Audit Planning And Risk Assessment Accounting Essay

Audit Planning And Risk perspicacity Accounting EssayChapter 6LO1 The scrutinize plan documents detailed direction somewhat inspect procedures to be makeed on the considerment.TLO2 Scaling the examine refers to fitting the analyse course into the proper context in terms of the engagements size, environment, and mixedity.TLO2 Statutory canvass be required on totally integrated analyzeed visors get alonged in harmony with world(prenominal) reporting system standards.FLO2 An inspect plan ordain be the kindred regardless of whether the lymph gland company outsources its pecuniary activities to a service provider or conducts the activities in house.FLO3 Materiality is a measure of magnitude yet, it is affected by both quantitative and qualitative factors.TLO3 Materiality is front set at the account fit level and is then aggregated to the financial instruction level.FLO4 The components of the fraud triangle include incentive, opportunity, and rationalizatio n.TLO5 A invitee companys new or modified accounting information system requires more take stock effort to understand the new system and assess its form and run effectiveness.TLO5 An audit dodge will focus on going restore issues for a lymph gland company operating in an manufacturing which has experienced a recent market downturn.TLO6 Computers ar the primary resources used on an audit.FLO6 A highly effective audit would take up all of its essaying performed at an interim date.FLO7 An IT specialist whitethorn be used to see systems documentation and perform other procedures for an audit engagement when the lymph gland company uses new, emerging technology.TLO7 advance prison term budget information is comp bed to actual sequence proceedinged and is used for purposes of billing, performance evaluation, and future bidding.TLO8 Auditors test the operating effectiveness of those controls that are intended to prevent and detect strong misstatements.TLO8 Tracing refers to flavour at the supporting documentation for a recorded number.FApp.A A principal attendee whitethorn share tariff for an audit opinion when a nonher auditor performs all of the audit procedures for subsidiary of the customer company.TApp.A For accounts that involve hearty estimates, require a high degree of judgment, or are unvaccinated to management override of controls, a principal auditor may completely rely on the campaign of others in determining whether those accounts are materially misstated.FMultiple ChoiceLO1 Planning is a dogging process that moldiness occur doneout the audit engagement be curtilage(a) disconfirming information is likely to arise.(b) the audit committee is likely to point out flaws in the original audit plan.(c) all information wobble the audit occurs concurrently.(d) auditor skill levels are continuously fluctuating.ALO1 Development of the audit strategy includes all of the chase activities except(e) specifying the work that has to be perf ormed.(f) specifying the condemnation of the work to be performed.(g) documenting an audit training memorandum.(h) defining initial estimates of audit chance and materiality.CRisk assessment points the auditor to the fundamental areas of the clients operations and financial statements in order to(i) understand important areas of the clients operations and financial statements.(j) identify potential problems.(k) hold in what call for to be accomplished during the audit.(l) all of the supraDLO1,2 Which of the following is non a consideration for an auditor while scaling the audit?(m) The client company has multiple locations throughout the region.(n) Another firm is accountable for auditing one of the clients out-of-town subsidiaries.(o) An outside service provider prepares all of the client companys payroll accounting records.(p) The client company plans to hire and develop employees so that it can prepare its payroll accounting records in-house deep down the neighboring two courses.DLO2 An experienced audit aggroup will begin planning the audit out front it recognises all the specific information about a particular client company because(q) experienced auditors know the general framework of what needs to be done on any audit.(r) auditors experienced in the clients industry understand the activities and risks of the industry, which gives them an understanding of the important financial statement accounts and ICFR areas.(s) auditors experienced with this client company draw already gained quite a bit of information from the client bankers acceptance or continuance processes.(t) all of the aboveDLO2 Scaling the audit refers to(u) weighing the risks associated with the clients susceptibility to fraud.(v) preparing evidence for an outside service provider.(w)fitting the audit work to the specific characteristics of the client.(x) delivering products or services as contracted in the engagement letter.CLO2 Deliverables refers to the(y) timing of th e auditors acceptance of the client company.(z) products and services as contracted in the engagement letter.(aa)degree of correlation between the audit work to the specific characteristics of the client.(bb)auditors experience in the clients industry.BLO2 The scope of the engagement depends upon all of the following considerations except the(cc) show of the clients accounting information.