Study Unit 4 - Strategic Planning Issues

Question 1

What are the factors external auditors consider before using the work of internal auditors?

Answer 1

• The objectivity of the internal auditors
• The level of competence of the internal audit function
• Whether the internal audit function applies a systematic and disciplined approach

Question 2

If an external auditor uses the work of internal auditors, is the responsibility for the audit opinion shared?

Answer 2

No, the external auditor has sole responsibility for the audit opinion.

Question 3

Compare an auditor’s specialist and a management’s specialist.

Answer 3

Auditor’s Specialist Managment’s Specialist

Similarity Individiual or organization with expertise in a field
other than accounting or auditing.

Difference Assists the auditor in Assist the entity in preparing
obtaining sufficient the financial statements
appropriate audit
evidence

Question 4

Are auditors’ specialists liable for the audit opinions if their work is used by auditors?

Answer 4

No, the auditor has sole responsibility for the audit opinion expressed.

Question 5

What are the factors auditors consider before using the work of a specialist?

Answer 5

The auditor should evaluate whether the auditor’s or management’s specialist has the necessary

-	Competence
-	Capabilities, and
-	Objectivity

Question 6

Should the auditor refer to the work or findings of the auditor’s specialist when expressing (1) an unmodified opinion and (2) a modified opinion?

Answer 6

Type of Opinion Expressed Reference Work of Auditor’s Specialist?

Unmodified No

Modified Yes, if the reference is relevant to
understanding the opinion

Question 7

Should the auditor refer to the work or findings of the management’s specialist when expressing (1) an unmodified opinion and (2) a modified opinion?

Answer 7

Type of Opinion Expressed Reference work of Management’s Specialist?

Unmodified No

Modified No

Question 8

Give examples of transactions that may suggest related-party transactions.

Answer 8

• Exchanging property for similar property in a nonmonetary transaction
• Borrowing or lending at rates significantly above or below market rates
• Selling realty at a price materially different from its appraised value
• Making loans with no scheduled repayment terms

Question 9

What is an arm’s length transaction?

Answer 9

An arm’s length transaction, contrary to related-party transactions, is a transaction in which the parties are unrelated such that (1) the parties are independent of each other, and (2) the transactions are conducted under normal market terms and conditions.

Question 10

What is the auditor’s adjective when evaluating accounting estimates?

Answer 10

The objective of the auditor is to obtain sufficient appropriate audit evidence about whether accounting estimates, including fair value accounting estimates, are reasonable and related disclosures are adequate. This is achieved by determining whether
- Management has appropriately applied the applicable financial reporting framework
- The methods for making the accounting estimated are appropriate and have been applied consistently
- The estimated, individually or collectively, exhibit no significant management bias