounding circumstanced and necessarily involve both quantitative and qualitative judgments. d. An auditor's consideration of materiality is influenced by the auditor's perception of the needs of a reasonable person who will rely on the financial statements.
B
Which of the following would an auditor most likely use in determining the auditor's preliminary judgment about materiality? a. The anticipated sample size of the planned substantive tests. b. The entity's annualized interim financial statements. c. The results of the internal control questionnaire. d. The contents of the management representation letter.
D
With respect to planning an audit, which of the following statements is always true? a. An inventory count must be observed at year-end. b. An engagement should not be accepted after the client's year-end. c. Final staffing decisions must be made prior to completion of the planning stage. d. It is acceptable to perform a portion of the audit of a continuing client at interim dates.
