Analytical procedures used in planning an audit should focus on:
Answer(s): C
Choice "c" is correct. The purpose of applying analytical procedures in planning the audit is to assist in planning the nature, timing, and extent of auditing procedures that will be used to obtain audit evidence for specific account balances or classes of transactions. To accomplish this, the analytical procedures used in planning the audit should focus on (a) enhancing the auditor's understanding of the client's business and the transactions and events that have occurred since the last audit date, and (b) identifying areas that may represent specific risks relevant to the audit. Choice "a" is incorrect. Analytical procedures to assess the adequacy of evidence would be used in the final review stage.Choice "b" is incorrect. Testing individual account balances that depend on accounting estimates would be a substantive application of analytical procedures and would not be used in the planning stages of an audit.Choice "d" is incorrect. Analytical procedures are generally not useful in detecting material weaknesses in the client's internal control.
For which of the following judgments may an independent auditor share responsibility with an entity's internal auditor who is assessed to be both competent and objective?
Choice "c" is correct. Because the auditor has the ultimate responsibility to express an opinion on the financial statements, judgments about assessments of risk, the materiality of misstatements, the sufficiency of tests performed, the evaluation of significant accounting estimates, and other matters affecting the auditor's report should always be those of the auditor. Choices "a", "b", and "d" are incorrect, based on the above explanation.
Which of the following procedures would an auditor least likely perform in planning a financial statement audit?
Choice "c" is correct. Selecting a sample of vendors' invoices for comparison to receiving reports is performed during fieldwork. This is not part of the planning phase. Choice "a" is incorrect. Coordinating the assistance of entity personnel in data preparation is usually performed during the planning phase.Choice "b" is incorrect. During the planning phase, matters that may affect the audit should be discussed with firm personnel responsible for non-audit services to the entity. Choice "d" is incorrect. During the planning phase, the auditor generally would read the current year's interim financial statements.
When assessing an internal auditor's competence, a CPA ordinarily obtains information about all of the following, except:
Answer(s): D
Choice "d" is correct. The degree of access the independent auditor has to information about related parties provides no information regarding an internal auditor's competence. Choice "a" is incorrect. In evaluating the work of internal auditors, the independent auditor should examine, on a test basis, documentary evidence of the work performed by internal auditors and should consider such factors as whether the scope of the work is appropriate, the audit plan is adequate, audit documentation adequately documents work performed, conclusions reached are appropriate in the circumstances, and any reports prepared are consistent with the results of the work performed.Choice "b" is incorrect. When considering the competence of internal auditors, the independent auditor should inquire about the qualifications of the internal audit staff, including for example, consideration of the client's practices for hiring, training, and supervising internal audit staff. This includes inquiries as to the internal auditor's educational level and professional experience. Choice "c" is incorrect. In evaluating the work of internal auditors, the independent auditor should examine, on a test basis, documentary evidence of the work performed by internal auditors and should consider such factors as whether the scope of the work is appropriate, the audit plan is adequate, audit documentation adequately documents work performed, conclusions reached are appropriate in the circumstances, and any reports prepared are consistent with the results of the work performed.
When an auditor increases the assessed level of control risk because certain control activities were determined to be ineffective, the auditor most likely would increase the:
Answer(s): B
Choice "b" is correct. An increase in the assessed level of control risk means that the assessed risk of material misstatement has also increased, and this requires a corresponding decrease in detection risk to maintain the same (presumably low) level of overall audit risk. Increasing the extent of tests of details will result in a reduction in detection risk.Choice "a" is incorrect. Increasing detection risk would result in a corresponding increase in overall audit risk, which is the opposite of the desired response. Choice "c" is incorrect. The auditor cannot change the level of inherent risk, which is based on the nature of the related assertion.Choice "d" is incorrect. If the auditor has already determined that certain control activities are ineffective, increasing the extent of those tests is not likely to be helpful. The auditor needs to find a way to compensate for the increased level of risk in order to keep overall audit risk to a low level.
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