Audit Planning And Risk Assessment Accounting Essay

Audit Planning And Risk Assessment Accounting EssayChapter 6LO1 The scrutinize plan documents detailed schooling around take stock procedures to be per dusted on the dispute.TLO2 Scaling the study refers to fitting the analyse employ into the halal stage setting in terms of the interlocks size, environment, and complexity.TLO2 Statutory scrutinises are claimd on all integrated examines performed in accordance with international answer foring standards.FLO2 An examine plan result be the same regardless of whether the lymph node comp either outsources its financial activities to a service provider or conducts the activities in house.FLO3 corporality is a measure of magnitude yet, it is affected by both quantitative and qualitative factors.TLO3 Materiality is first set at the poster eternal sleep level and is then aggregated to the financial statement level.FLO4 The components of the fraud triangle include incentive, opportunity, and rationalization.TLO5 A customer companys refreshed or special story information system requires more analyse effort to understand the new system and assess its design and operating forte.TLO5 An visit outline will focus on going concern issues for a client company operating in an industry which has experienced a recent market place downturn.TLO6 Computers are the primary resources used on an inspect.FLO6 A highly effective audit would withdraw all of its interrogatory performed at an stave date.FLO7 An IT specialist may be used to inspect systems documentation and perform other procedures for an audit engagement when the client company uses new, emerging technology.TLO7 Preliminary duration budget information is compared to actual snip worked and is used for purposes of billing, performance evaluation, and future bidding.TLO8 Auditors test the operating effectivity of those bears that are mean to resist and detect material misstatements.TLO8 Tracing refers to looking at the supporting documenta tion for a recorded number.FApp.A A principal hearer may share responsibility for an audit thinking when another auditor performs all of the audit procedures for subsidiary of the client company.TApp.A For report cards that involve significant estimates, require a high degree of judgment, or are susceptible to management override of controls, a principal auditor may completely rely on the work of others in determining whether those accounts are materially misstated.FMultiple ChoiceLO1 Planning is a continuous lick that moldiness occur passim the audit engagement because(a) discon self-coloureding information is promising to arise.(b) the audit commissioning is likely to point out flaws in the original audit plan.(c) all information affecting the audit occurs concurrently.(d) auditor skill levels are continuously fluctuating.ALO1 Development of the audit strategy includes all of the following(a) activities except(e) specifying the work that has to be performed.(f) specifying the clock of the work to be performed.(g) documenting an audit planning memorandarandum.(h) defining initial estimates of audit luck and corporality.CRisk assessment points the auditor to the important 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) stipulate what needs to be accomplished during the audit.(l) all of the higher upDLO1,2 Which of the following is not a consideration for an auditor while scaling the audit?(m) The client company has six-fold locations throughout the region.(n) Another firm is responsible 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 within the next two years.DLO2 An experienced audit team w ill begin planning the audit before it knows 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 bring already gained quite a bit of information from the client acceptance or continuance processes.(t) all of the aboveDLO2 Scaling the audit refers to(u) measure 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) time of the auditors acceptance of the client company.(z) products and service s 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) presentation 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 inside auditors.(ff) timing of the clients financial year-end.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 internal auditors perform work to be used as evidence by the external auditors.(ii) when a substance abuser 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 internal control that is ineffective to the extent that it powerfulness not prevent the financial statements from being materially misstated is referred to as a(kk) significant risk(ll) substantive error(mm) material weakness(nn) tolerable misstatementCLO3 Which of the following would not be an captivate 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 balance or class of proceedings 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 have(ww) appropriate knowledge of business and economic activities(xx) an understanding that financial statements are prepared and audited to levels of materiality(yy) the ability to make appropriate economic decisions on the basis of informati on 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 do in the end-of- layover financial reporting process(bbb) related party transactions(ccc) auditor credentials (ddd) significant management estimatesCLO4 An example of an incentive/ contract for fraudulent 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 same 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 conference of the companys ethical standards by management.ALO4 An example of an opportunity for misappropriation of assets risk factor is(iii) compensation inconsistent with expectations.(jjj) lack of complete and timely reconciliations of assets.(kkk) managements practice of committing to creditors to procure unrealistic forecasts.(lll) known history of violations of laws and regulations.BLO5 meaning(a) developments within the client that affect audit strategy include(mmm) A change in self-possession and/or capital coordinate has occurred.(nnn) Acquisitions or discontinue operations have recently occurred.(ooo) The accounting information systems have been modified.(ppp) All of the aboveDLO5 Significant developments in the clients external 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 impacted t he 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 reviewing 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 obtain information about a client company during other engagements conducted for the client such(prenominal) as(gggg) audi ts of a subsidiary or other related party entity.(hhhh) reviews of quarterly financial statements filed with the SEC.(iiii) examinations of information included in a readjustment statement.(jjjj) All of the aboveDLO6 Which of the following would not be likely to participate in an audit planning come across?(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 communicate 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 be by the entire core engagement team and the predecessor 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 instruction 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 year audit findings.(ppppp) all of the aboveALO6 It is important for auditors to be on-location on the last twenty-four hours of the clients fiscal year when the client(qqqqq) operates a restaurant that does a considerable amount of business on New Years Eve.(rrrrr) has significant inventory activities such that the receipts and shipments of inventories at year-end should be observed.(sssss) relies upon electronic verification 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 place 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) Most 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 a t an interim date, adjuvant 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 accuracy of the year-end balances.(dddddd) perform roll forward audit procedures to determine whether a control continued to perform the same way through year-end.(eeeeee) reconcile 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 accountantLO7 An IT specialist may be conglomerate 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 applicable 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 budgets for(ssssss) indicating the amount of time judge for the various leve ls of auditors for each audit area.(tttttt) tracking 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 scarcely 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 companys audit committee.(ggggggg) material misstatements in the client comp anys 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) dubiousnessLO7 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 may be provided without examining all of the transactions in an a ccount balance is the auditor uses well-designed(qqqqqqq) sampling approaches(rrrrrrr) internal control procedures(sssssss) inspection 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 suggest 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, contemplation, and inspection are all used to trace a transaction as it is initiated, authorized, processed, and recorded, the process is called a(n)(yyyyyyy) inspection(zzzzzzz) walkthrough(aaaaaaaa) assertion(bbbbbbbb) 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 nonparasitic auditor who has performed a significant component of the audit work.(llllllll) the clients internal audit staff, if they provide significant assistance 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 performing a portion of the audit wor k?(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 division 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 address ing controls___ Investigate 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 broker 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 authority 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 influence the scope of the audit work.(ddddddddd) Industry factors menace the companys financial stability.(eeeeeeeee) Significant related party transactions are audited by another firm.(fffffffff) The personal financial situation of management is thr eatened.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 material a gross sales contract(ooooooooo) determining whether a sales account statement is properly included in the sales journal(ppppppppp) communicating with man agement about changes in accounting personnel(qqqqqqqqq) watching the cashier perform the daily termination procedures(rrrrrrrrr) verifying the mathematical accuracy of discounts included on the sales invoice(sssssssss) verifying the accuracy of the sales journal by reference to a supporting shipping document and sales invoice(ttttttttt) receiving verification from an independent terzetto 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. perspective/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 th e 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 phase, 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 financial statements have been prepared).Bo th 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 literal 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 verification from an independent third party external confirmation