(dd) use and importance of IT to the clients activities and ICFR.(ee) ability to use audit evidence performed by the clients inborn auditors.(ff) timing of the clients fiscal closing.DLO2 The scope of an audit teams work will be more extensive(gg) for a first year audit engagement as opposed to a continuing audit.(hh) when home(a) auditors perform work to be used as evidence by the foreign auditors.(ii) when a user companys auditor relies upon a report provided by an auditor of the service provider.(jj) for a company with effective entity-level controls.ALO3 An national control that is ineffe ctive to the end that it mogul not prevent the financial statements from being materially misstated is referred to as a(kk) significant risk(ll) hearty error(mm) material weakness(nn) tolerable misstatementCLO3 Which of the following would not be an appropriate benchmark to use in setting financial statement-level materiality?(oo) a percentage of total revenue(pp) a percentage of total assets(qq) a percentage of current liabilities(rr) a percentage of profit from continuing operationsCLO3 The materiality threshold for each account parallelism or class of transactions is called(ss) tolerable misstatement(tt) material assertion (uu) substantive rule of thumb(vv) account deficiencyALO3 For purposes of an integrated audit, materiality is assessed within the context of users who arrest(ww) appropriate knowledge of contrast and scotch activities(xx) an understanding that financial statements are prepared and audited to levels of materiality(yy) the ability to make appropriate eco nomic decisions on the basis of information in the financial statements(zz) all of the aboveDLO4 Which of the following is not an area of interest for anti-fraud controls?(aaa) journal entries and adjustments made in the end-of-period financial reporting process(bbb) related political party transactions(ccc) auditor credentials (ddd) significant management estimatesCLO4 An example of an incentive/pressure for dishonorable financial reporting risk factor is(eee) a threat to the client companys financial stability caused by rapid growth compared to that of other companies in the homogeneous industry.(fff) significant operations located across international borders in jurisdictions where differing business environments exist.(ggg) inadequate job applicant screening processes for employees with access to cash.(hhh) ineffective communication of the companys ethical standards by management.ALO4 An example of an opportunity for misappropriation of assets risk factor is(iii) compensa tion inconsistent with expectations.(jjj) insufficiency of complete and timely reconciliations of assets.(kkk) managements practice of committing to creditors to achieve unrealistic forecasts.(lll) known history of violations of laws and regulations.BLO5 Significant developments within the client that affect audit strategy include(mmm) A convert in ownership and/or capital structure has occurred.(nnn) Acquisitions or discontinued operations provoke recently occurred.(ooo) The accounting information systems have been modified.(ppp) all in all of the aboveDLO5 Significant developments in the clients orthogonal environment that affect audit strategy include(qqq) Industry competition has increased.(rrr) Acquisitions or discontinued operations have recently occurred.(sss) A change in ownership and/or capital structure has occurred.(ttt) All of the aboveALO5 Going concern issues may arise when(uuu) Acquisitions or discontinued operations have recently occurred.(vvv) The accounting information systems have been modified.(www) The economy has negatively squeeze the client company.(xxx) Changes in applicable accounting standards affect the client company.CLO5 When audit clients acquire new, more sophisticated IT systems,(yyy) The audit strategy will not be impacted as long as the duties of accounting personnel are primarily unchanged.(zzz) Auditors with advanced IT knowledge may need to be added to the audit team.(aaaa) The design of internal controls will be considered ineffective until those new controls have been tested.(bbbb) The timing of the auditors procedures for criticisming interim financial statements will be accelerated.BLO5 One of the first procedures performed by auditors during on-location audit work is the(cccc) Development of the firms audit strategy.(dddd) Preparation of the audit report.(eeee) Design of the audit plan.(ffff) Establishment of an understanding of the companys ICFR systems.DLO5 Auditors may fetch information about a client co mpany during other engagements conducted for the client much(prenominal) as(gggg) audits of a subsidiary or other related party entity.(hhhh) reviews of quarterly financial statements filed with the SEC.(iiii) examinations of information include in a registration statement.(jjjj) All of the aboveDLO6 Which of the following would not be likely to participate in an audit planning meeting?(kkkk) The core audit engagement team.(llll) The audit teams tax manager(mmmm) The audit teams partner for IT(nnnn) The chair of the clients audit committee.DLO6 Which of the following items are included in the audit planning meeting?(oooo) brainstorming about fraud risks(pppp) establishing responsibility for preparing the financial statements(qqqq) establishing responsibility for monitoring of internal controls(rrrr) preparing the engagement letter.ALO6 Which of the following items would an audit engagement partner likely make it with the members of his or her audit team during a planning meeting?