Planning is a continual and iterative process. In a recurring audit, planning often begins shortly after or in connection with the completion of the previous audit and continues until the completion of the current audit engagement. In planning an audit, the auditor considers the timing of certain planning activities and audit procedures that are to be completed prior to the performance of further audit procedures. In performing an audit of financial statements, the auditor should obtain a sufficient knowledge of a clients business and industry to a.
Develop an attitude of professional skepticism concerning managements financial statement assertions. Make constructive suggestions concerning improvements to the clients internal control. Evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated. Understand the events and transactions that may have an effect on the clients financial statements.
Which of the following is the least likely procedure to be performed in planning a financial statement audit? Selecting a sample of sales invoices for comparison with shipping documents. Coordinating the assistance of entity personnel in data preparation. Reading the current years interim financial statements. Discussing matters that may affect the audit with firm personnel responsible for non audit services to the entity. The establishment of an overall audit strategy or plan involves I. Determining the characteristics of the engagement that define its scope.
Ascertaining the reporting objectives of the engagement to plan the timing of the audit and the nature of the communications required. Considering the important factors that will determine the focus of the engagement teams efforts. Which of the following should be included in the audit plan? The nature, timing and extent of planned further audit procedures at the assertion level, as determined under PSA The Auditors Responses to Assessed Risks a.
Neither I nor II 9. Which of the following matters would an auditor least likely to consider when setting the direction of the audit? The selection of the engagement team and the assignment of audit work to the team members. The engagement budget which includes consideration of the appropriate amount of time to allot for areas where there may be higher risks of material misstatement.
The availability of client personnel and data. The manner in which the auditor emphasizes to engagement team members the need to maintain a questioning mind and to exercise professional skepticism in the gathering and evaluation of audit evidence.
Which of the following matters would an auditor most likely consider when establishing the scope of the audit? The expected audit coverage, including the number and locations of the entitys components to be included. The entitys timetable for reporting, such as at interim and final stages. The discussion with the entitys management concerning the expected communications on the status of audit work throughout the engagement and the expected deliverables resulting from the audit procedures.
Audit areas where there is a higher risk of material misstatement. In the 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. Risk assessment procedures b. Substantive tests c.
Tests of controls d. Dual-purpose tests 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. The entitys accounting policies and procedures. Matters relating to the entitys business and the industry in which it operates.
Materiality level and audit risk. Audit programs are modified to suit the circumstances of particular engagements. A complete audit program usually should be developed a. When the engagement letter is prepared. After obtaining an understanding of the control environment and control activities components of the entitys internal control.
After the auditor has obtained an understanding of the entity and its environment, including its internal control and assessed the risks of material misstatement. Prior to beginning the actual audit work.
In designing written audit programs, an auditor should establish specific audit objectives that relate primarily to the a.
Selected audit techniques b. Cost-benefit or gathering audit evidence c. Timing of audit procedures d. Financial statement assertions An audit program should be designed for each individual audit and should incorporate steps and procedures to a. Detect and eliminate fraud of any type. Gather sufficient amount of management information available.
Provide assurances that the objectives of the audit are satisfied. Insure that only material items are audited. Which of the following is an aspect of scheduling and controlling the audit engagement? Including in the engagement letter an estimate of the minimum and maximum audit fee. Writing a conclusion in individual working papers indicating how the results of the audit will affect the auditors report.
Performing audit work only after the entitys books have been closed for the period under audit. Including in the audit program a column for budgeted and actual time. In connection with the planning phase of an audit engagement, which of the following statements is always correct? Final staffing decisions must be made prior to completion of the planning stage.
Observation of inventory count should be performed at year-end. A portion of the audit of a continuing audit client can be performed at interim dates.
An engagement should not be accepted after the clients financial year-end. In planning an audit of an new client, an auditor most likely would consider the methods used to process accounting information because such methods a. Influence the design of internal control b. Affect the auditors preliminary judgment about materiality level c.
Assist in evaluating the planned audit objectives d. Determine the auditors acceptance level of audit risk Which of the following statements is incorrect?
The auditor should obtain an understanding of the entity and its environment, including its internal control , sufficient to identify and assess the risk of material misstatement of the financial statements, whether due to fraud or error, and sufficient to design and perform further audit procedures.
