SU 4 Strategic Planning Issues

Question 1

Evaluation of assumptions by auditors

Answer 1

Auditors evaluate the consistency of assumptions related to: economic conditions, management’s selection of the assumptions of market participants and resulting modifications of its own assumptions 3. The entity’s plans 4. Past experience 5. Prior period assumptions 6. Many other factors

Question 2

Develops Internal audit standards

Answer 2

Institute of internal auditors or
Government accountability office measures the competence and objectivity of the internal auditors.

Question 3

objectivity of internal auditors is promoted when…

Answer 3

1. IA report to those charged with governance and not management
2. IA is free from conflicting responsibilities
3. IA works without constraints
4. IA are members of professional organizations that obligate them to be objective

Question 4

How external auditor accesses IA’s competence

Answer 4

The external auditor obtains information about 1.Education and experience 2. Professional certification and CPE 3. Audit policies, programs, and procedures 4. Practices regarding assignments of internal auditors 5. Supervision and review of their activities 6. Quality of auditor documentation, reports, and recommendations 7. Evaluation of the IA’s performance

Question 5

Three things the IA can help the auditor with

Answer 5

1. Obtaining an understanding of internal control
2. Performing substantive procedures
3. Performing test of controls

Question 6

Can the IA help with all phases of the audit?

Answer 6

Yes. If he/she is objective and competent. The auditor is still responsible for supervising, reviewing, evaluating, and testing the IA’s work.

Question 7

Things the IA cannot help the auditor with

Answer 7

1. Assessments of RMM (RMM-inherent & control risks)
2. Materiality decisions
3. Sufficiency of test performed
4. Evaluation of significant accounting estimates
5. Other matters related to the auditors report

Question 8

When can the auditor rely on the IA?

Answer 8

When the IA is objective, competent, and uses a systematic and disciplined approach including quality control

Question 9

The IA can rely on the work of management specialists or client if the auditor:

Answer 9

1. Examines the specialist’s program
2. Observe the procedures and controls
3. Make or observe some physical counts
4. Recompute calculations
5. Test intervening transactions

Question 10

When using an auditors specialist the auditors should

Answer 10

1. Determine the nature scope and objectives of the work
2. Evaluate the adequacy of the work for the auditors purposes

Question 11

Auditors. Responsibility for related party transactions

Answer 11

To identify, access and respond to the RMM because the entity did not disclose the related party transactions, relationships or balances

Question 12

How does the auditor evaluate the business purpose of related party transactions?

Answer 12

1. Inspect contracts or agreements to evaluate a). The business purpose b) Terms to see if they are consistent with management’s explanations.
2. Make sure accounting and disclosure are appropriate 3. Ensure proper approvals

Question 13

Related parties

Answer 13

It’s more important for the CPA to verify terms and conditions of RP transactions (substantive testing) than to understand controls like authorizations and approvals