( ssss) Responsibility for notifying appropriate individuals of any significant issues or difficulties encountered during the audit.(tttt) Identification of the type of audit report to be issued.(uuuu) The need to complete the quarterly review before communicating with any tax professionals assigned to the audit engagement.(vvvv) Responsibility for notifying the audit committee and internal auditors of the firms specific audit approach.LO6 The audit planning meeting must(wwww) take place before the client acceptance decision is made.(xxxx) be attended by the entire core engagement team and the forerunner auditors.(yyyy) establish an understanding among the members of the audit team about the objectives of the audit.(zzzz) prepare the internal auditors for the work they will be asked to perform to supplement the auditors procedures.CLO6 The document that presents all of the issues discussed as part of audit strategy is the(aaaaa) engagement letter(bbbbb) quarterly financial statements (ccccc) audit planning memo(ddddd) risk assessment memoCLO6 Which of the following items in not typically documented in an audit planning memo?(eeeee) audit engagement objectives and deliverables(fffff) the auditors understanding of ICFR and IT systems(ggggg) planned use of the work of others during the audit(hhhhh) results of the quarterly review processDLO6 What is the primary resource used on an audit engagement?(iiiii) the clients IT systems(jjjjj) the auditors IT systems(kkkkk) human resources of the audit firm(lllll) the clients internal auditorsCLO6 To properly instruct and review the work of audit team members, the supervising auditor must(mmmmm) keep abreast of accounting and audit issues and manage differences of opinion among team members regarding audit findings.(nnnnn) obtain tuition from the chair of the audit committee regarding the objectives of the audit engagement.(ooooo) communicate with the predecessor auditor regarding differences of opinion regarding prior yea r audit findings.(ppppp) all of the aboveALO6 It is important for auditors to be on-location on the last day of the clients fiscal year when the client(qqqqq) operates a restaurant that does a considerable amount of business on mod Years Eve.(rrrrr) has significant entry activities such that the receipts and consignments of inventories at closing should be observed.(sssss) relies upon electronic assay to indicate the timing of transactions.(ttttt) refuses to pay overtime rates for the audit team during its busy season.LO6 Which of the following is not a valid reason for the performance of audit procedures at an interim date?(uuuuu) More time is available for management to correct problems identified by interim audit testing.(vvvvv) The client company does not retain the records that are needed as audit evidence through the year-end time frame.(wwwww) approximately controls and transactions cannot be audited during busy season.(xxxxx) More time is available for the auditors to concentrate on problem areas, if needed.LO6 If audit tests are performed at an interim date, supplemental audit evidence(yyyyy) is not necessary because the same controls are assumed to be in place that resulted in the balances tested during interim.(zzzzz) is still needed regarding the account balances between the interim testing date and the end of the fiscal year.(aaaaaa) is obtained from the predecessor auditor, when needed to corroborate any changes in the clients ICFR systems.(bbbbbb) is the responsibility of the audit committee, as it would be inefficient for the auditors to focus on a single audit area during multiple time periods.LO6 When audit tests are performed at an interim date, the auditor must(cccccc) obtain a letter from management to confirm the continued performance of internal controls and truth of the year-end balances.(dddddd) perform roll foregoing audit procedures to determine whether a control continued to perform the same mood through year-end.(eeeeee) r econcile account balances tested at an interim date with the year-end balances in the same accounts.(ffffff) Both (b) and (c)LO7 Which of the following is an example of a specialist who might assist an audit engagement team on a high-risk audit area?(gggggg) actuary(hhhhhh) banker(iiiiii) internal auditor(jjjjjj) tax restrainerLO7 An IT specialist may be involved in an audit engagement to assist with any of the following except(kkkkkk) inspecting systems documentation.(llllll) inquiring of company personnel about how the processes are carried out and how IT controls are designed.(mmmmmm) preparing the IT planning memo.(nnnnnn) planning the tests of IT controls.LO7 Which of the following is not a relevant consideration in deciding whether an IT specialist is needed(oooooo) the client companys capital structure(pppppp) the complexity of IT controls and systems(qqqqqq) the use of emerging technologies(rrrrrr) the use of data by multiple systems or processesLO7 Audit firms use time bud gets for(ssssss) indicating the amount of time expected for the various levels of auditors for each audit area.(tttttt) track and reporting time spent on each audit area.(uuuuuu) billing and bidding and future engagements.