Ch 13 - Overall Audit Strategy & Audit Program

Question 1

What are The five types of tests auditors use to determine whether financial
statements are fairly stated?

Answer 1

1) Risk assessment procedures
2) Tests of controls
3) Substantive tests of transactions
4) Analytical procedures
5) Tests of details of balances

Question 2

Which tests reduce control risk and which are performed to reduce planned detection risk?

Answer 2

control risk - risk assessment procedures

planned detection risk - substantive tests of transactions

Question 3

What is the purpose of risk assessment procedures and how do they differ from the other four types of audit tests?

Answer 3

Risk assessment procedures are performed to assess the risk of material misstatement in the financial statements. Risk assessment procedures
include procedures performed to obtain an understanding of the entity and its environment, including internal controls. Auditors use the results of the risk assessment procedures to design and perform further audit procedures. Further audit procedures (not risk assessment procedures) provide the auditor sufficient appropriate evidence.

Question 4

Identify the specific accounts on the financial statements that are affected by performing tests of controls for the acquisition and payment cycle.

Answer 4

cash, accounts payable, purchases, purchase returns and allowances, purchase
discounts, manufacturing expenses, selling expenses, prepaid insurance, leasehold improvements, and various administrative expenses.