Planning & Audit Timeline

Question 1

T/F

Performing a risk assessment occurs during the audit planning stage

Answer 1

FALSE

This occurs subsequent to audit planning

Question 2

T/F

An engagement letter occurs subsequent to the audit planning stage

Answer 2

FALSE

An engagement letter is used to establish an understanding with the client and therefore is a planning procedure

Question 3

T/F

Developing the overall audit strategy and the audit plan is all part of the audit planning stage

Answer 3

TRUE

Question 4

T/F

It is acceptable to perform a portion of the audit of a continuing audit client at interim dates

Answer 4

TRUE

If anything you can at least PLAN before year-end

Question 5

T/F

An engagement should not be accepted after the client’s year end

Answer 5

FALSE

Question 6

T/F

An inventory count must be observed at year-end

Answer 6

FALSE

Alternative procedures may be possible

Question 7

T/F

Final staffing decisions must be made prior to completion of the planning stage

Answer 7

FALSE

Question 8

T/F

Coordination of the assistance of entity personnel in data preparation occurs during planning

Answer 8

TRUE

Question 9

T/F

During the planning stage, the CPA is not allowed to discuss matters that affect the audit with firm personnel responsible for providing nonaudit services to the entity

Answer 9

FALSE

This is allowed and generally encouraged

Question 10

T/F

Comparing the financial statements to anticipated results occurs during the planning stage

Answer 10

TRUE

Question 11

T/F

Inquiring of the client’s legal counsel concerning pending litigation should occur in the planning stage; if the client has serious litigation the firm may not want to get involved

Answer 11

FALSE

This occurs after the planning stage. If the CPA wants to withdraw at that time, that is always an option

Question 12

T/F

Examining computer generated exception reports to verify the effectiveness of internal control occurs during the planning stage; if controls are immediately identified as ineffective the auditors can plan to move directly into substantive testing

Answer 12

FALSE

This occurs after the planning stage. If controls are deemed ineffective, the CPA can move forward into substantive testing at that time.

Question 13

Which of the three audit risk components (control risk, detection risk, and inherent risk) can be assessed in nonquantitative terms?

Answer 13

All three can be assessed either nonquantitatively (relying on experience, observation, and judgment of the auditor) or quantitatively (in percentages)