A3: Engagement Acceptance, Planning, and Risk Assessment

Question 1

Which of the following statements is correct concerning an auditor’s assessment of control risk?

Answer 1

Assessing control risk may be performed concurrently during an audit with obtaining an understanding of the entity’s internal control

Some risk assessment procedures performed to obtain an understanding of internal control may provide evidence about operating effectiveness, even if they were not intended for that purpose. This is possible because the procedures performed to achieve one objective may also provide evidence regarding the other

Question 2

When there are numerous property and equipment transactions during the year, an auditor who plans to assess control risk at a low level usually performs:

Answer 2

Tests of controls and limited tests of current year property and equipment transactions

Since control risk is assessed at a low level, tests of controls would be required to evaluate the effectiveness of the internal controls to support that assessed level. However, the need for some substantive tests of transactions is never eliminated

Question 3

After obtaining an understanding of the entity and its environment, including its internal control, an auditor decided to perform tests of controls. This is likely because:

Answer 3

The auditor’s risk assessment is based on the effective operation of controls

After obtaining an understanding that entity and its environment, including its internal control, the auditor may make a risk assessment that assumes controls are operating effectively. In such cases, the auditor performs tests of controls to obtain evidence supporting this assessment

Question 4

To obtain audit evidence about control risk, an auditor selects tests from a variety of techniques including:

Answer 4

Inquiry

Tests of controls include such procedures as inspecting documentation, inquiry, observation, and reperformance. Note that inquiry alone is not sufficient as the auditor should use a combination of procedures

Question 5

The objective of tests of details of transactions performed as tests of controls is to:

Answer 5

Evaluate whether internal controls operated effectively

The objective of tests of details used as tests of controls is to evaluate whether an internal control operated effectively