5 Planning and Audit of FS

Question 1

C5
Define Risk Assessment Procedures

Answer 1

Audit procedures performed to:
1. Obtain undertanding of the entity and its environment including entity’s internal control 2. to identify and assess the RMM, whether due to fraud or error, at the FS and assertion levels

Question 2

C5
Performing Risk Assessment Procedures:

Answer 2

1. Obtain understanding of the ff:
   a. Entity and its environment
   b. Applicable financial reporting framework
   c. entity’s system of internal control
2. Consider Materiality
3. Identify and assess RMMs
4. Determine acceptable level of Audit Risk
5. Identify Detection Risk to determine the nature, timing and extent of further audit procedures (FAP)

FAP - includes TOC and ST
Meaning, kaya need ng FAP, kasi hindi sufficient and appropriate evidence yung makukuha sa RAP to provide audit opinion.

Question 3

C5
Types of Risk Assessment Procedures

Answer 3

Inquiry

Observation

Inspection

Analytical Procedures

Question 4

C5
Analytical Procedures Required in:
Planning
Substantive Test
Overall Review

Answer 4

Planning Yes
Substantive Test No
Overall Review Yes

Question 5

C5
The determination of materiality is not a mere mathematical calculation but is a matter of professional judgement

Answer 5

Yup

Question 6

C5
What are the 3 levels of materiality?

Answer 6

1. Overall FS level materiality -elements or components of FS aka:
   Overall Materiality
   General Materiality Level
   Tolerable Misstatement
2. Assertion Level Materiality -FS line items
   Performance Materiality
   Planning Materiality
   Scoping Materiality
3. Specific Assertion Level - classes of transaction, account balances, disclosures
   Specific Materiality
   Individual Materiality

Notes:
*The lower the materiality set will require the auditor to perform mpre effective and extensive audit procedures

*Auditor shall include in the documentation the amounts and factors cosidered in determination of materiality

Question 7

C5
The determination of Acceptable Level of audit rist is a matter of professional judgement to be made by auditor

Answer 7

Oks

Question 8

C5
Inherent and Control Risk - Function of the entity’s environment

Detection Risk - function of the effevtiveness of the auditor’s procedure

Answer 8

True
True

Question 9

C5
There is an inverse relationship between materiality and level of audit risk (inherent & control risk only)

Answer 9

True.

inverse relationship with ST and Audit Risk

But direct relationship with DRisk

Question 10

C5
Ang kaya lang palitan o laruin ng auditor ay Detection Risk.
Relationship of the following to ST/audit procedures

1. Inherent & Cotrol Risk (RMM)
2. Detection Risk (Risk of not detecting the misstatement)
3. Materiality

Answer 10

1. Direct
2. Inverse
3. Inverse

Question 11

C5
Refers to the use of internal auditors to perform audit procedures under the direction, supervision, and review of the external auditor

Answer 11

Direct Assistance

Question 12

C5
In assessing whether to accept a client for an audit engagement, an auditor should consider the:
1. Client’s business risk?
2. Auditor’s Business Risk?

Answer 12

Yes
Yes

Question 13

C5
Before accepting an engagement to audit new client, an auditor is required to:

Answer 13

1. Perform procedures required by PSA 220.
2. Communicate with the predecessor auditor, where there has been a change of auditors, in compliance with relevant ethical requirements. IMPT!

Question 14

C5
In an audit based on PSA, a successor auditor would normally become satisfied with opening balances by?

a. Performing Analytic Review Procedures
b. Reviewing predecessors’ working paper

A. Both are true?
B. Only A is true
C. Only B is true

Answer 14

Answer is C!

Question 15

C5
The predecessor auditor must receive his/her former client’s permission prior to disclosing client information to successor auditor

Answer 15

Yup

Question 16

C5
Planning is NOT a discrete phase of an audit, but rather a continual and interative process that begins shortly after the completion of the current audit engagement.

Answer 16

True

Question 17

C5
If the result of the expert’s work do not provide sufficient appropriate audit evidence or are not consistent with other audit evidence, the auditor should

Answer 17

RESOLVE THE MATTER

Question 18

C5
An auditor shall not refer to the expert’s work in an auditor’s report containing an____. However, if as a result of expert’s work, the auditor decides to express____. It may be appropriate in explaining the nature… and to refer to or describe the expert’s work.

Answer 18

Unmodified/Unqualified

Modified

Question 19

_____ is an individual or organization possessing expertise in a field other than accounting or auditing, whose work in that field is used by the auditor to assist the auditor in obtaining sufficient appropriate audit evidence.

a. Expert
b. Auditor’s Expert
c. Management’s Expert
d. Specialist

Answer 19

AUDITOR’S EXPERT

Question 20

T or F

Which of the ff is/are included in the Engagement Letter?

The factors to be considered in determining the overall Materiality

Reference to the expected form and content of any reports to be issued by the auditor and a statement that there may be circumstances in which a report may differ from its expected form and content

Answer 20

False

True

Question 21

If the auditor concludes that there is reasonable justification for the change in engagement, the report to be issued would?

Answer 21

Be that appropriate for the revised terms of engagement