II. Planning Activities - Planning and Supervision

Question 1

Which of the following circumstances most likely would cause an auditor to consider whether material misstatements exist in an entity’s financial statements?

Answer 1

An auditor would consider whether material misstatements exist if supporting records that should be readily available are frequently not produced when requested.

Note: This could indicate a lack of internal control and the possibility of management misrepresentation which, in turn, could indicate an opportunity for material misstatements to be present.

Question 2

Which of the following could be difficult to determine because electronic evidence may not be retrievable after a specific period?

Answer 2

The timing of control and substantive tests.

Note: When it might be best (or even possible) to perform tests of control and substantive tests could be affected by the availability of underlying evidence.

Question 3

The audit plan usually cannot be finalized until the

Answer 3

It cannot be finalized until consideration of the entity and its environment, including internal control, has been completed

Recall: auditors are required to obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement and to plan the audit and allow determination of the nature, timing, and extent of the tests to be performed.

Thus, knowledge of the internal control structure is needed for the auditor to select the auditing procedures and decide when and how extensively to perform them.

Question 4

Which of the following factors is most likely to affect the extent of the documentation of the auditor’s understanding of a client’s system of internal controls?

Answer 4

The degree to which information technology is used in the accounting function.

Note: The use of information technology in the accounting system greatly impacts the auditor’s documentation of that system. For example, a highly automated system will result in very different documentation than a manual system.

Question 5

Which of the following conditions most likely would pose the greatest risk in accepting a new audit engagement?

Answer 5

ANY client-imposed scope limitation is a problem.​​​

Note: A new client, by definition, is a client that will require more time to study and understand in order to perform the audit. If the client is also telling the auditors that certain audit procedures will not be allowed, the risk of missing a material misstatement becomes very high.

Question 6

***In planning a new engagement, which of the following is not a factor that affects the auditor’s judgment as to the quantity, type, and content of audit documentation?

Answer 6

The auditor would NOT consider the content of the management representation letter obtained at the end of the engagement.

In planning a new engagement, an auditor would consider:

1. the nature of the engagement;
2. the type of report to be issued;
3. the nature of the financial statements, schedules, or other information on which the auditor is reporting;
4. the nature and condition of the client’s records;
5. the assessed level of control risk (including the estimated occurrence rate of attributes); and
6. the needs in the particular circumstances for supervision and review of the work.

Question 7

Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of

Answer 7

The audit is to be planned and performed with an attitude of professional skepticism.

Note: This means that all evidence gathered needs to be objectively evaluated to determine whether the financial statements are free of material misstatement.

Question 8

Which of the following procedures would an auditor least likely perform in planning a financial statement audit?

Answer 8

Selecting a sample of vendors’ invoices for comparison to receiving reports.

Note: Auditor would coordinate client assistance to be rendered, discuss matters that may affect the audit with consulting and tax staff, and read the current year’s interim financial statements.

Question 9

The in-charge auditor most likely would have a supervisory responsibility to explain to the staff assistants

Answer 9

The in-charge auditor, most likely, would have a supervisory responsibility to explain to the staff assistants how the results of various auditing procedures performed by the assistants should be evaluated.

note: Evaluation of the results is a matter of professional judgment, which the assistants will acquire over time and through training.

Question 10

Audit programs should be designed so that

Answer 10

The audit evidence gathered supports the auditor’s conclusions.

Note:

Audit programs should be designed so that the audit evidence gathered supports the auditor’s conclusions. The audit program must detail the procedures considered necessary to accomplish the objectives of the audit.

Question 11

The senior auditor responsible for coordinating the performance of the audit engagement usually schedules a pre-audit conference with the audit team primarily to

Answer 11

Give guidance to the staff regarding both technical and personnel aspects of the audit.

Note: Pre-audit conferences with the audit team provide team members with information about the client, the audit areas they have been assigned, and critical audit areas. = Thus, guidance is given regarding both technical and personnel aspects of the audit. GAAS requires that assistants be informed of their responsibilities and the objectives of the procedures they are to perform.

