Random Test Qs

Question 1

Which of the following activities is an analytical procedure an auditor would perform in the final overall review stage of an audit to ensure that the financial statements are free from material misstatement?

Answer 1

Comparing the current and prior year’s financial statements is a legitimate analytical procedure performed both in planning and as a final review.

Question 2

How does an auditor make the following representations when issuing the standard auditor’s report on comparative financial statements?

Answer 2

The standard auditor’s report on comparative financial statements states explicitly that evidence is obtained (and therefore examined) and implies that accounting principles have been consistently applied. Such application is assumed unless the report indicates otherwise.

Question 3

The ultimate purpose of assessing control risk is to contribute to the auditor’s evaluation of the risk that

Answer 3

The ultimate purpose of assessing control risk is to contribute to the auditor’s evaluation of the risk that material misstatements may exist in the financial statements. The assessment of control risk combined with the assessment of inherent risk aids the auditor in identifying where material misstatements might exist in the financial statements. The auditor must then select and perform the auditing procedures necessary to detect material misstatements, if they exist.

Question 4

When planning a sample for a substantive test of details, an auditor should consider tolerable misstatement for the sample. This consideration should

Answer 4

When planning a sample for a substantive test of details, the auditor’s consideration of tolerable misstatement for the sample would be related to the preliminary judgment of materiality.
The auditor determines the nature, timing, and extent of auditing procedures to be applied in order to obtain reasonable assurance of detecting material misstatements in the financial statements.
The preliminary judgment of materiality is the auditor’s first estimate of amounts that could be considered to be material.

Question 5

The audit program usually cannot be finalized until the

Answer 5

Consideration of the entity’s internal control structure has been completed. The audit program documents the auditing procedures to be performed. It cannot be finalized until consideration of the entity and its environment, including internal control, has been completed. Recall that the auditors are required to obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement and to plan the audit and allow determination of the nature, timing, and extent of the tests to be performed. Thus, knowledge of the internal control structure is needed for the auditor to select the auditing procedures and decide when and how extensively to perform them.