1.09 planning procedures

Question 1

What causes the nature and extent in timing of planning to vary when planning an engagement

Answer 1

Size and complexity of the entity

Auditors experience with the entity

Knowledge of the entities business and industry

Knowledge of the entity and it’s environment including internal control

Question 2

What are the preliminary engagement activities that are performed at the beginning of an audit engagement

Answer 2

Procedures regarding acceptance and continuance

Evaluation of compliance with relevant and ethical requirements

Establishing an understanding with the client documented in the form of an engagement letter

Question 3

What are the preliminary activities created by the auditor in developing an overall strategy

Answer 3

Identify characteristics that affect the scope of the audit

Determine reporting objectives to play in the nature and timing

Consider the preliminary activities and relevant knowledge gained from other engagements

nature timing and extent of resources needed to perform the engagement

Question 4

What Is the purpose of an audit plan/program

Answer 4

Ensures auditor applies necessary procedures to verify the financial statement assertions for

Account balances
Classes of transactions
Presentation and disclosure
Provide support for the auditors opinion

Question 5

What does the audit program/plan include a description of

Answer 5

Nature and extent of risk assessment procedures

Nature timing and extent of further audit procedures in response to assess risks

Other procedures that are planned in order to be in compliance with GAAS

Question 6

How are audit programs designed using information from prior engagements

Answer 6

Consider which procedures are required by GAAS

Identify areas that represent more or less risk than in prior.

Make certain that programs are dissimilar enough to avoid being predictable

Question 7

What does RMM stand for

Answer 7

Risk of material miss statement

Question 8

What is the preliminary assessment of our RMM based on

Answer 8

Prior experience with the client for the audits of the predecessors

Question 9

When does the final assessment of RMM take place

Answer 9

With the auditor gains an understanding of the client in its environment including internal control structure

Question 10

What should be done if the. Preliminary assessment of RMM is it different from the final assessment of RMM

Answer 10

The audit program will have to be modified to increase or decrease the amount of substantive testing

Question 11

During risk assessment procedures what does higher reliance on control internal controls mean

Answer 11

Reliance is up substantiative procedures go down

Involves performing test of controls

If controls are effective there is a reduction in nature timing extent of further audit procedures

Question 12

During risk assessment procedures what does it mean when an auditor puts a lower reliance on internal controls

Answer 12

Reliance goes down substantive testing goes up

Test of controls is not performed
audit procedures are increased

Question 13

How does the auditor prepare a time budget for the engagement

Answer 13

Estimating the amount of time the steps in an audit program is expected to require

Question 14

What is an audit program/audit plan

Answer 14

Step-by-step list of audit procedures Required for every GAAS audit

Question 15

How is an audit program/plan designed

Answer 15

Procedures achieve specific objectives which relate to managements assertions

It supports the auditors conclusion

Describes the nature timing and extent of

Risk assessment procedures
Further audit procedures material class of transactions account balances and disclosures
Other procedures to be performed to comply with GAas

Question 16

Considerations in the development of the audit program

Answer 16

Materiality

Risk of material miss statement

Business and industry considerations

Question 17

Common benchmarks of materiality are

Answer 17

Categories of income
Total revenue
Gross profit
The total expenses
Total equity
Assets

Question 18

What Factors influence the benchmark used when calculating materiality

Answer 18

The make up of the elements of the financial statements

Items on the FS that are particular interest to the users

Nature of the entity including maturity industry and economic environment

Entities ownership and organizational structure
Volatility of the benchmark and how the entity is financed

Question 19

When the materiality level is different for various financial statements what dollar amount is selected

Answer 19

The smallest aggregate dollar amount

Question 20

Materiality is based on

Answer 20

The auditors judgment

Question 21

Materiality judgments involve both

Answer 21

Quantitative and qualitative considerations

Question 22

There is a. Relationship between audit risk and materiality consideration

Answer 22

Inverse relationship

When risk is low materiality can be set at a higher level and vice versa

Question 23

What should happen when a Materiality adjustment is proposed

Answer 23

The statements that were previously considered immaterial should be reevaluated

Question 24

What is the auditor required to document regarding materiality

Answer 24

Materiality for the financial statements as a whole

Materiality for specific classes of transactions account balances or disclosures

Performance materiality

And revisions to any of the materiality measurements occurring during the engagement

Question 25

What is risk of material miss statement RMM

Answer 25

The likelihood that the financial statements are materially misstated

Question 26

What are the RMM risks

Answer 26

Control risk in inherent risk

Question 27

Define iInherent risk

Answer 27

Risk due to the nature of an element of the financial statements

Example is cash

Question 28

Define control risk

Answer 28

Risk that a material mistake will not be prevented or detected and due to lack of effective internal controls

Question 29

What levels is RMM considered

Answer 29

Financial statement level
Account balance level
Class of transaction level
Disclosure level

Question 30

What is detection risk

Answer 30

The risk that a material miss statement will not be detected by the auditor

Question 31

What is detection risk used for

Answer 31

To determine the amount and types of substantive of testing performed

Goal is to reduce detection risk to an acceptable level

Question 32

The higher the RMM

Answer 32

The lower the auditor will wish to reduce detection risk

Question 33

Shpuld the audit program include a list of substantive tests that are planned to be performed later in the engagement

Answer 33

Yes

Question 34

What is the preliminary assessment of RMM usually based on

Answer 34

Prior experience with the client Or audits of predecessors

Question 35

What are planning considerations for an audit

Answer 35

Entities accounting policies and procedures

Materiality levels

Audit risk RMM

Entities business and industry matters

Method used to process accounting information

Financial statement items likely to require adjustments

Conditions that may require extension or modification of audit tests

Picture of the court is expected to be issued

Question 36

Steps in planning an audit

BRAINSTOPS

Answer 36

Basic discussions with the client

Review of audit documentation

Ask about recent developments

Interim financial statements analyzed

Non audit personnel who have performed services

Staffing for the audit

Timing of the various audit procedures

Outside assistance including specialist

Pronouncements reflecting changes

Scheduling with the client

Question 37

What does audit supervision include

Answer 37

Instructing assistants
Reviewing the work performed
Dealing with differences of opinion

Question 38

What should be done if there is a difference of opinion among firm personnel

Answer 38

Dissenting party should document the differences and asked to be disassociated from the matters resolution