Which of the following statements is incorrect about audit planning documentation

Since 1977

AUDITING THEORY AT.1808-Audit Planning-An Overview

MAY 2015

LECTURE NOTES Audit Planning The auditor plans the audit so that it will be performed in an effective manner, i.e., to gain reasonable assurance that the FSs are free from material misstatement. Audit planning involves:  establishing the overall audit strategy (a general strategy) for the engagement; and  developing an audit plan (a detailed approach for the expected nature, timing and extent of the audit), in order to reduce audit risk (i.e., the chance that audit opinion is inappropriate) to an acceptably low level.

Benefits of Audit Planning      

Appropriate attention to important areas of the audit. Identify and resolve potential problems on a timely basis. Organize and manage the audit engagement so that it is performed in an effective and efficient manner. Assist in the proper selection of engagement team members and the assignment of work to them. Facilitate the direction and supervision of engagement team members and the review of their work. Assist, where applicable, in coordination of work done by auditors of components and experts.

Audit Planning and Risks Assessment Activities

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Planning is not a discrete phase of an audit, but rather a continual and iterative process. Planning, however, includes consideration of the timing of certain activities and audit procedures that need to be completed prior to the performance of further audit procedures (i.e., tests of controls and substantive procedures).

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The following are the planning activities or procedures:  Determining of materiality;  Performing risks audit procedures (RAP), including analytical procedures, to understand the entity and its environment, including the entity’s internal control;  Identifying material classes of transactions, account balances and disclosures;  Identifying and assessing the risks of material misstatements of the financial statements; and  Finally, preparing the outputs of audit planning – overall audit strategy and audit plan – containing the auditor’s responses to the identified risks. The nature and extent of the above planning activities will vary according to:  the size and complexity of the entity;  the key engagement team members’ previous experience with the entity; and  the changes in circumstances that occur during the audit engagement. Involvement of Key Engagement Team Members https://www.coursehero.com/file/14402589/AT1808-Audit-Planning/

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Results of Preliminary Engagement Activities Please refer to the last topic “AT.1507” for the list of preliminary engagement activities. The results of preliminary engagement activities:  assist the auditor in identifying and evaluating events or circumstances that may adversely affect the auditor’s ability to plan and perform the audit engagement.  enables the auditor to plan an audit engagement for which, for example: o The auditor maintains the necessary independence and ability to perform the engagement. o There are no issues with management integrity that may affect the auditor’s willingness to continue the engagement. o There is no misunderstanding with the client as to the terms of the engagement.

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Main outputs of audit planning:  The overall audit strategy or audit planning memorandum  The audit plan or audit programs or audit completion checklists

The engagement partner and other key members of the engagement team shall be involved in planning the audit, including planning and participating in the discussion among engagement team members, to draw on their experience and insight, thereby enhancing the effectiveness and efficiency of the planning process.

In an initial audit, the auditor may need to expand the planning activities because the auditor does not ordinarily have the previous experience with the entity than when planning recurring engagements. For an initial audit engagement, additional matters the auditor may consider in establishing the overall audit strategy and audit plan include the following:  Arrangements to review the predecessor auditor’s working papers.  Any major issues (including the application of accounting principles or of auditing and reporting standards).  The audit procedures necessary to obtain sufficient appropriate audit evidence regarding opening balances.  Other procedures required by the firm’s system of quality control for initial audit engagements. Overall Audit Strategy

Overall audit strategy (formerly known as “Audit Planning Memorandum”) sets the scope, timing, and direction of the audit, and guides the development of the audit plan. In establishing the overall audit strategy, the auditor is required to: a. Identify the characteristics of the engagement that define its scope b. Ascertain the reporting objectives of the engagement to plan the timing of the audit and the nature of the communications required c. Consider the factors that, in our professional judgment, are significant in directing the engagement team’s efforts d. Consider the results of preliminary engagement activities and, where applicable, whether knowledge gained on other engagements performed by the engagement partner for the entity is relevant

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Ascertain the nature, timing and extent of resources necessary to perform the engagement.

Characteristics that define the Scope of Engagement  The applicable FRF  Industry-specific reporting requirements  The expected audit coverage  The work of internal auditors  The entity’s use of service organizations  The effect of information technology  The availability of client personnel and data.

