Audit Planning

Question 1

What are Risk Assessment Procedures

Answer 1

Procedures that will enhance the auditor’s understanding of the entity.

Question 2

Roles of Audit Planning (CAFE PA)

Answer 2

1. Selection of capable and competent members of the engagement team
2. Help auditor appropriate attention to important areas of the audit
3. Facilitate the direction and supervision of the engagement team
4. Help auditor properly organize the audit in an efficient and effective manner
5. Help in identifying and resolving of potential problems on a timely basis
6. Assisting where applicable in coordination of work done by the auditors of components and experts

Question 3

Factors affecting the planning of an audit (SECTA)

Answer 3

1. Size and complexity of the entity
2. Experience of the team with the entity
3. Changes in the circumstance
4. Timing of appointment

Question 4

What is Audit Strategy

Answer 4

Sets the scope, timing and direction of the audit. It also guides the development of audit plan

Question 5

Audit Plan

Answer 5

include a description of following:
1. timing and extent of Risk Assessment Procedures and Further Audit Procedures
2. Other planned audit procedures required

Question 6

What must be documented in Audit Planning

Answer 6

1. The overall strategy of the Audit
2. The Audit Plan
3. Any significant changes made during the engagemen

Question 7

Specific Audit Procedures

Answer 7

1. Inquiry
2. Observation
3. Inspection
4. Analytical Procedures

Question 8

In which part of the Audit is analytical procedures required

Answer 8

1. Planning- Required
2. Substantive Testing- Not required but can still be done
3. Completing the Audit- Required

Question 9

Inherent Risk

Answer 9

Susceptibility of an assertion to be materially misstated before the consideration of any internal controls

Question 10

Control Risk

Answer 10

Risk that misstatement can occur and will not be corrected on a timely basis by the entity’s system of internal control

Question 11

Sources of Audit Evidence

Answer 11

1. Interactions with management, those charged with governance, and key entity personnel
2. Certain external parties such as regulators
3. Publicly available information about the entity

Question 12

When is information deemed material?

Answer 12

If its omission or misstatement can influence the economic decisions of users taken on the basis of financial statement

Question 13

Procedures when applying Analytical Procedures

Answer 13

1. Prior year’s financial statements
2. Annualized financial statements
3. Anticipated results (budgets, forecast)
4. Typical relationships among account balances
5. Industry averages
6. Non-financial information

Question 14

Detection Risk

Answer 14

Risk that auditor’s substantive procedures will not detect a misstatement that exists in the account balances that could be material

Question 15

Audit Risk

Answer 15

Risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated
(INHERENT RISK X CONTROL RISK X DETECTION RISK)

Question 16

Relevant Assertion

Answer 16

Assertion about a class of transactions, account balances or disclosure is relevant when it has an identified risk of material misstatement

Question 17

Inherent Risk Factors

Answer 17

Characteristics of events or conditions that affect the susceptibility to misstatement whether due to fraud or error of an assertion about a class of transactins

Question 18

Examples of Inherent Risk Factors (CUSCS)

Answer 18

Complexity
Uncertainty
Subjectivity
Change
Susceptibility of misstatement

Question 19

Inherent Risk Assessment Procedures

Answer 19

1. Understand the entity and its environment and the applicable financial reporting framework
2. Identify significant classes of transactions
3. Spectrum of inherent risks

Question 20

Information gathered during Risk Assessment Procedures (SIMFS)

Answer 20

1. Entity’s organizational structure, ownership, and governance and business model integrates the use of IT
2. Industry, regulatory, and other external factors
3. Measures used internally and externally to assess the financial performance
4. Applicable financial reporting framework
5. How inherent risks affect susceptibility of assertions to misstatement and to the degree they do so

Question 21

Effect of Lower Detection Risk

Answer 21

Nature- More effective procedures may be applied
Timing- Closer or nearer to year end
Extent- Larger Sample size

Question 22

Effect of Higher Detection Risk

Answer 22

Nature- Less Effective Procedures may be applied
Timing- Procedures will be performed at interim or several dates
Extent- Smaller Sample size

Question 23

Matters to be considered when establishing audit strategy: Characteristics of the Engagement

Answer 23

1. Financial Reporting Framework used
2. Industry Specific requirements
3. Location of the component of the entity

Question 24

Matters to be considered when establishing audit strategy: Reporting Objectives

Answer 24

1. Deadlines of reporting
2. Key dates for expected communications

Question 25

Matters to be considered when establishing audit strategy: Factors in directing engagement team's effort

Answer 25

1. Determination of materiality levels 2. Preliminary identification of areas where there may be higher risk 3. Preliminary identification of material components 4. Evaluation of whether the auditor may plan to obtain evidence regarding controls 5. Identification of recent significant developments affecting the entity

Question 26

Contents of Audit program

Answer 26

May vary for each engagement but generally contains the following: 1. Audit objectives 2. Nature, timing and extent of audit procedures required 3. Time budgets

Question 27

Purpose of Audit Program

Answer 27

Set of instructions to assistants involved in the audit and means to control and record the proper execution of the work.

Question 28

Auditor's Expert

Answer 28

Individual or organization possessing expertise in a field other than accounting or auditing, whose work in that field is used by the auditor to assist the auditor in obtaining evidence

Question 29

The most widely used profitability ratio is the

Answer 29

Earnings per Share

Question 30

The major concern when using the nonfinancial date in the analytical procedures is the

Answer 30

Accuracy of the Non-financial data

Question 31

When are auditors likely to encounter judgement problems in the use of analytical procedures

Answer 31

1. Whenever the auditor places reliance on management's explanation for unusual fluctuations in account balances without developing independent expectations 2. Whenever the auditor allows unaudited balances to unduly influence expectations of current balances 3. Whenever the auditor fails to consider the pattern reflected by several unusual fluctuations when trying to explain what caused them

Question 32

When allocating materiality, most practitioners choose to allocate to

Answer 32

The SFP because there are fewer accounts

Question 33

Common bases of preliminary judgement about materiality

Answer 33

1. Total Assets 2. Current Assets 3. Total Revenue 4. Net Income 5. Gross Income 6. Owners Equity

Question 34

When setting a preliminary judgement about materiality with regards to peso amount

Answer 34

More evidence is required for low peso amount than for a high peso amount

Question 35

The risk of material misstatement refers to

Answer 35

The combination of inherent risk and control risk