Chapter 5 - Audit Planning

Question 1

The completeness of recording of assets is generally verified by tracing from the source documents to the recorded entry. (True or False)

Answer 1

True

Question 2

Analytical procedures are seldom used for planning an audit engagement because they are substantive procedures. (True or False)

Answer 2

False

Question 3

Audit risk consists of the following components, except
A. Inherent risk
B. Substantive risk
C. Detection risk
D. Control risk

Answer 3

B

Question 4

The risk of material misstatement refers to:
A. Control risk and acceptable audit risk
B. Inherent risk
C. The combination of inherent risk and control risk
D. Inherent risk and audit risk

Answer 4

C

Question 5

Risk assessment procedures would include all of the following except
A. Inquiries of management and others within the entity.
B. Analytical procedures.
C. Observation and inspection
D. Re-performance of client’s procedures.

Answer 5

D

Question 6

Analytical procedures may be used as:
 	I. Planning tool
	II. Substantive Test
	III. Overall review of Financial Statements
a. I, II
b.II, III
c.I, III
d. I, II, III

Answer 6

D

Question 7

Planning is only made at the beginning of the engagement. (True or False)

Answer 7

False

Question 8

Information is  \_\_\_\_\_\_\_\_\_ if its omission or misstatement could influence the economic decision of user. 
A. Good
B. Sufficient
C. Effective
D. Material

Answer 8

D

Question 9

The allocated materiality to an account is called? 
A. Reasonable misstatement
B. Uncorrect misstatement 
C. Tolerable misstatement
D. Specific account

Answer 9

C

Question 10

In planning the audit, the auditor should assess materiality at two levels:
A. The preliminary level and final level
B. The company level and division level
C. The account balance level and the detailed level
D. The financial statement level and the account balance level.

Answer 10

D

Question 11

The risk of a material misstatement occurring in an account, assuming an absence of internal control, is referred to as:
A. Account risk.
B. Control risk.
C. Detection risk.
D. Inherent risk.

Answer 11

D

Question 12

The risk that the auditors' procedures will lead them to conclude that a material misstatement does not exist in an account balance when in fact such a misstatement does exist is referred to as:
A. Account risk.
B. Control risk.
C. Detection risk.
D. Inherent risk.

Answer 12

C

Question 13

A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued is the:

a. inherent risk.
b. acceptable audit risk.
c. statistical risk.
d. financial risk.

Answer 13

B

Question 14

The auditors must consider materiality in planning an audit engagement. Materiality for planning purposes is:
A. The auditors’ preliminary estimate of the largest amount of misstatement that would be material to any one of the client’s financial statements.
B. The auditors’ preliminary estimate of the smallest amount of misstatement that would be material to any one of the client’s financial statements.
C. The auditors’ preliminary estimate of the amount of misstatement that would be material to the client’s balance sheet.
D. An amount that cannot be quantitatively stated since it depends on the nature of the item.

Answer 14

B