The auditor shall document audit plan recording the planned nature, timing and extent of risk assessment procedures and further audit procedures (tests of controls and substantive procedures) at the assertion level in response to the assessed risks. The auditor may use standard (pre-printed) audit programs, tailored as needed. Audit program is a list of procedures used to gather sufficient appropriate audit evidence. It serves as a set of instructions to staff involved in the audit and as a means to control and record the proper execution of the work. Traditionally, the two types of audit programs only pertain to further audit procedures (RAP), i.e., for test of controls and substantive procedures, are: a. Compliance test audit programs – this is prepared when performing tests of controls, i.e., when the auditor plans to rely on internal control that was deemed to be preliminarily effective. b. Substantive test audit program – this is prepared when the auditor will perform substantive procedures for each material class of transactions, account balance, and disclosure.

Significant Factors, Preliminary Engagement Activities, and Knowledge Gained on Other Engagements  The determination of materiality and identification of material classes of transactions, account balances and disclosures  Preliminary identification of risk areas  The impact of the assessed ROMM at the FSs level  Exercise of professional skepticism  Internal control of the entity  Significant business developments and the industry  Legal and regulatory development and framework

Audit program (audit plan) for risks assessment procedures is normally prepared in a separate documentation.

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Reporting Objectives, Timing of the Audit, and Nature of Communications  The entity’s timetable for reporting  Meetings with management and TCWG to discuss the nature, timing and extent of the audit work.  The discussion with management and TCWG regarding the expected type and timing of reports to be issued and other communications, both written and oral, including the auditor’s report, management letters and communications to TCWG; and regarding the expected communications on the status of audit work throughout the engagement.  Communication with auditors of components.  Communications among engagement team members, including the nature and timing of team meetings and timing of the review of work performed.  Any other expected communications with third parties, including any statutory or contractual reporting responsibilities arising from the audit.

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Nature, Timing and Extent of Necessary Resources  The selection of the engagement team (including, where necessary, the engagement quality control reviewer) and the assignment of audit.  Engagement budgeting and timetable. The auditor shall document the overall audit strategy commonly in the form of a memorandum.

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Audit Plan

Audit plan (a.k.a., “audit program or audit completion checklist”) is more detailed than the overall audit strategy in that it includes the nature, timing and extent of audit procedures to be performed by engagement team members required to implement the overall audit strategy into a comprehensive description of the work to be performed. The auditor shall develop an audit plan that shall include a description of: a. The nature, timing, and extent of planned risk assessment procedures (RAP) b. The nature, timing, and extent of planned further audit procedures (FAP), which include tests of controls and substantive procedures, at the assertion level c. Other planned audit procedures that are required to be carried out

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Thus, the timing of preparing audit programs depend on the following circumstances:  Initial audit – prepared until the completion of review and documentation of the entity’s internal control.  Continuing audit – can be prepared in advance of testing, since the auditor has prior knowledge of the entity’s internal control and previous risks assessment.

Changes to Planning Decisions during the Course of the Audit The auditor shall update and change the overall audit strategy and the audit plan as necessary during the course of the audit. The establishment of the overall audit strategy and the detailed audit plan are not necessarily discrete or sequential processes, but are closely inter-related since changes in one may result in consequential changes to the other. Other Planning Considerations

Other planning considerations made by the auditor include the following:  Seeking assistance from the entity  Considering the work perform by others  Ensuring direction, supervision and review throughout the audit. Entity Assistance to the Auditor The auditor may decide to discuss elements of planning with the entity’s management to facilitate the conduct and management of the audit engagement (for example, to coordinate some of the planned audit procedures with the work of the entity's personnel), but not so detailed to compromise the effectiveness of the audit or making the audit procedures too predictable. Consideration of the Work Performed by Others Considering work of others in an audit involved the following:  Relevance of the work of internal auditors  Need for the work of experts (specialist)

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AT.1807

PRTC BIÑAN CENTER – HOTLINE (CONTACT) NUMBERS (0917) 849-4189 

Work of component auditors in a group financial statements audit

Work of Internal Auditors Internal auditing is an appraisal activity established within an entity as a service to the entity. The work of internal auditors assists the external auditor in planning and performing an effective audit. Considering the work of internal auditors involve the following two phases:  Preliminary assessment of client’s internal auditing function  Evaluation and testing the work of internal auditing function

The table below summarizes the external auditor’s responses depending in the result of assessment: Result Response Rely on the work of Evaluate and test the internal internal auditor auditor’s work to confirm its adequacy for external audit Not relying on the work Need not evaluate and test the of internal auditor internal auditor’s work

The external auditor may request assistance from internal auditors in performing routine or mechanical audit procedures provided the external auditor supervises and reviews internal auditors work

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The use of internal auditor’s work does not change the external auditor’s responsibility for audit opinion; thus, no reference is made in audit report Work of Experts (Specialist)

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Employed by the auditor.

