Planning Activities

Question 1

What are the successor auditors required to make inquiries of the predecessor about?

Answer 1

1. integrity of mgmt
2. disagreements with mgmt regarding acct principles and auditing procedures
3. predecessors understanding of the reason for the change in auditors.
4. communication to those charged with governance regarding fraud
5. communications to mgmt and those charged with governance regarding significant deficiencies and material weaknesses in internal control

Question 2

What does the successor look at of the predecessor?

Answer 2

reviews the pred’s audit docs relating to planning, internal control, audit results, balance sheet accounts, and contingencies.

Question 3

What is included in an engagement letter?

Answer 3

1 objective of audit
2 mgmt's resp. for the FS, for IC over financial reporting, and for compliance with laws and regulations
3 availability of financial records
4 representation letter
5 auditors responsibilities
6 components of an audit
7 correction of misstatements
8 fees and billing

Question 4

What should an auditor consider when planning an audit strategy?

Answer 4

consider materiality

Question 5

What are the levels at which an auditor should assess the ROMM?

Answer 5

Overall response

Response at the relevant assertion level

Question 6

Audit plan cannot be finalized until…

Answer 6

consideration of the entity’s internal control structure has been completed.

Question 7

What might heighten an auditors concern about ROMM?

Answer 7

the entity’s industry is experiencing declining customer demand.

Question 8

In planning a new engagement, an auditor would consider:

Answer 8

1 nature of engagement
2 type of report to be issued
3 nature of the FS
4 nature and condition of the client’s records
5. the assessed level of control risk (including the estimated occurrence rate of attributes)
6. the needs in the particular circumstances for supervision and review of the work.

Question 9

What type of risk is the susceptibility of an assertion to a material misstatement, assuming that there are no related controls?

Answer 9

Inherent risk

Question 10

What is the type of risk associated with an auditor not identifying a material misstatement that exists in an assertion?

Answer 10

detection risk

It is the direct responsibility of the auditor

Question 11

What is the nature, timing, and extent of planned substantive audit procedures for each audit area

Answer 11

audit program

Question 12

What term is the relative size of FS misstatements that the auditors planned substantive audit procedures is designed to detect?

Answer 12

planning stage materiality

Question 13

What is audit risk?

Answer 13

The risk that the auditor expresses a wrong audit opinion when the FS are misstated.

Question 14

What is the audit risk model?

Answer 14

AR = IR x CR x DR
AR = ROMM x DR

Question 15

When control risk is perceived as relatively high, the auditor should compensate by..

Answer 15

lowering the level of detection risk

Question 16

What is control risk

Answer 16

the risk that a MM will not be prevented or detected on a timely basis by the client’s internal controls

Question 17

When an auditor performs substantive analytical procedures at an interim date, what type of risk increases?

Answer 17

detection

Question 18

What is inherent risk?

Answer 18

the susceptibility of an assertion about a class of transactions, acct balance, or disclosure to a misstatement that could be material, individually or in the aggreagate, before consideration of any related controls.