Auditing Assurance and Principles

• in what phase is the auditor NOT REQUIRED to perform analytical procedurs?

  substantive tests
• The relationship between control risk and detection risk is ordinarily (Parallel, Inverse, Direct, or Equal)

  Inverse
• Pertains to the attainment of the objective of the engagement

  Audit effectiveness
• Pertains to employing the least amount of resources for the engagement

  Audit Efficiency
• T/F. Audit effectiveness is the primary objective of the auditor in engagement planning which results the utilization of the least amount of resources

  False, Audit Efficiency
• T/F. Audit planning helps the auditor properly organize and manage the audit engagement

  True
• The audit plan sets the scope, timing, and direction of the audit which leads to the establishments of the overall audit strategy

  False
• Inquiry consists of seeking both financial and non-financial information from knowledgeable persons within the entity

  False, within and outside the entity
• For recurring audits, members of the previous year's engagement team are advised to participate in the planning of the current year's audit.

  True
• Audit planning helps in achieving effective and efficient audits which must be completed before the performance of further audit procedures.

  False
• Inherent risk and control risk should be assessed separately.

  True
• Preliminary analytical review is only required for new or unusual business transactions entered by the entity during the period under audit

  False
• Establishing an overall audit strategy and plan for audits of small entities need to be complex but not time-consuming.

  False
• An auditor should design the audit plan so that A. All material transactions will be selected for substantive testing.

  В. Substantive tests prior to the balance sheet date will be minimized

  C. The audit procedures selected will achieve specific, audit objectives

  D. Each account balance will be tested under either tests of controls or tests of transactions.

  C
• In determining the preliminary level of materiality in an audit, the auditor will A. Look to audit standards for specificmateriality guidelines

  B. Increase the level of materiality if fraud is suspectedC. Rely primarily in professional judgment to determine the materiality level

  D. Use the same materiality level as that used-for different clients in the same industry

  C
• In developing the overall audit plan for a new client, factor not to be considered is A. Materiality level

  B. The client's business, including the structure of the organization and accounting system usedC. The amount of estimated audit fee

  D. The audit risks and procedures to be performed to achieve audit objectives

  C
• For an assertion, control risk is the risk that A. A material misstatement will occur in the accounting processB. Controls will not detect a material misstatement that occurs

  C. Audit procedures will fail to detect a weak control system

  D. The prescribed control procedure will not be applied uniformly

  B
• Which of the following is the best definition of detection risk?

   A. The auditor will compute materiality incorrectly

   B. The auditor will fail to detect material misstatements that exist

   C. The auditor will apply more audit procedures than are required in the circumstances

   D. The auditor will fail to modify the audit opinion to financial statements that are materially misstated

  B
• The risk that the audit will fail to uncover a material misstatement is eliminated

   A. If a client has a strong internal control

   B. If a client is not publicly accountable entity

   C. When the auditor has complied with the Philippine Standards on Auditing D. Under no circumstances

  D
• The audit risk model is used primarily

   A. For planning purposes in determining how much evidence to accumulate

   B. To test the effectiveness of controls

   C. To determine the type of opinion to express

   D. To evaluate the evidence which has been gathered

  A
• The risk of material misstatement refers to 

   A. Control risk and acceptable audit risk

   B. Inherent risk

   C. Combination of inherent risk and control risk

   D. Inherent risk and audit risk

  C
• Inherent risk and control risk

   A. Are inversely related to each other

   B. Are inversely related to detection risk

   C. Are directly related to detection risk

   D. Are directly related to audit risk

  B
• Inherent risk and control risk differ from detection risk in that inherent and control risks

   A. Arise from the misapplication of auditing procedures

   B. May be assessed in either quantitative or non-quantitative terms

   C. Exist independently of the financial statement audit

  D. Can be changed at the auditor's discretion

  C
• Which of the following conditions supports an increase in detection risk?

   A. Internal control over cash receipts is excellent 

   B. Application of analytical procedures reveals a significant increase in sales revenue in December, the last month of the fiscal year

   C. Interal control over shipping. billing, and recording of sales is weak

   D. Study of the business reveals that the client recently acquired a new company in an unrelated industry 

  A
• On the basis of the audit evidence gathered and evaluated, an auditor decides to increase the assessed level of control risk from that originally planned. To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor would

   A. Decrease substantive testing

   B. Increase inherent risk

   C. Decrease detection risk

   D. Increase materiality level

  C
• Audit programs are designed to

   A. Ensure that audit work may be completed as of interim date

   B. Gather sufficient and appropriate evidence to support the opinion

  C. Inherent risk may be assessed at a low level

  D. Identify constructive and value-adding suggestions to the client

  B
• The auditor faces o dek that the audit will not detect material misstatements in the financial statements. In regard to minimizing this risk, the auditor primarly relies on:

   A. Substantive procedures

   B. Tests of controls

   C. Interal Control

   D. Statistical Analysis 

  A
• Early appointment of the icuditor will enable

   A. A more thorough examination to be performed.

   B. A proper study and evaluation of internal control to be performed

   C. Sufficient competent evidential matter to be obtained

   D. A more efficient examination to be planned.

  C
• Which of the following is not performed as a part of planning audit engogement?

   A. Reviewing the working papers of the prior year.

   B. Performing analytical procedures

   C. Confirmation of all major accounts

   D. Designing an audit program

  C
• Which of the following is not a potential effect auditor's

  decision that a lower acceptable audit risk is appropriate?

   A. More evidence is required

   B. Less evidence is required 

  C. Special care is required in assigning experienced staff.

  D. Review of audit documentation performed by personnel not assigned to the engagement

  B
• For an assertion, control risk is the risk that

   A. A material misstatement will occur in the accounting process

   B. Controls will not detect a material misstatement that occurs 

   C. Audit procedures will fail to detect a weak control system

   D. The prescribed control procedure will not be applied uniformly

  B