The auditor uses professional judgment to determine the extent of the understanding required of the entity and its environment, including its internal control c.
The depth of the overall understanding that is required by the auditor in performing the audit is more than that possessed by management in managing the entity d. The performance of risk assessment procedures is a continuous dynamic process of gathering, updating, and analyzing information throughout the audit The following statements relate to business risk.
Select the incorrect statement: a. Business risk is broader than the risk of material misstatement b. Most business risks do not have financial consequences, though they may have an effect on the financial statements of an entity c. Usually, management identifies business risks and develops approaches to address them d.
Smaller entities often do not set their objectives and strategies, or manage the related business risks, through formal plans or processes. Which of the following procedures is not performed as part of planning an audit engagement? Reviewing the working papers of the prior year. Performing analytical procedures. Tests of control. Designing an audit program. Which of the following procedures would an auditor least likely perform in planning a financial statement audit?
Discussing matters that may affect the audit with firm personnel responsible for non-audit services to the entity. Selecting a sample of vendors invoices for comparison to receiving reports. Which of the following is an effective audit planning and control procedure that helps prevent misunderstanding and inefficient use of audit personnel? Make copies, for inclusion in the working papers, of those client supporting documents examined by the auditor.
Arrange to provide the client with copies of the audit programs to be used during the audit. Arrange preliminary conference with the client to discuss audit objectives, fees, timing and other information.
Arrange to have the auditor prepare and post any necessary adjusting or reclassification entries prior to final closing. Which of the following is the correct order of steps in the audit process? Perform tests of control b. Develop an overall strategy for the expected conduct and scope of the audit. Obtain clients written representation.
Prepare engagement letter. Perform substantive tests. Review and make preliminary evaluation of internal control. External auditors should develop and record a plan for each engagement. The planning process should include all the following except a. Establishing engagement objectives and scope of work b. Obtaining background information about he activities to be reviewed c. Identifying sufficient information to achieve engagement objectives d. Determining how, when and to whom the engagement results will be communicated An outside consultant is developing methods for the management of a citys capital facilities.
An appropriate scope of an engagement to evaluate the consultants product is to a. Review the consultants contract to determine its propriety b.
Establish the parameters of the value of the items being managed and controlled c. Determine the adequacy of the risk management and control systems for the management of capital facilities d.
Review the handling of idle equipment Documentation required to plan an internal auditing engagement should include information that a. Resources needed to complete the engagement were considered b. Planned engagement work will be completed on a timely basis c. Intended engagement observations have been clearly identified d. Internal audit activity resources are efficiently and effectively employed Which of the following is least likely to be placed on the agenda for discussion at a pre-engagement meeting?
Purpose and scope of the engagement b. Records and client personnel needed c. Sampling plan and key criteria d. Expected starting an completion dates. One of the primary roles of an engagement work program is to a. Serve as a tool for planning and conducting engagement work b. Document an internal auditors evaluation of controls c. Provide for a standardized approach to the engagement d.
Assess the risk associated with the activity under review Engagement work programs testing controls should a. Be tailored for each operation evaluated b. Be generalized to fit all situations without regard to departmental lines c. Be generalized so as to be usable at all locations of a particular department d. Reduce costly duplication of effort by ensuring that every aspect of an operation is examined Which of the following is not considered among the benefits of audit planning?
Audit planning helps coordinate the work to be done by auditors of components and other parties such as experts, specialists, etc. Audit planning helps ensure that the audit is properly organized, managed and performed in an effective and efficient manner c. Audit planning aids in ensuring the examination of financial statements can be performed without problems and difficulties d.
Audit planning helps ensure that appropriate attention is devoted to important areas of the audit Which of the following procedures is not undertaken by the auditor at the beginning of the current audit engagement? Determines whether ethical requirements including independence are complied with b.
Establishes an understanding of the terms of engagement c. Determines whether relationship with client can be continued or not d. Determines the types of opinion that should be expressed on the financial statements Which of the following is not considered by the auditor when establishing the scope of the audit engagement?
The financial reporting framework on which the financial information to be audited has been prepared b. Industry-specific reporting requirements c.
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