The auditor considers the following when using the work (assistance) of an expert:  Materiality of an item being considered  Risk of misstatement (nature and complexity)  Quality and quantity of other audit evidence available When using the work of an expert, the auditor should assess and evaluate the expert’s  Professional competence – Professional qualification, experience and reputation  Objectivity – expert’s relationship to the entity  Scope of work – objective and source of data (inputs), methods, models and assumptions used by the expert After the above assessment and evaluation of the expert, the external auditor shall test whether or not the result of work of expert is consistent with auditor’s knowledge. The external auditor may rely on the work of the expert if deemed consistent. Otherwise, the inconsistency must be resolved first before reliance can be made. Work of Component Auditors

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Preliminary assessment of internal auditing function includes determining whether or not internal audit function appears relevant to specific areas of financial statements audit. When the internal audit function appears relevant, external auditors shall consider the internal auditor’s:  Competence – professional qualifications and experience  Objectivity (organizational status) – line of reporting results of internal audit normally directly to BOD’s audit committee  Due professional care – planning, supervision and documentation of work  Scope of function – nature and extent of work

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Direction, Supervision and Review

The auditor shall plan the nature, timing and extent of direction and supervision of engagement team members and the review of their work.

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Expert or specialist refers to a person or firm possessing special skill, knowledge and experience in a particular field other than accounting and auditing. An expert may be  Engaged by the entity;  Engaged by the auditor;  Employed by the entity; or

Key definitions  Group financial statements – Financial statements that include the financial information of more than one component.  Component – An entity or business activity for which group or component management prepares financial information that should be included in the group financial statements.  Group engagement team – Partners, including the group engagement partner, and staff who establish the overall group audit strategy, communicate with component auditors, perform work on the consolidation process, and evaluate the conclusions drawn from the audit evidence as the basis for forming an opinion on the group financial statements.  Group engagement partner – The partner or other person in the firm who is responsible for the group audit engagement and its performance, and for the auditor’s report on the group financial statements that is issued on behalf of the firm.  Component auditor – An auditor who, at the request of the group engagement team, performs work on financial information related to a component for the group audit.

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MULTIPLE CHOICE Audit Planning 1. This involves establishing the overall audit strategy for the engagement and developing an audit plan, in order to reduce audit risk to an acceptably low level. a. Audit procedures c. Audit program b. Audit planning d. Audit working papers

audit procedures to be performed by engagement team members in order to obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level. a. True, True c. False, False b. True, False d. False, True

2. The overall audit strategy sets the scope, timing and direction of the audit, and guides the development of the more detailed audit plan.

3. The overall audit strategy should be updated and changed as necessary during the course of the audit.

The audit plan is more detailed than the overall audit strategy and includes the nature, timing and extent of https://www.coursehero.com/file/14402589/AT1808-Audit-Planning/

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The overall audit plan should be updated and changed as necessary during the course of the audit. a. True, True c. False, False

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AT.1807

EXCEL PROFESSIONAL SERVICES, INC. b.

False, True

d. True, False

c.

4. In planning an audit engagement, the auditor is required to develop and document a(an) I. Overall Audit Plan II. Flowchart III. Overall Audit Strategy a. Both II and III c. Both I and III b. Both I and II d. I, II and III 5. The nature and extent of planning will vary according the following, except a. Size of the auditing firm b. Complexity of the entity c. Auditor’s experience with the entity d. Changes in circumstances that occur during the audit engagement appropriate c. Yes

d. Yes

No

No

No

Yes

7. Which of the following is not one of the three main reasons why the auditor should properly plan engagements? a. To enable proper on-the-job training of employees. b. To enable the auditor to obtain sufficient appropriate evidence. c. To avoid misunderstandings with the client. d. To help keep audit costs reasonable. 8. Overall audit plan should a Precede action Yes Be flexible Yes Be cost beneficial Yes

b No No Yes

c Yes Yes No

d No Yes Yes

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Overall Audit Strategy 9. The following are the matters to be considered by the auditor in establishing the overall audit strategy, except a. Defining the scope of the examination b. Assess risk and materiality c. Computation of audit fees d. Ascertaining the reporting objectives of the engagement

