Overview of Audit Process

Question 1

What are the 4 steps to Engagement Planning?

Answer 1

1 Decide whether to accept (or continue) the engagement
2 Perform risk assessment procedures to address the risks of material misstatement, whether due to error or fraud
3 Evaluate requirements for staffing and supervision
4 Prepare the required written audit plan (aka audit program) that specifies the nature, timing, and extent of auditing procedures for every audit area (which is usually prepared after control risk has been assessed, so that detection risk can be appropriately set in each audit area)

Question 2

As part of Internal Control Considerations what should be obtained?

Answer 2

An understanding of internal control for planning purposes as required, emphasizing the assessment of the risk of material misstatement in individual audit areas and document the understanding of internal control

Question 3

If contemplating reliance on certain identified internal control strengths as a basis for reducing substantive testing, what should the auditor perform?

Answer 3

The auditor must then perform appropriate tests of control to determine that those specific controls are operating effectively, that is, working as intended

Question 4

What are Substantive Audit Procedures?

Answer 4

These are evidence-gathering procedures designed to verify the financial statement elements and to detect any material misstatements

Question 5

What are Analytical Procedures?

Answer 5

Those evidence-gathering procedures that suggest reasonableness (or unreasonableness) based upon a comparison to appropriate expectations or benchmarks, such as prior year’s financial statements, comparability to industry data (including ratios) or other interrelationships involving financial and/or nonfinancial data

Question 6

What is Test of Details?

Answer 6

It’s evidence-gathering procedures consisting of either of two types:
1 Tests of ending balances
2 Tests of transactions

Question 7

As part of Tests of Detail, what is Test of Ending Balances?

Answer 7

Where the final balance is assessed by testing the composition of the year-end balance

Question 8

As part of Tests of Detail, what is Test of Transactions?

Answer 8

Where the final balance is assessed by examining those debits and credits that caused the balance to change from last year’s audited balance to the current year’s balance

Question 9

What is Reporting?

Answer 9

Conclusions are expressed in writing using standardized language to avoid miscommunication.