Chapter 10

Question 1

5 requirements by CAS 300 to develop overall audit strategy

Answer 1

1. characteristics of engagement that define its scope
2. reporting requirements
3. significant factors in directing audit team’s efforts
4. results of preliminary engagement activities
5. nature, timing and extent of resources necessary for engagement

Question 2

overall audit strategy is also called

Answer 2

general overview of audit

Question 3

overall audit strategy provides basis for

Answer 3

audit plan

Question 4

audit plan includes (2)

Answer 4

1. nature, timing and extent of risk assessment procedures

2. nature, timing and extent of further audit procedures at assertion level

Question 5

all audits require procedures related to

Answer 5

1) financial statement closing process and

2) assess fraud risks (management override i.e.)

Question 6

examples of financial closing processes

Answer 6

1. enter transactions totals in ledger
2. select and apply accounting policies
3. initiate, authorize and record journal entries

Question 7

5 types of audit tests to determine if financial statements are fairly stated

Answer 7

1. risk assessment procedures
2. test of controls
3. substantive tests of transactions
4. substantive analytical procedures
5. substantive tests of balances

Question 8

def: risk assessment procedures

Answer 8

assess the likelihood of material misstatement in financial statements

Question 9

likelihood of material misstatements formula

Answer 9

inherent risk x control risk

Question 10

what is the major subset of risk assessment procedures

Answer 10

procedures to obtain an understanding of internal control

Question 11

def: test of controls

Answer 11

verify whether the client’s controls match the auditor’s understanding of them

Question 12

tests of controls are designed to obtain evidence regarding

Answer 12

the effectiveness of controls

Question 13

if controls are effective

Answer 13

substantive evidence may be reduced

Question 14

test of controls can be done _____ from others

Answer 14

separately, but more efficient to do them with substantive tests of transactions

Question 15

def: dual-purpose tests

Answer 15

provide evidence of whether or not the controls being tested were effective (from test of controls) AND whether there are misstatements in data produced by the accounting system (subs)

Question 16

def: Substantive analytical procedures

Answer 16

comparisons of recorded amounts to expectations developed by auditor

Question 17

auditor standards require that substantive analytical procedures be done during

Answer 17

the planning and completion of audit

Question 18

if analytical procedures indicate a reasonable possibility of misstatement

Answer 18

additional procedures or substantive tests of details may be done

Question 19

def: substantive tests of balances

Answer 19

detect material misstatements at the assertion level

Question 20

which substantive tests are used to test transaction related assertions

Answer 20

substantive tests of balances

Question 21

substantive tests of transactions and balances are often referred to as

Answer 21

test of details

Question 22

per CAS 330, substantive procedures must be performed for

Answer 22

each material class of transactions, account balances and disclosure + each significant risk at assertion level

Question 23

if the auditor is not relying on controls he will perform

Answer 23

substantive tests of transaction only

Question 24

purpose of substantive analytical procedures in audit of account balances

Answer 24

1. possible misstatements

2. provide substantive evidence

Question 25

the primary emphasis of most substantive tests of balances is

Answer 25

the ending balances on the balance sheet

Question 26

if controls are working as designed then auditor will conduct

Answer 26

more tests of controls and fewer substantive tests

Question 27

if controls are not functioning or are too expensive to test, the auditor will

Answer 27

conduct more tests of details

Question 28

more types of evidence are used for

Answer 28

tests of balances than any other type of test

Question 29

which test involves physical examination and confirmation?

Answer 29

substantive tests of balances

Question 30

inquiries of the client are made for

Answer 30

every type of tests

Question 31

inspection, reperformance and recalculation are used for every test but

Answer 31

analytical procedures

Question 32

types of tests according to cost (least to most costly)

Answer 32

1. analytical procedures 2. risk assessment 3. test of controls 4. substantive tests of transactions 5. substantive tests of balances

Question 33

auditors use ____ to determine the mix of audit tests

Answer 33

professional judgement

Question 34

exception in a test of controls indicates

Answer 34

the likelihood of significant misstatements

Question 35

exception in a substantive test of transaction or balance is

Answer 35

a financial statement misstatement

Question 36

if analytical procedures identify unusual fluctuations

Answer 36

auditors should perform substantive tests trans/bal to determine if dollar misstatements occurred

Question 37

if control risk is assessed as high the auditor would

Answer 37

follow a substantive approach

Question 38

if control risk is assessed low the auditor would

Answer 38

follow a combined approach

Question 39

an audit program is normally split into three parts

Answer 39

1. tests of controls and substantive tests of transactions 2. substantive analytical procedures 3. substantive tests of balances

Question 40

in part one of the audit program if there is no reliance on controls then

Answer 40

only substantive tests of transactions

Question 41

how to decide what to include in first section?

Answer 41

based on descriptive section documenting understanding obtained about internal control

Question 42

if cost beneficial tests of controls would be conducted for

Answer 42

key controls on which the auditor intends to rely

Question 43

audit program is normally listed in which format?

Answer 43

performance format (i.e. in order in which tests will be conducted)

Question 44

substantive analytical procedures are conducted at

Answer 44

each phase of the audit (planning stage, during, near the end)

Question 45

substantive analytical procedures in planning stage

Answer 45

help auditor decide other evidence needed to satisfy audit risk

Question 46

substantive analytical procedures during audit is done

Answer 46

in conjunction with tests of details of balances as part of substantive procedures

Question 47

substantive analytical procedures at the end of audit is done

Answer 47

as a final test of reasonableness

Question 48

the planned substantive tests of balances include

Answer 48

audit procedures, sample size, items to select and timing

Question 49

procedures must be selected and designed for

Answer 49

EACH account and each balance related audit objective within each account

Question 50

time frame of audit tests

Answer 50

throughout the year or if small --> concentrated period of time

Question 51

audit program is developed based on assumptions about

Answer 51

inherent risk, control risk and results of tests of controls and analytical procedures

Question 52

if assumptions change

Answer 52

the planned audit program will also require revision

Question 53

Def: roll forward

Answer 53

substantive work on journal entries and transactions from a date prior to the balance sheet date to the year end

Question 54

when is a roll forward done?

Answer 54

when clients want to issue statements soon after the balance sheet date so that work can be done during the interim period