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Exam 13: Overall Audit Strategy and Audit Program

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Question 21

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Which audit tests involve physical examination and confirmation?

A) tests of controls
B) tests of transactions
C) tests of details of balances
D) analytical procedures

E) None of the above
F) B) and D)

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Question 22

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Auditors follow a four-step approach to reduce assessed control risk. Which of the following is not one of the four?

A) Apply transaction-related audit objectives to a class of transactions.
B) Identify accounts that have high inherent risk.
C) Identify key controls that reduce control risk.
D) For potential misstatements, design appropriate substantive tests of transactions.

E) A) and B)
F) A) and C)

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Question 23

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Inherent risk can be extended to individual balance-related audit objectives.

Once set during the planning phase, the audit program cannot be revised.

Tests of controls, either manual or automated, may include the following types of evidence and procedures. Which of these procedures is not the same as those procedures used to obtain an understanding of internal controls?

A medium-sized, nonpublic company has few effective controls and significant inherent risks. The auditor in this situation should emphasize tests of details and balances and substantive tests of transactions; no substantive analytical procedures should be performed in this situation by the auditor.

Substantive tests are procedures designed to test for dollar misstatements that directly affect the correctness of financial statements balances and disclosures. Substantive tests are often called monetary misstatements.

Which of the following audit tests form the basis for an auditor's report on internal control over financial reporting?

Tests of controls provide evidence about the likelihood for misstatements in a client's financial statements.

Which phase(s) of the audit uses inquiries of clients as a type of evidence?

The purpose of tests of controls is to provide reasonable assurance that the

Auditing standards require a written audit program.

Substantive tests are procedures designed to test for dollar misstatements that directly affect the correctness of financial statement balances.

An example of auditor using disaggregated data to increase the precision of the auditor's expectations using substantive analytical procedures in the audit of inventories would be to calculate gross margin by product line, rather than calculating the total gross margin for total sales in the planning stage of the audit.

If the auditor finds extensive control test deviations and significant misstatements while performing substantive tests of transactions and substantive analytical procedures,

There are three stages of the audit in which analytical procedures are performed. Identify each of these three stages and, for each stage, discuss the purpose of performing analytical procedures in that stage. Also indicate in which stage(s) analytical procedures are required by current professional auditing standards.

Which of the following tests commonly occur together?

What type of test is used to obtain the most types of evidence?

Analytical procedures are the most expensive type of audit test to perform because of the expertise and training required to properly use them.

The auditor's understanding of internal control performed as part of risk assessment procedures provides the basis for the auditor's initial assessment of control risk.