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10. In developing the overall audit strategy for a new client, factor not be considered is: a. The terms of the engagement and any statutory responsibilities. b. The client’s business, including the structure of the organization and accounting system used. c. The specific procedures to be performed to gather audit evidence. d. The audit risk, and procedures to be performed to achieve audit objectives.

Audit Plan 11. The audit plan includes: a. a description of the nature, timing and extent of planned risk assessment procedures sufficient to assess the risk of material misstatement b. a description of the nature, timing and extent of planned further audit procedures at the assertion level for each material class of transactions, account balances and disclosures

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12. A listing of all the things which the auditor will do to gather sufficient, competent evidence is the: a. Audit strategy b. Audit program c. Audit procedure d. Audit risk model 13. Which item would not be contained in an audit program? a. Staff assigned to the audit. b. List of specific procedures (tasks) to be performed and the objectives to be met that relate primarily to financial statements assertions. c. Documentation of system being reviewed. d. Estimated time required to perform each task. 14. Those procedures specifically outlined in an audit program are primarily designed to a. Gather evidence. b. Detect errors or irregularities. c. Test internal systems. d. Protect the auditor in the event of litigation

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Benefit of Audit Planning 6. Adequate audit planning helps ensure that attention is devoted: a. b. To important areas of the audit Yes Yes So that potential problems are promptly identified and resolved Yes Yes So that the work is performed in an effective and efficient manner No Yes

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Other planned audit procedures that are required to be carried out so that the engagement complies with our audit approach All of the above

15. An audit should design the written audit program so that a. all material transactions will be selected for substantive testing. b. substantive tests prior to the balance sheet date will be minimized. c. the audit procedures selected will achieve specific objectives. d. each account balance will be tested under either tests of controls or tests of transactions. 16. The audit program usually cannot be finalized until the a. consideration of the entity’s internal control structure has been completed. b. engagement letter has been signed by the auditor and the client. c. reportable conditions have been communicated to the audit committee of the board of directors. d. search for unrecorded liabilities has been performed and documented. Audit Planning Activities 17. Which of the following parties would normally attend a planning meeting held before the beginning of an audit engagement to discuss relevant client information and the audit approach to be taken in performing the engagement? a. Engagement partner and the client’s chief financial officer b. Engagement partner and audit manager c. Engagement partner, audit manager, and senior auditor d. Engagement partner, audit manager, senior auditor, and junior audit staff members 18. Which of the following would be least likely to be considered an audit planning procedure? a. Use an engagement letter. b. Develop the overall audit strategy. c. Perform risk assessment. d. Develop the audit plan. 19. In planning an examination, the auditor would consider all of the following matters, except a. Anticipated reliance on internal controls. b. Preliminary judgment about materiality levels for audit purposes. c. Financial statement items likely to require adjustment.

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AT.1808

EXCEL PROFESSIONAL SERVICES, INC. d.

The kind of opinion (unqualified, qualified, disclaimer, or adverse), likely to be given.

20. Which of the following is not typically included in initial audit planning? a. Client acceptance/continuation decisions. b. Determination of the purpose of the audit. c. Obtain an understanding with the client. d. Perform analytical procedures as substantive tests. 21. A CPA is conducting the first examination of a client’s financial statements. The CPA hopes to reduce the audit work by consulting with the predecessor auditor and reviewing the predecessor’s working papers. This procedure is a. Acceptable if the CPA refers in the audit report the reliance upon the predecessor auditor’s work. b. Required if the CPA is to render an unqualified opinion. c. Acceptable if the client and the predecessor auditor agree to it. d. Unacceptable because the CPA should bring an independent viewpoint to a new engagement.