(vvvvvv) All of the above.LO7 Time budgets are typically(wwwwww) approved by the audit committee(xxxxxx) detailed by areas of the audit(yyyyyy) signed by the predecessor auditor(zzzzzz) All of the above.LO8 Auditors test the operating effectiveness of internal controls and if they(aaaaaaa) are effectively designed to prevent or detect material misstatements.(bbbbbbb) address multiple risk factors.(ccccccc) are applied in conjunction with other controls to address a single risk factor.(ddddddd) cause susceptibility to material misstatements.LO8 Substantive audit procedures are performed so that the auditor may identify(eeeeeee) deficiencies in the design or operating effectiveness of internal controls.(fffffff) weaknesses in the effectiveness of the client company s audit committee.(ggggggg) material misstatements in the client companys financial statements.(hhhhhhh) Calculations and controls that mitigate the risk of fraud.LO7 Which of the following is not a form of audit evidence?(iiiiiii) recalculation(jjjjjjj) reperformance(kkkkkkk) repetition(lllllll) inquiryLO7 ICFR tests to provide evidence on whether the controls can be relied upon for the financial statement audit can be performed(mmmmmmm) only during year-end because they must be performed at the same time as financial statement audit procedures.(nnnnnnn) only during interim because they must be performed at the same time as financial statement audit procedures.(ooooooo) at any time the evidence is available, as long as the entire period of reliance is evaluated.(ppppppp) at any time after the substantive procedures have been completed, so that the opinion on financial statement misstatements is not superceded by the opinion on the effectiveness of controls.LO8 Sufficient evidence m ay be provided without examining all of the transactions in an account balance is the auditor uses well-designed(qqqqqqq) sampling approaches(rrrrrrr) internal control procedures(sssssss) watch techniques(ttttttt) assertions related to the fair presentation of account balances.LO8 The nature, timing, and extent of audit needed audit tests will depend upon the answers to each of the following questions except TYPO / Grammar give notice deleting highlighted words(uuuuuuu) How could a material misstatement happen?(vvvvvvv) What internal controls has the client implemented to address potential misstatements?(wwwwwww) How might internal controls fail such that a material misstatement occurs?(xxxxxxx) How many times have material misstatements been undetected?LO8 When inquiry, reflection, and surveillance are all used to trace a transaction as it is initiated, authorized, processed, and recorded, the process is called a(n)(yyyyyyy) command(zzzzzzz) walkthrough(aaaaaaaa) assertion(bb bbbbbb) analytical procedureLO8 If an audit program calls for the auditor to interview the client about an important control activity, this is an example of which type of audit procedure?(cccccccc) reperformance(dddddddd) tracing(eeeeeeee) inspection(ffffffff) inquiryApp Which of the following is not a form of evidence obtained through the auditors direct personal knowledge?(gggggggg) observation(hhhhhhhh) reperformance(iiiiiiii) inquiry(jjjjjjjj) inspectionApp A principal auditor may share responsibility for an audit opinion with(kkkkkkkk) another separate auditor who has performed a significant portion of the audit work.(llllllll) the clients internal audit staff, if they provide significant aid to the audit team.(mmmmmmmm) a specialist who provides expert advice on the valuation of inventory.(nnnnnnnn) an attorney who provides expert advice on a pending legal matter.App Which of the following is not an indicator of competence that is relevant to an auditors evaluation of other individuals execute a portion of the audit work?(oooooooo) professional certification(pppppppp) professional experience(qqqqqqqq) level of education(rrrrrrrr) access to the board of directorsApp If internal auditors provide direct assistance to the external audit team, the independent external auditor must(ssssssss) reperform all of the work provided by the internal auditors.(tttttttt) supervise and evaluate the work performed by the internal auditors.(uuuuuuuu) refuse to issue an audit opinion, due to a lack of independence.(vvvvvvvv) indicate a stratum of responsibility in the performance of the audit.MatchingLO3 Following are the planning steps involved in considering materiality in a top-down approach to planning for tests of controls. Number the items in from 1 (top) through 6 (bottom) to indicate the proper top-down sequence of the steps.___ Identify risks that could cause material misstatement of relevant assertions in a significant account.___ Set financial statement level materiality___ Design audit procedures addressing controls___ suss out controls addressing risks___ Identify significant accounts___ Determine relevant management assertions for significant accounts and set materiality at the account levelShort-Answer Questions and ExercisesLO4 For each scenario below, indicate which element of the fraud triangle is present.(wwwwwwww) Large amounts of cash are on hand.(xxxxxxxx) Management failed to correct ICFR deficiencies in a timely manner.(yyyyyyyy) The organizational structure is complex and lines or self-assurance are unclear.(zzzzzzzz) Future employee layoffs are expected.