Chapter 3 SB HW

Question 1

Auditors can reduce audit risk to an acceptably low level by ______.

Answer 1

obtaining an understanding of the entity and its environment

Question 2

Auditors should attempt to identify all ______ because transactions with them may not be at “arm’s length”.

Answer 2

related parties

Question 3

What should a public accounting firm determine before accepting new client?

Answer 3

1. Capabilities to perform the audit?
2. Complies with legal and ethical requirements?

Question 4

In documenting the overall audit strategy and audit plan, auditors should document the ___________ of the audit tests.

Answer 4

extent, timing, and nature

Question 5

Risk assessment, benchmarking, and recommendations based on assessment of business risk are all examples of _________.

Answer 5

value-added services

Question 6

Overall responsibility for an audit engagement rests with the ______.

Answer 6

engagement partner

Question 7

The first phase of the audit process that relates to audit planning is ______.

Answer 7

client acceptance and continuance

Question 8

When should the evaluation of client continuance take place?

Answer 8

When a significant event occurs or near the completion of the audit

Question 9

What are the three preliminary engagement activities?

Answer 9

1. Determine engagement team requirements
2. Ensure team and firm is in compliance with independence/ethics
3. Establish understanding with entity

Question 10

Both the PCAOB and ASB follow ______ perspective in considering what is material.

Answer 10

the user’s

Question 11

Steps that should be performed as part of audit planning activities include ______(3 parts).

Answer 11

1. Establish materiality
2. Assess business risk
3. Consider violations of laws and regulations

Question 12

During the documenting stage, the auditor ______(3 parts).

Answer 12

1. Compile knowledge about business objectives/strategies
2. Ensure identified risks are addressed
3. Records how entity managing its risks

Question 13

According to ASB standards, when assessing materiality, users are assumed to ______(3 parts).

Answer 13

1. Make appropriate economic decisions
2. Recognize inherent uncertainties
3. Understand FS are prepared with materiality

Question 14

FS users are assumed to have a _________ knowledge of business and accounting.

Answer 14

reasonable

Question 15

Consideration of ____________ during the planning process may identify opportunities to improve client service.

Answer 15

value-added services

Question 16

Can auditors who audit public companies offer consulting/value-added services to their clients?

Answer 16

Yes, but there are limitations

Question 17

The amount of overall materiality used to plan and perform audit procedures at the account or disclosure level is called _______.

Answer 17

tolerable misstatement

Question 18

When auditing a company with multiple locations, the amount of audit attention devoted to various locations depends upon the ______.

Answer 18

risk of material misstatement

Question 19

Examples of tests of controls include ______(4 parts).

Answer 19

1. Inquiry of mgmt
2. Inspecting documents
3. Observation of controls
4. Reperformance

Question 20

The categories of substantive procedures are ______.

Answer 20

1. Test of details
2. Substantive analytical procedures

Question 21

Substantive analytical procedures analyze _______.

Answer 21

plausible relationships between financial & nonfinancial

Question 22

Operating effectiveness is checked using ______.

Answer 22

test of controls

Question 23

Audit data analytics use ______________.

Answer 23

analysis, modeling, and visualization

Question 24

Gaining an understanding of the business environment is done to assess __________.

Answer 24

business risks