A2-Risk Assessment - Part 1

Question 1

what is the purpose of understanding the entity and its environment through analytical procedures used in planning stage?

Answer 1

• relevant to financial report objective
• knowledge necessary for risk assessment and audit planning
• enable the auditor to better understand events, transactions, and practices that may affect the FS, to plan and perform appropriate audit tests, and to properly understand and evaluate the results of those tests.
• assist auditor in accurately interpreting information obtained during the audit
• discover unusual transactions or events that may impact on planning of the audit

Question 2

How are analytical procedures performed during planning?

Answer 2

• consist of a use and review of financial and nonfinancial data aggregated at a high level depending on the complexity of the entity.
• ex: high level comparing FS to budgeted or anticipated results, or review changes in account balances from PY to CY, or more detailed analysis of a monthly/quarterly FS, or a relationship might exist between the square footage of selling space and the levels of sales

Question 3

what are analytical procedures?

Answer 3

• evaluations of financial information made by a study of plausible (reasonable) relationships among data
• primary purpose: auditor should consider the results of analytical procedures in planning stage to identify the risks of material misstatement due to fraud

Question 4

what are tests of transactions?

Answer 4

selecting specific transactions and evaluating whether they were properly recorded

Question 5

what are tests of controls?

Answer 5

performed to evaluate the effectiveness of controls

Question 6

what are tests of details?

Answer 6

are audit procedures used to gather evidence to support specific account balances