(aaaaaaaaa) Employee behavior suggests dissatisfaction with the company.(bbbbbbbbb) Restrictions on the auditor limit access to evidence.(ccccccccc) Management attempts to mold the scope of the audit work.(ddddddddd) Industry factors threaten the companys financial stability.(eeeeeeeee) Significant related party transactions are audited by another firm.(fffffffff) The p ersonal financial situation of management is threatened.LO6 Indicate the preferred timing during the audit process for performing each of the following procedures. Explain your choice.(ggggggggg) observing the clients physical inventory(hhhhhhhhh) testing of the operating effectiveness of ICFR(iiiiiiiii) observing the shipment and receipt of inventories(jjjjjjjjj) substantive testing of property and equipment account balances(kkkkkkkkk) roll forward procedures(lllllllll) testing of the design effectiveness of ICFR(mmmmmmmmm) examining adjustment made during the course of preparing the financial statementsLO8 What different audit procedures (forms of evidence) are appropriate for financial statement audits that are not applicable for testing of controls?LO8 For each of the following audit procedures, indicate the type of evidence that is involved.(nnnnnnnnn) reading a gross sales contract(ooooooooo) determining whether a sales bank note is properly included in the sales journal(pp ppppppp) communicating with management about changes in accounting personnel(qqqqqqqqq) watching the cashier perform the daily closing procedures(rrrrrrrrr) verifying the mathematical accuracy of discounts included on the sales invoice(sssssssss) verifying the accuracy of the sales journal by reference work to a supporting shipping document and sales invoice(ttttttttt) receiving verification from an independent third partySuggested Solutions for Test Bank Questions Chapter 6True/FalseTTFFTFTTTFFTTTFTFMultiple ChoiceacdddcbdaccadcabdacbdddaaccdcabcbdacadbacccadbdcadbMatching4,1,6,5,2,3Short-Answer Questions and Exercisesa. Large amounts of cash are on hand. Opportunitiesb. Management failed to correct ICFR deficiencies in a timely manner. military capability/Rationalizationc. The organizational structure is complex and lines or authority are unclear. Opportunitiesd. Future employee layoffs are expected. Incentives/Pressuree. Employee behavior suggests dissatisfaction with the company. Attitude/Rationalizationf. Restrictions on the auditor limit access to evidence. Attitude/Rationalizationg. Management attempts to influence the scope of the audit work. Attitude/Rationalizationh. Industry factors threaten the companys financial stability. Incentives/Pressurei. Significant related party transactions are audited by another firm. Opportunitiesj. The personal financial situation of management is threatened. Incentives/Pressurek. observation of the clients physical inventory should be performed at the end of the clients fiscal year so that the financial statement balances can be verified.l. testing of the operating effectiveness of ICFR should be performed at interim, as internal controls are expected to be operating and subject to evaluation at any point. Also, the interim testing will provide time for the auditor to spend more time on related testing if problems are encountered, and management will have more time to remedy the problem before the end of the fiscal year.m. observation of the shipment and receipt of inventories should be performed at the end of the clients fiscal year so that the auditor can determine that the transactions were recorded in the proper period.n. substantive testing of property and equipment account balances should be performed during the year-end testing figure, as final account balances. However, it is also possible to audit these balances during an interim testing phase and later perform a roll forward to year-end.o. roll forward procedures must be performed during the year-end testing phase, as final account balances are needed in order to evaluate the change during the period from interim testing through the date of the clients fiscal year-end.p. testing of the design effectiveness of ICFR should be performed at interim for efficiency reasons. See b. above.q. examining adjustment made during the course of preparing the financial statements must be performed during year-end testing (after the finan cial statements have been prepared).Both tests of controls and substantive tests of financial statement account balances involve inquiries, inspection of documents, observation of operations, and reperformance of controls. However, the following additional procedures are available for audits of financial statementsi. inspection of tangible assetsii. external confirmationsiii. recalculationsiv. analytical proceduresr. reading a sales contract inspection of documentss. determining whether a sales invoice is properly included in the sales journal inspection of documents tracingt. communicating with management about changes in accounting personnel inquiryu. watching the cashier perform the daily closing procedures observationv. verifying the mathematical accuracy of discounts included on the sales invoice recalculationw. verifying the accuracy of the sales journal by reference to a supporting shipping document and sales invoice inspection of documents vouchingx. receiving verific ation from an independent third party external confirmation