Holding other planning considerations equal, a decrease in the amount of misstatements in a class of transactions that an auditor could tolerate most likely would cause the auditor to:
Answer(s): B
Choice "b" is correct. A decrease in the amount of misstatements that the auditor can tolerate will cause the auditor to modify the nature, timing and/or extent of auditing procedures. Performing the planned procedures closer to the balance sheet date is a timing modification that addresses this change.Choice "a" is incorrect. The auditor would perform substantive procedures before year-end if the amount of misstatements the auditor could tolerate were increased. The earlier in the year that the auditor performs substantive testing, the greater the incremental risk the auditor accepts regarding the year-end financial statements.Choice "c" is incorrect. A change in the level of tolerable misstatement does not have a direct effect on the assessed level of control risk.Choice "d" is incorrect. A decrease in the amount of misstatements that can be tolerated would necessitate an increase in the extent of auditing procedures.
When issuing an unqualified opinion, the auditor who evaluates the audit findings should be satisfied that the:
Choice "b" is correct. An unqualified opinion states that the financial statements are presented fairly, in all material respects. Accordingly, if the auditor believes that total misstatement (including both known and likely misstatements) is immaterial, an unqualified opinion is appropriate. Choice "a" is incorrect. Documenting misstatements in the management representation letter is not required, nor would it eliminate the need to modify the opinion if the known misstatements were material.Choice "c" is incorrect. Even if the client adjusts the financial statements to correct known misstatements, the auditor still must feel comfortable that any remaining unidentified misstatements would not be material to the financial statements before rendering an unqualified opinion.Choice "d" is incorrect. An auditor is not concerned with misstatements already corrected by the client. It is the auditor's estimate of uncorrected--and perhaps unknown--errors that affects the type of opinion rendered.
Which of the following procedures would an auditor most likely include in the planning phase of a financial statement audit?
Answer(s): A
Choice "a" is correct. In all audits, the auditor should obtain a sufficient understanding of each of the five components of internal control in order to properly plan the audit. The entity's risk assessment process is one of the five components of internal control. Choice "b" is incorrect. Identification and testing of specific control activities generally occurs during the performance of the audit.Choice "c" is incorrect. Evaluating the reasonableness of accounting estimates generally occurs during the performance of the audit.Choice "d" is incorrect. Cutoff testing of sales and purchases generally occurs during the performance of the audit.
In designing a written audit plan, an auditor should establish specific audit objectives that relate primarily to the:
Answer(s): D
Choice "d" is correct. In designing a written audit plan, an auditor should establish specific audit objectives that relate primarily to the financial statement assertions. Choice "a" is incorrect. Although the timing of audit procedures is an important consideration in designing a written audit plan, obtaining audit evidence relating to the financial statement assertions is the primary objective.Choice "b" is incorrect. The cost-benefit of gathering evidence is an important consideration in establishing a written audit plan, but audit objectives are not based on such considerations. Choice "c" is incorrect. The specific audit objectives should relate primarily to financial statement assertions. Selected audit techniques are then developed in order to meet the identified objectives.
Which of the following is not a type of financial statement assertion?
Choice "b" is correct. "Fairness and accuracy" is not a type of financial statement assertion. Choices "a", "c", and "d" are incorrect. The assertions include:Rights and obligationsValuation and allocationUnderstandability and classification
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