Question 12

To obtain an understanding of a continuing client’s business in planning an audit, an auditor most likely would

Answer 12

In an audit of a continuing client, the auditor would have access to prior-year audit documentation and the permanent file as the best sources of information regarding the client’s business.

Note: Knowledge of a client’s business is generally obtained through experience with the client or the industry and inquiry of client personnel.

Question 13

**Which of the following procedures would an auditor most likely include in the planning phase of a financial statement audit?

Answer 13

Obtain an understanding of the entity’s risk assessment process.

Note:

Risk assessment is one of the five components of the internal control structure.

Obtaining an understanding of the entity’s risk assessment process would be part of obtaining an understanding of internal control.​

Question 14

Which of the following factors most likely would influence an auditor’s determination of the auditability of an entity’s financial statements?

Answer 14

The adequacy of the accounting records.

Question 15

Which of the following is required documentation in an audit in accordance with generally accepted auditing standards?

Answer 15

The overall audit strategy and audit plan.

Question 16

What are some audit planning procedures?

Answer 16

• Use an engagement letter.
• Develop the overall audit strategy.
• Develop the audit plan.
• AU-C 315 requires that an auditor perform analytical procedures such as comparing the financial statements to anticipated results during the planning stage of an audit.

Question 17

The in-charge auditor most likely would have a supervisory responsibility to explain to the staff assistants

Answer 17

How the results of various auditing procedures performed by the assistants should be evaluated.

Note:

Staff assistants must be aware of how their procedures should be evaluated in order to perform these procedures effectively.

Question 18

Prior to commencing fieldwork, an auditor usually discusses the general audit strategy with the client’s management. What matters do the auditor and management agree upon at this time?

Answer 18

Very early in the engagement the auditor should determine how much assistance is needed of the client’s personnel, and should coordinate that assistance.

Question 19

An audit supervisor reviewed the work performed by the staff to determine if the audit was adequately performed. The supervisor accomplished this by primarily reviewing which of the following?

Answer 19

Audit supervisor will review working papers to make such a determination.

Question 20

Which of the following is most likely to require special planning considerations related to asset valuation?

Answer 20

Inventory is comprised of diamond rings..

Note: An inventory comprised of diamond rings is likely to require that the auditor plan ahead to involve a specialist to assist in valuation issues.

Question 21

Prior to commencing fieldwork, an auditor usually discusses the general audit strategy with the client’s management. Which of the following details do management and the auditor usually agree upon at this time?

Answer 21

The schedules and analyses that the client’s staff should prepare.

Note: audit process the auditor will discuss client assistance in the audit, including schedules and analyses to be prepared by the client’s staff.

Question 22

In designing written audit plans, an auditor should establish specific audit objectives that relate primarily to the

Answer 22

Financial statement assertions.

Note: the auditor develops specific audit objectives in the light of those assertions.

Question 23

The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the

Answer 23

Results are consistent with the conclusions to be presented in the auditor’s report.

Question 24

The audit program usually cannot be finalized until the

Answer 24

Consideration of the entity’s internal control has been completed.

Note: the audit program is not generally finalized prior to the consideration of internal control.

Question 25

The element of the audit planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of the

Answer 25

Timing of inventory observation procedures to be performed.

Note: this will require a degree of coordination between the performance of audit procedures and client count procedures.

Question 26

In developing an overall audit strategy, an auditor should consider

Answer 26

An overall audit strategy involves

• (1) determining the scope of the audit,
• (2) determining the reporting objectives, and
• (3) considering various other important factors.

Question 27

With respect to planning an audit, which of the following statements is always true?

Answer 27

It is acceptable to perform a portion of the audit of a continuing audit client at interim dates.or prior to year-end

a portion of the audit may be conducted prior to year-end.

Question 28

On an audit engagement performed by a CPA firm with one office, at the minimum, knowledge of the relevant professional accounting and auditing standards should be held by

Answer 28

The auditor with final responsibility for the audit.

Question 29

An auditor should design the audit plan so that

Answer 29

The audit procedures selected will achieve specific audit objectives.

The audit evidence gathered supports the auditor’s conclusions.

• audit plan should be designed so that the audit evidence gathered is sufficient to support the auditor’s conclusions.