Far Eastern University

ACCOUNTING 1.1

Chapter 7: AUDIT PLANNING

1)The development of a general strategy and a detailed approach for the expected nature, timing, and extent of audit refers to:

1. 1. Supervision
   2. Audit procedures
   3. Directing
   4. Planning

2. The auditor should consider the nature, extent, and timing of the work to be performed and should prepare a written audit program for every audit. Which audit standard is most closely related to this requirement?
   1. The audit is to be performed by a person or persons having adequate technical training and proficiency as an auditor.
   2. In all matters relating to the assignment, an independent mental attitude is to be maintained by the auditor(s).
   3. Due professional care is to be exercised in the planning and performance of the audit and preparation of the report.
   4. The work is to be adequately planned and assistants, if any, are to be properly supervised.

3. Which of the following would a successor auditor normally perform after acceptance of an audit client?
   1. Inquiry of predecessor auditor regarding the client.
   2. Review the SEC filings of the client.
   3. Inquiry of bankers regarding the client.
   4. Review of predecessor auditor working papers.

4. The following are related to the auditor’s responsibility to assess the ability of the company to continue as a going concern?

1. The auditor should consider the appropriateness of the management’s use of the going concern assumption in the preparation of the financial statements.

2. The auditor is to consider whether there are material uncertainties about the entity’s ability to continue as a going concern that needs to be disclosed in the financial statements.
3. The absence of any reference to going concern uncertainty in the auditor’s report is viewed as a guarantee as to the entity’s ability to continue as a going concern.

Which of the foregoing inappropriately describe(s) the auditor’s responsibility?

a. I only                b. I and II only                    c. II only               d. III only.

5. Which of the following is required documentation in an audit in accordance with generally accepted auditing standards?
   1. A flowchart or narrative of the information system describing the recording and classification of transactions for financial reporting.
   2. An audit program setting forth in detail the procedures necessary to accomplish the engagement’s objectives.
   3. A planning memorandum establishing the timing of the audit procedures and coordinating the assistance of entity personnel.
   4. An internal control questionnaire identifying policies and procedures that assure specific objectives will be achieved.

6. Which of the following procedures would an auditor most likely perform in planning a financial statement audit?
   1. Inquiring of the client’s legal counsel concerning pending litigation.
   2. Comparing the financial statements to anticipated results.
   3. Examining computer generated exception reports to verify the effectiveness of internal controls.
   4. Searching for unauthorized transactions that may aid in detecting unrecorded liabilities
7. Incremental risk is the increased risk that errors may not be detected at the balance sheet date because:
   1. Audit procedures were performed at an interim date
   2. Inherent risk was assessed too low.
   3. Analytical procedures were not performed.
   4. Detection risk was set too high a level.
8. Audit plan should

9. Which of the following least likely affect the form and content of the overall audit plan?

1. 1. Complexity of the audit engagement.
   2. Methodology and technology used by the auditor.
   3. The entity’s form of business organization.
   4. The size of the entity.

10. The audit program should contain the following, except:

1. Audit objective
2. Time budget for the various audit areas
3. Set of planned audit procedures
4. The combined assessed level of inherent and control risk

11. Which of the following factors is inappropriately relevant to the management’s assessment of the going concern assumption?

1. The degree of uncertainty associated with the outcome of an event or condition decreases significantly the further into the future of judgment being made about the outcome of an event or condition.
2. Any judgment about the future is based on information available at the time at which the judgment is made.
3. The size and complexity of the entity, and the nature and conditions of its business affect the judgment regarding the outcome of events or conditions.
4. Subsequent events can contradict a judgment which was reasonable at the time it was made.

12. The management denied the auditor’s request that the management has to extend its assessment of its going concern ability. However, the auditor’s other procedures are sufficient to assess the appropriateness of management use of the going concern assumption in the preparation of the financial statements. The auditor should issue:

1. Unqualified opinion
2. Unqualified opinion with explanatory paragraph
3. Adverse opinion
4. Disclaimer of opinion

13. To obtain an understanding of a continuing client’s business in planning an audit, an auditor most likely would

1. Perform tests of details of transactions and balances.
2. Review prior-year working papers and the permanent file for the client.
3. Read specialized industry journals.
4. Reevaluate client’s internal control environment.

14. Analytical procedures used in planning an audit should focus on

1. Reducing the scope of tests of controls and substantive tests.
2. Providing assurance that potential material misstatements will be identified.
3. Enhancing the auditor’s understanding of the client’s business.
4. Assessing the adequacy of the available evidential matter.

15. Analytical procedures, which means the analysis of significant ratios and trends including the resulting investigation of fluctuations and relationships that are inconsistent with other relevant information or which deviate from predicted amounts, are not required to be applied

1. At the planning stage of the audit
2. Overall review stage of the audit
3. As substantive procedures
4. None of the above

16. Which of the following statements is correct concerning analytical procedures?

1. Analytical procedures usually involve comparisons of ratios developed from recorded amounts to assertions developed by management.
2. Analytical procedures used in planning an audit generally use data aggregated at a high level.
3. Analytical procedures can replace tests of controls in gathering evidence to support the assessed level of control risk.
4. Analytical procedures are more efficient, but not more effective, than tests of details and transactions.

17. Which of the following is an effective audit planning and control procedures that helps prevent misunderstandings and inefficient use of audit personnel?

1. Make copies, for inclusion in the working papers, of those client supporting documents examined by the auditor.
2. Provide the client with copies of the audit programs to be used during the audit.
3. Arrange a preliminary conference with the client to discuss audit objectives, fees, timing, and other information.
4. Arrange to have the auditor prepare and post any necessary adjusting or reclassification entries prior to final closing.

18. Which of the following is an aspect of scheduling and controlling the audit engagement?

1. Including in the audit program a column for estimated and actual time.
2. Performing audit work only after the client’s books of account have been closed for the period under examination.
3. Writing a conclusion in individual working papers indicating how the results of the audit will affect the auditor’s report.
4. Including in the engagement letter an estimate of the minimum and maximum audit fee.

19. Which of the following is an engagement attribute for an audit of an entity that processes most of its financial data in electronic form without any paper documentation?

1. Discrete phases of planning, interim, and year-end field work.
2. Increased effort to search for evidence of management fraud.
3. Performance of audit tests on a continuous basis.
4. Increased emphasis on the completeness assertion.