AUD 3

Question 1

If management imposes scope limittion prior to engagement acceptance, should the auditor still accept the enagement?

Answer 1

If the scope limitation will result in disclaiming opinion, then normally, auditor should not accept the engagement, unless the audit is required by law/reg to have an audit and a disclaimer of opinion is acceptable, then auditor is permited to take it.
If scope limitation will result in a qualified opinion, or if it’s beyond mgt’s control, auditor may still accept it.

Question 2

For an initial audit, should the auditor make inquiries of the predecessor auditor?

Answer 2

YES, mandatory prior to accepting the engagement, but client’s permission is needed.

Question 3

How are audit procedures catergorized?

Answer 3

1) Risk assessment procedures.
2) Furthur audit procedures–Test of controls(operating effectiveness of internal control) and substantive test(test of details and analytical procedures).
3) Other procedures.

Question 4

What are the 6 FS assertions?

Answer 4

COVERU.
Completeness, cutOff, Valuation allocation and accuracy, Existance and occurrence, Rights and obligation, Understandability and classification.

Question 5

Can an external auditor use internal auditor’s work directly as audit evidence?

Answer 5

Maybe. After they’re satisfied with internal auditor’s competance and objectivity. But should supervise and review their work and extermal auditor is solely responsible.

Question 6

Audit risk formular?

Answer 6

Audit risk=Risk of material misstatement X Detection risk= Inherent risk X Control risk X Detection risk

Question 7

When is analytical procedures required? Optional?

Answer 7

Required: Planning stage and final review stage.
Optional: as part of substantive test.

Question 8

What are the two fraud risk that are presumed to exist in every audit? presumption of risk.

Answer 8

Improper revenue recognition. Mgt override of controls.

Question 9

What’s inherent risk?

Answer 9

Inherent risk is the susceptibility of a relevant assertion to a material misstatement, assuming there are no related controls.

Question 10

What’s control risk?

Answer 10

Control risk is the risk that a material misstatement that could occur in a relevant assertion will not be prevented or detected and corrected) on a timely basis by the entity’s internal control.

Question 11

What’s detection risk?

Answer 11

Detection risk is the risk that the auditor will not detect a material misstatement that exists in a relevant assertion.