Chapter 12: Planning the Audit Strategy

Question 1

What is the auditor’s objective of planning audit field tests?

Answer 1

Design tests that will be effective and efficient

Question 2

What does it mean to be effective?

Answer 2

meeting the detection risk and materiality requirements for the audit

Question 3

What does it mean to be efficient?

Answer 3

lowest cost set of tests that will meet audit needs

Question 4

What types of tests do auditors plan?

Answer 4

Substantive tests and tests of controls

Question 5

What are substantive tests?

Answer 5

used to determine the accuracy of a F/S assertion

Question 6

What is the nature, timing, and extent of substantive tests for any specific area based on?

Answer 6

detection risk needs and tolerable misstatement assigned to the assertion

Question 7

What are substantive tests classified as?

Answer 7

Tests of details of transactions and tests of details of account balances

Question 8

What are tests of details of transactions?

Answer 8

tests that verify the accuracy of specific transactions

Question 9

What are tests of details of account balances?

Answer 9

tests that verify the account balance

Question 10

What are tests of controls?

Answer 10

mainly used to verify control operating effectiveness, are controls being applied as they were designed to be and are they being used often enough to be relied upon

Question 11

What is the purpose of the test of controls?

Answer 11

to verify the guess of control risk used during the planning phase

Question 12

What is the auditor’s objective when designing tests?

Answer 12

to design an efficient strategy that will provide sufficient and competent evidential matter to meet the auditor’s testing needs

Question 13

How do auditor’s design efficient substantive testing strategies?

Answer 13

plan tests for all accounts within transaction cycle at same time so that the same evidence can be used to test assertions about more than one account balance