PCAOB Risk Assessment Standards

Question 1

Describe what is meant by “audit plan” that an auditor is responsible for establishing under Public Company Accounting Oversight Board (PCAOB) auditing standards.

Answer 1

The audit plan is more specific than the audit strategy and deals with the nature, timing, and extent of the auditor’s planned procedures (including risk assessment procedures, tests of controls, and substantive procedures).

Question 2

What is the auditor’s responsibility regarding “reasonable assurance” as prescribed by Auditing Standard No. 8 of the Public Company Accounting Oversight Board (PCAOB)?

Answer 2

To reduce audit risk to an appropriately low level

Question 3

List the matters to be evaluated by the auditor under Public Company Accounting Oversight Board (PCAOB) auditing standards.

Answer 3

1. )Results of analytical procedures performed as the overall review
2. )Misstatements accumulated during the audit
3. )Qualitative aspects of the company’s accounting practices
4. )Conditions identified related to fraud risk
5. )Presentation (including disclosures) of the financial statements
6. )Adequacy of evidence obtained

Question 4

What is the auditor’s objective for identifying and assessing risks of material misstatement under Public Company Accounting Oversight Board (PCAOB) auditing standards?

Answer 4

To identify and appropriately assess the risks of material misstatement, thereby providing a basis for designing and implementing responses to the risks of material misstatement

Question 5

Describe the different treatments regarding financial statement assertions between the AICPA’s Statements on Auditing Standards and the Public Company Accounting Oversight Board’s (PCAOB) auditing standards.

Answer 5

The PCAOB identifies 5 financial statement assertions, whereas the AICPA identifies 13 assertions in total of three categories of assertions [involving (1) account balances at period-end; (2) transactions and events for the period; and (3) presentation and disclosure]. The AICPA’s discussion of assertions is consistent with International Standards on Auditing.

Question 6

Under Public Company Accounting Oversight Board (PCAOB) auditing standards, what is the purpose of risk assessment procedures?

Answer 6

The auditor should perform risk assessment procedures sufficient to provide a reasonable basis for identifying and assessing the risks of material misstatement and designing further audit procedures.

Question 7

What is the auditor’s objective for audit risk as prescribed by Public Company Accounting Oversight Board (PCAOB) auditing standards?

Answer 7

To conduct the audit of financial statements in a manner that reduces audit risk to an appropriately low level associated with “reasonable” assurance

Question 8

What is the auditor’s objective for obtaining audit evidence under Public Company Accounting Oversight Board (PCAOB) auditing standards?

Answer 8

To plan and perform the audit to obtain appropriate audit evidence that is sufficient to support the opinion

Question 9

List the specific risk procedures an auditor should perform in assessing the risks of material misstatement under Public Company Accounting Oversight Board (PCAOB).

Answer 9

1. )Obtain an understanding of the company and its environment.
2. )Obtain an understanding of internal control over financial reporting.
3. )Consider information from client acceptance/retention, planning, prior audits, and other engagements for the company.
4. )Perform analytical procedures.
5. )Inquire about the RMM.

Question 10

List the circumstances that impact the extent of supervision under Public Company Accounting Oversight Board (PCAOB) auditing standards.

Answer 10

1. )Size and complexity of the company
2. )Nature of the work assigned to engagement personnel
3. )Capabilities of each engagement team member
4. )Risks of material misstatement

Question 11

List the 5 financial statement assertions identified by Public Company Accounting Oversight Board (PCAOB) auditing standards.

Answer 11

Existence
Completeness
Rights and obligations
Valuation or allocation
Presentation and disclosure

Question 12

What are the engagement partner’s basic responsibilities under Public Company Accounting Oversight Board (PCAOB) auditing standards?

Answer 12

The engagement partner is responsible for the engagement and its performance, including the proper supervision of the engagement team members and compliance with PCAOB standards.

Question 13

What is the auditor’s objective for the consideration of materiality in planning and performing the audit under Public Company Accounting Oversight Board (PCAOB) auditing standards?

Answer 13

To apply the concept of materiality appropriately in planning and performing audit procedures

Question 14

List the two categories of auditor responses regarding risks of material misstatement under Public Company Accounting Oversight Board (PCAOB) auditing standards.

Answer 14

1. )Overall responses

2. )Responses involving the nature, timing, and extent of audit procedures at the relevant assertion level

Question 15

List the two levels at which the risks of material misstatement should be assessed as prescribed by Public Company Accounting Oversight Board (PCAOB) auditing standards.

Answer 15

At the financial statement level

At the assertion level

Question 16

What is the auditor’s objective for evaluating audit results under Public Company Accounting Oversight Board (PCAOB) auditing standards?

Answer 16

To evaluate the results of the audit to determine whether the audit evidence obtained is sufficient and appropriate to support the opinion

Question 17

What is the auditor’s objective regarding audit planning as prescribed by Public Company Accounting Oversight Board (PCAOB) auditing standards?

Answer 17

The objective is to plan the audit so that the audit is conducted effectively subject to an appropriately low level of audit risk.

Question 18

What is the auditor’s objective as it relates to responding to the risks of material misstatement under Public Company Accounting Oversight Board (PCAOB) auditing standards?

Answer 18

To address the risks of material misstatement through appropriate overall audit responses and audit procedures

Question 19

What is the auditor’s objective for supervision of the audit engagement under Public Company Accounting Oversight Board (PCAOB) auditing standards?

Answer 19

To supervise the audit engagement so that the work is performed as directed and supports the conclusions reached

Question 20

Describe what is meant by “overall strategy” that an auditor is responsible for establishing under Public Company Accounting Oversight Board (PCAOB) auditing standards.

Answer 20

The overall strategy involves rather high level audit resource allocation issues involving the scope, timing, and direction of the audit activities.