Auditing Theory

Planning an audit involves

I. Establishing the overall audit strategy for the engagement.

II. - Developing an audit plan.

• I only

• II only

• Both I and II

• Neither I nor II

Which of the following activities should be performed by the auditor at the beginning of the current audit engagement?

I. Perform procedures regarding the continuance of the client relationship and the specific audit engagement.

II. Evaluate compliance with relevant ethical requirements, including independence.

III. Establish an understanding of the terms of the engagement.

• I and II only

• II and III only

• I and III only

• I, II, and III

Initial audit planning involves the following matters, except

• Identify the client's reason for the engagement.

• Schedule engagement staff and auditor's experts.

• Develop an overall audit strategy.

• Request that bank balances be confirmed.

• A

• B

• C

• D

Inherent risk is a measure of the auditor's assessment of the possibility that there are material misstatements in an account before considering the effectiveness of the client's internal control.

• True

• False

Which of the following statements concerning audit planning is incorrect?

• Planning is a discrete phase of an audit.

• Planning is a continual and iterative process.

• In a recurring audit, planning often begins shortly after (or in connection with) the completion of the previous audit and continues until the completion of the current audit engagement.

• In planning an audit, the auditor considers the timing of certain planning activities and audit procedures that are to be completed prior to the performance of further audit procedures.

In performing an audit of financial statements, the auditor should obtain a sufficient knowledge of a client's business and industry to

• Develop an attitude of professional skepticism concerning management's financial statement assertions

• Make constructive suggestions concerning improvements to the client's internal control.

• Evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated.

• Understand the events and transactions that may have an effect on the client's financial statements.

Acceptable audit risk is a measure of the auditor's willingness to accept that the financial statements do not contain material misstatements after the audit is completed and a modified opinion has been expressed.

• True

• False

The establishment of·an overall audit strategy involves

I. Determining the characteristics of the engagement that define its scope.

II. Ascertaining the. reporting objectives of the engagement to plan the timing of the audit and the nature of the communications required.

III. Considering the important factors that will determine the focus of the engagement team's efforts.

• I and II only

• II and III only

• I and III only

• I, II, and III

Which of the following should be included in the audit plan?

I. The nature, timing and extent of planned risk assessment procedures.

II. The nature, timing and extent of planned further audit procedures at the assertion level.

• I only

• II only

• Both I and II

• Neither I nor II