Chapter 13: Overall Audit Plan and Audit Program

Question 1

What are the five types of tests to determine if the financial statements are fairly stated?

Answer 1

risk assessment procedures
tests of controls
substantive tests of transactions
analytical procedures
tests of details and balances

Question 2

Which test type does this describe:
procedures to obtain an understanding of the entity and its environment, including internal control, to assess the risk of material misstatement in the financial statement

Answer 2

risk assessment procedures

Question 3

What procedures do you to assess risk?
update and evaluate the auditor’s previous experience with the entity
make ______ of client personnel
Examine ______ and ______
______ entity activities and operations
Perform walkthroughs of the ________ system

Answer 3

inquiries
documents and records
observe
accounting

Question 4

Which test type does this describe:

audit procedures to test the effectiveness of controls in support of a reduced assessed control risk

Answer 4

test of controls

Question 5

How do you go about testing controls?
Make inquiries of appropriate client personnel
Examine documents, records, and reports
Observe \_\_\_\_\_-related activities
\_\_\_\_\_\_\_\_ client procedures

Answer 5

control

reperform

Question 6

Which test type does this describe:

Procedures designed to test for dollar misstatements directly affecting the correctness of financial statement balances

Answer 6

substantive test of transactions

Question 7

The purpose of substantive tests of transactions is to determine whether all ____ transaction related audit objectives have been satisfied for each class of transactions.

Answer 7

six

Question 8

Which test type does this describe:

comparisons of recorded amounts to expectations developed by the auditor

Answer 8

analytical procedures

Question 9

The two most important purposes of analytical procedures in the audit of account balances are to:

1) indicate the presence of possible __________ in the financial statements
2) to provide _______ evidence

Answer 9

misstatement

substantive

Question 10

Which type of test does this describe:
focus on the ending general ledger balances for both balance sheet and income statement accounts, but the primary focus is on balance sheet accounts

Answer 10

tests of details and balances

Question 11

Tests of ending balances are essential because the evidence is usually obtained from a source __________ of the client.

Answer 11

independent

Question 12

Tests of details and balances help establish the monetary correctness of the accounts they relate to and therefore are _______ tests.

Answer 12

substantive

Question 13

To select which types of tests to perform, it varies by client and is a mater of professional judgment, but some items to consider are:
1)
2)
3) availability of \_\_\_\_\_\_
4) \_\_\_\_\_\_\_\_\_\_ of internal controls

Answer 13

risk
costs
evidence
effectiveness

Question 14

For public companies, computer-performed controls must be tested if the auditor considers them to be _____ _______ for reducing the likelihood of _________ _________ in the financial statements.

Answer 14

key controls

material misstatements

Question 15

After the auditor uses risk assessment procedures to determine the appropriate emphasis on each of the other four types of tests, the specific audit procedures for each type of test must be designed. These audit procedures are then combined to form the ______ ______.

Answer 15

audit program

Question 16

The audit program for most audits is designed in 3 parts, what are they?

Answer 16

Part 1: tests of controls and substantive tests
Part 2: analytical procedures
Part 3: tests of details and balances

Question 17

The four step approach to designing control and substantive tests are:

1) apply ________-_________ audit objectives to a class of transactions
2) Identify _____ _______ and make a preliminary assessment of control risk
3) Design tests of controls
4) design substantive tests of transactions

Answer 17

transaction-related

key controls

Question 18

Because substantive analytical procedures are _________ ___________ , many auditors perform them on all audits.

Answer 18

relatively inexpensive

Question 19

Analytical procedures performed during substantive testing are usually more focused and extensive than those done during ________.

Answer 19

planning

Question 20

In designing tests of details of balances for accounts receivable:

1) identify client business ______ affecting accounts receivable
2) set performance materiality and asses _____ risk for accounts receivable
3) assess ______ risk for sales and collection cycle
4) design and perform tests of controls and substantive tests of transactions for sales and collection cycle
5) Design and perform ________ _______ for accounts receivable balances
6) design tests of details of accounts receivable balance to satisfy balance-related audit objectives

Answer 20

1) risk
2) inherent
3) control
5) analytical procedureds

Question 21

Summary of the Audit process:
Phase 1- ______ and design and audit approach
Phase 2- Perform tests of _______ and substantive tests of transactions
phase 3-perform _______ ________ and tests of _______ and ________
phase 4- complete the audit and issue an ______ ______.

Answer 21

plan
controls
analytical procedures, details and balances
audit report

Question 22

in planning and designing the audit approach:

1) accept client and perform initial planning
2) understand the client’s _______ and ______
3) assess client business ______
4) Perform preliminary ________ _______

Answer 22

2) business and industry
3) risk
4) analytical procedures

Question 23

In planning and designing the audit approach:

5) set _______ and assess acceptable ______ risk and _____ risk
6) understand _______ ______ and assess control risk
7) gather information to assess _____ risks
8) develop overall audit _______ and audit _______

Answer 23

5) materiality, audit, inherent
6) internal control
7) fraud
8) plan, program

Question 24

In phase 2, performing tests of controls and substantive tests of transactions, if you plan to reduce assessed level of control risk, then you?

Answer 24

perform test of controls and substantive test of transactions and then asses likelihood of misstatements

Question 25

in phase 2, performing tests of controls and substantive tests of transactions, if you don’t plan to reduce assessed level of control risk, then you?

Answer 25

just perform substantive tests of transactions

Question 26

In phase 3 of the audit process what do you do?

Answer 26

perform:
analytical procedures
tests of key items
additional tests of detail and balances

Question 27

in phase 4, you:
1)Review for \_\_\_\_\_\_\_\_ \_\_\_\_\_\_\_\_
2) Review for \_\_\_\_\_\_\_\_\_ \_\_\_\_\_\_\_
accumulate final evidence
3) evaluate \_\_\_\_\_\_
4) Issue audit report
5) communicate with \_\_\_\_\_\_\_\_ \_\_\_\_\_\_\_\_\_ and management

Answer 27

1) contingent liabilities
2) subsequent events
3) results
5) audit committee