Chapter 14 - Designing an Effective Repsonse To Assessed Risks

Question 1

The __________ phase in the Risk-Based Audit Approach includes the following steps: designing the overall audit responses and further audit procedures and performance of further audit procedures.

Answer 1

Risk response

Question 2

The Risk Response Phase in the Risk-Based Audit Approach includes these two (2) steps:

Answer 2

a. Designing the overall audit responses and further audit procedures.
b. Performance of further audit procedures.

Question 3

The first step in the risk response phase will require: (3)

Answer 3

i. Updating overall audit strategy
ii. Developing response to assessed risks
iii. Briefing team on audit plans as required

Question 4

The second step in the risk response phase in the risk-based audit approach will involve (3):

Answer 4

i. Performing planned procedures
ii. Assessing results and evidence obtained
iii. Documenting findings and conclusion

Question 5

The starting point of designing an effective audit response is the ___________________ that was developed at the conclusion of the risk assessment phase of the audit.

Answer 5

listing of assessed risks

Question 6

The auditor shall design and implement overall responses to address the risks identified and assessed at the:

Answer 6

1. Financial statement level; and

2. Assertion level for financial statement areas and disclosures.

Question 7

Areas that the auditor would address in developing an overall response shall include the determination of:

Answer 7

1. The extent that the audit teem needs to be reminded about the use of professional skepticism
2. Which staff to assign, including those with special skills, or whether to use experts;
3. The extent of supervision required throughout the audit.
4. The need for incorporating some elements of unpredictability in the selection of further audit procedures to be performed; and
5. Any general changes that need to be made to the nature, timing, or extent of audit procedures.

Question 8

Are the methods or acts that auditors use to gather evidence to determine the validity of financial statement assertions.

Answer 8

Audit procedures

Question 9

The categories of the various types of audit procedures available to the auditor are: (2)

Answer 9

1. Test of Controls or Compliance Tests

2. Substantive Procedures

Question 10

Applied when the purpose is to see whether prescribed accounting control procedures are being followed. This evaluation identifies the control procedures that can be relied on in performing restricted substantive tests.

Answer 10

Compliance tests

Question 11

Applied when the auditor’s purpose is to see whether the peso amount of an account is properly stated.

Answer 11

Substantive tests

Question 12

2 types of compliance tests

Answer 12

1. No trail

2. Documentary trail

Question 13

This type of compliance test does not leave a visible trail in the supporting documents of the performance of control procedure by the client’s employee.

The auditor makes inquiries and observation of office personnel and routines to determine how control procedures are performed and who performs them.

Answer 13

No trail

Question 14

This type of compliance test leaves a visible trail in the supporting documents. Hence, the auditor inspects the documents supporting a particular type of transaction to see whether a control procedure was performed and who performed it as indicated by signatures or initials.

Answer 14

Documentary trail

Question 15

There are two general categories of substantive tests

Answer 15

1. Tests of details of transactions or balances

2. Analytical review procedures

Question 16

True or False.

Irrespective of the assessed risks of material misstatement, the auditor shall sign and perform substantive procedures for each material class of transactions, account balance and disclosure.

Answer 16

True.

Question 17

This type of involves obtaining evidential matter on the items or details involved in an account balance or class of transactions.

Answer 17

Tests of details

Question 18

Tests of details are also referred to as follows: (2)

Answer 18

1. Tests of transactions

2. Tests of balances

Question 19

These are tests of the processing of individual transactions by inspection of the documents and accounting records involved in processing.

Answer 19

Tests of transactions

Question 20

These are tests applied directly to the details of balances in general ledger accounts. These tests have the objective of establishing the monetary correctness of the accounts they relate to.

Answer 20

Tests of balances

Question 21

Some auditors refer to tests of balances as ____________ to emphasise the substantive nature of the tests as directly supporting an account balance.

Answer 21

Direct tests of balances

Question 22

It should be noted that substantive tests and compliance tests of control procedures that leave a documentary trail not involve the inspection of documents supporting transactions.

For this reason, these tests are often applied together to the same group of documents. In that case, the test is referred to as a _____________ because it has both compliance and substantive objectives.

Answer 22

Dual-purpose test

Question 23

Tests that involve study and comparison of relationships among accounting data and related information. They identify unusual fluctuations for investigation and focus on the rationale of relationship.

Answer 23

Analytical review procedures

Question 24

Auditing standards require the application of analytical procedures at the _______________ and ______________________ stages of audits.

Answer 24

planning;

overall final review

Question 25

Common analytical procedures that involve comparison

Answer 25

Compare current financial information:

1. for prior periods
2. with anticipated data
3. with known or predictable relationships
4. with industry information
5. with current nonfinancial information

Question 26

Are the basic tools or means employed to obtain audit evidences

Answer 26

Audit techniques