Ch 9. Planning, materiality and risk of misstatement

Question 1

Elements of planning F/Ss (2)

Answer 1

• Strategy

- Plan

Question 2

Elements of planning F/Ss (3)

Answer 2

• Strategy
• Plan
• Risk Assessment

Question 3

Strategy (3 (one has 5))

Answer 3

• Scope: engagement characteristics, objectives, significant engagement factors, preliminary activity results, resources needed.
• Timing of when to deploy resources.
• Management, direction and supervision of resources.

Question 4

Strategy (3 (one has 5))

Answer 4

• Scope: engagement characteristics, objectives, significant engagement factors, preliminary activity results, resources needed.
• Timing of when to deploy resources.
• Management, direction and supervision of resources.

Question 5

Plan (3)

Answer 5

• Nature, timing and extent of risk
• Audit procedures: what, who, how much and when
• Other necessary procedures

Question 6

Audit risk (def and (2) influenced by) also (2 types of risk)

Answer 6

• Audit risk is the risk that the auditor opines incorrectly.
• Influenced by risk of material misstatement and detection risk
• Inherent risk (occurs in the first place) and detection risk (risk that control fails to detect/prevent)

Question 7

Audit risk (def and (2) influenced by) also (2 types of risk)

Answer 7

• Audit risk is the risk that the auditor opines incorrectly.
• Influenced by risk of material misstatement and detection risk
• Inherent risk (occurs in the first place) and detection risk (risk that control fails to detect/prevent)

Question 8

Understanding the entity’s risk (5)

Answer 8

• Industry, regulatory and external factors
• Nature, operations, governance/structures, types of investment and structure/finance
• Selection and application of accounting policies
• Objectives and strategies
• Measurement and review of entity’s financial perf
• Internal controls

Question 9

Business risk (def)

Answer 9

• All factors that threaten a client’s ability to meet their strategic objectives e.g. profit targets.

Question 10

Business risk (def)

Answer 10

• All factors that threaten a client’s ability to meet their strategic objectives e.g. profit targets.

Question 11

External Business risks (9)

Answer 11

• Legislation
• Interest rates
• Exchange rates
• Public opinion, attitudes and fashions
• Price wars initiated by competitors
• Import competition
• Untried technologies and ideas
• Political factors
• Natural hazards

Question 12

Internal business risks (10)

Answer 12

-

Question 13

Internal business risks (10)

Answer 13

• Employees
• Failure to modernise products
• Excessive reliance on a dominant CEO
• Cash flow difficulties
• Rapidly increasing gearing
• Inappropriate acquisitions
• Over trading
• Fraud
• Excessive reliance on products, customers, suppliers
• Computer system failure.

Question 14

Internal business risks (10)

Answer 14

• Employees
• Failure to modernise products
• Excessive reliance on a dominant CEO
• Cash flow difficulties
• Rapidly increasing gearing
• Inappropriate acquisitions
• Over trading
• Fraud
• Excessive reliance on products, customers, suppliers
• Computer system failure.

Question 15

Risk assessment procedures

Answer 15

-

Question 16

Materiality

Answer 16

-

Question 17

Materiality (

Answer 17

• Should be considered in relation to F/S as a whole
• Unique circumstances of the business
• Information requirements of the users