Chapter 3 Part 2

Question 1

How does an audit team use materiality on an audit engagement?

Answer 1

-as a guide to PLANNING SUBSTANTIVE TESTING PROCEDURES-directing attention and audit work to those items or accounts that are important, uncertain, or susceptible to material misstatements

-as a guide for determining PERFORMANCE MATERIALITY to help make sure that the aggregate of uncorrected and undetected immaterial misstatements does not exceed the materiality level for the financial statements as a whole, For example, auditors may use an amount smaller than overall financial statement materiality when auditing particular classes of significant transactions, account balances, or disclosures

-as a guide for making DECISIONS ABOUT THE AUDIT REPORT. An account such as inventory can be material in an audit context because of its size or its place in the financial statements

Question 2

directing attention and audit work to those items or accounts that are important, uncertain, or susceptible to material misstatements

Answer 2

as a guide to PLANNING SUBSTANTIVE TESTING PROCEDURES

Question 3

to help make sure that the aggregate of uncorrected and undetected immaterial misstatements does not exceed the materiality level for the financial statements as a whole, For example, auditors may use an amount smaller than overall financial statement materiality when auditing particular classes of significant transactions, account balances, or disclosures

Answer 3

-as a guide for determining PERFORMANCE MATERIALITY

Question 4

An account such as inventory can be material in an audit context because of its size or its place in the financial statements

Answer 4

-as a guide for making DECISIONS ABOUT THE AUDIT REPORT.

Question 5

financial item followed back to origin (source doc). Provides evidence for existence and occurrence, NOT for completeness, sometimes helps with valuation and allocation

Answer 5

Vouching

Question 5

financial item followed forward from source doc to journal/ledger entry. Provides evidence for completeness, sometimes for valuation and allocation

Answer 5

Tracing

Question 6

“eyes-open” approach of looking for anything unusual

Answer 6

Scanning

Question 7

List 8 basic audit procedures.

Answer 7

1. Inspection of records and docs
2. Inspection of tangible assets
3. Observation
4. Inquiry
5. Confirmation
6. Recalculation
7. Reperformance
8. Analytical procedures