chap 8 planning

Question 1

what is one of the most important steps in audit planning

Answer 1

gaining an understanding of the clients business and industry

Question 2

much of the early planning of audits deals with getting info to help assess what risks?

Answer 2

acceptable audit risk,client business risk, and risk of material misstatement

Question 3

what are the 3 risks that signifcantly influence the conduct and cost of audits?

Answer 3

1. acceptable audit risk 2. client business risk 3. risk of material misstatement

Question 4

obtaining sufficient appropriate evidence is essential if the CPA firms wants to do what? (2)

Answer 4

1. minimize legal liability 2. maintain a good reputation in the business community

Question 5

whaqt is client business risk?

Answer 5

The risk that the entity fails to achieve its objectives or execute its strategies.

Question 6

assessing acceptable audit risk, client buiness risk , and risk of material misstatment is an important part of audit planning becuase it helps determine what? (2)

Answer 6

1. the audit procedures and amount of evidence that will need to be accumulated 2. the experience level of the staff needed for the engagment

Question 7

what is acceptable audit risk?

Answer 7

A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unmodified opinion has been issued

Question 8

the risk of material misstatment is a function of the suceptibility of the FSs to misstatement and the effectiveness of what?

Answer 8

The clients controls in preventing or detecting and correcting misstatements

Question 9

what are the 3 parts of audit planning?

Answer 9

1. gaining an understanding of the clients business and industry 2. developing an overall audit plan and strategy 3. making a preliminary judgemnet about materiality

Question 10

The risk that the financial statements contain a material misstatement due to fraud or error prior to the audit.

Answer 10

risk of material misstatement

Question 11

regarding audit planning the AICPA audit standards say?

Answer 11

the auditor must plan the work and properly supervise any assistants

Question 12

The risk that the entity fails to achieve its objectives or execute its strategies.

Answer 12

client business risk

Question 13

what is risk of material misstatement?

Answer 13

The risk that the financial statements contain a material misstatement due to fraud or error prior to the audit.

Question 14

keeping costs reasonable helps the firm do what?

Answer 14

remain competitive

Question 15

what are the 3 main reasons why the audito should properly plan engagments?

Answer 15

1. Enable the auditor to obtain sufficient appropriate evidence for the circumstances. 2.Help keep audit costs reasonable. 3, Avoid misunderstandings with the client

Question 16

A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unmodified opinion has been issued. this is what kind of risk?

Answer 16

acceptable audit risk

Question 17

avoiding misunderstandings with the client is necessary for what ? (2)

Answer 17

1. good client relations 2. facilitating high quality work at reasonable cost

Question 18

what are the 8 major parts of audit planning

Answer 18

1. accept client and perform initial audit planning 2. understand clients business and industry 3. perform preliminary analytical procedures 4. set preliminary judgment of materiality and performance materiality 5. identify significant risks due to fraud or error 6. assess inherent risks 7. understand internal control and assess control risk 8. finalize overall audit strategy and audit plan