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Other Planning Considerations Entity Assistance to the Auditor 23. Which of the following is an effective audit planning procedure that helps prevent misunderstandings and inefficient use of audit personnel? a. Arrange to make copies, for inclusion in the audit files, of those client supporting documents examined by the auditor. b. Arrange to provide the client with copies of the audit programs to be used during the audit. c. Arrange a preliminary conference with the client to discuss audit objectives, fees, timing, and other information. d. Arrange to have the auditor prepare and post any necessary adjusting or reclassification entries prior to final closing.

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Work of Internal Auditor 24. Which of the following is most correct regarding external auditors use of internal auditors directly on the audit engagement? a. Discourage b. Prohibit c. Encourage d. Permit 25. The scope and objectives of internal auditing vary widely and depend on the size and structure of the entity and the requirements of its management (engagement objectives). Ordinarily, internal auditing activities include one or more of the following, except a. Review of the economy, efficiency and effectiveness of operations including non-financial controls of an entity. b. Review of compliance with laws, regulations and other external requirements and with management policies and directives and other internal requirements. c. Examination of financial and operating information including review of the means to identify, measure, https://www.coursehero.com/file/14402589/AT1808-Audit-Planning/

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26. The independent auditor should acquire an understanding of a client’s internal audit function to determine whether the work of internal auditors will be a factor in determining the nature, timing and extent of the independent auditor’s procedures. The work performed by internal auditors might be such a factor when the internal auditor’s work includes a. Verification of the mathematical accuracy of invoices b. Review of administrative practices to improve efficiency and achieve management objectives c. Study and evaluation of internal accounting control d. Preparation of internal financial reports for management purposes/ 27. The work of internal auditors may affect the independent’s auditor’s I. Procedures performed in obtaining an understanding of internal control II. Procedures performed in assessing the risk of material misstatement III. Substantive procedures performed in gathering direct evidence a. I and III only b. I and II only c. II and III only d. I, II and III

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22. An initial audit requires more audit time to complete than a recurring audit. One of the reasons for this is that a. new auditors are usually assigned to an initial audit. b. predecessor auditors need to be consumed. c. the client's business, industry and internal control are unfamiliar to the auditor and need to be carefully studied. d. a larger proportion of customer accounts receivable need to be confirmed on an initial audit.

d.

classify and report such information and specific inquiry into individual items including detailed testing of transactions and recommending improvements thereto. Establishment of adequate accounting and internal control systems.

28. Which of the following statements in relation to the preliminary assessment of internal auditing is false? a. During the course of planning the audit, the external auditor should perform a preliminary assessment of the internal audit function when it appears that internal auditing is relevant to the external audit of the financial statements in specific audit areas. b. The external auditor should obtain a sufficient understanding of internal audit activities to assist in planning the audit and developing an effective audit approach. c. Effective internal auditing will often allow a modification in the nature, timing, reduction in the extent and even eliminate in its entire some procedures performed by the external auditor. d. In some cases, after having considered the activities of internal auditing, the external auditor may decide that internal auditing will have no effect on external audit procedures. 29. To assess the objectivity of the internal auditors, an independent auditor would most likely a. Consider the professional qualifications and experience of the internal auditors. b. Consider the proper planning, supervision and documentation of internal auditor’s work. c. Consider the nature and extent of the internal auditors’ assignment. d. Consider the organizational level to which the internal auditors report the results of their work. 30. To maximize independence, the internal should report to the a. Audit committee of the board of directors b. CEO/President c. Controller d. Chief Financial Officer

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31. To operate effectively, an internal auditor must be independent of

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AT.1808

EXCEL PROFESSIONAL SERVICES, INC. a. b. c.

The entity The audit committee of the board of directors The employer-employee relationship which exists for other employees The line functions of the organization

II. Experience and reputation in the field in which the auditor is seeking audit evidence. III. Relationship to the entity. a. I, II, III c. I and III b. I and II d. III only

32. Which of the following in relation to the relationship between internal auditing and the external auditor is false? a. All judgments relating to the audit of the financial statements are those of the external auditor. b. Internal auditors should exercise the same degree of independence as required of the external auditor. c. The role of internal auditing is determined by management and its objectives differ from those of the external auditor who is appointed to report independently on the financial statements. d. The external auditor has the sole responsibility for the audit opinion expressed and that responsibility is not reduced by any use mane of internal auditing.

36. The risk that an expert’s objectivity will be impaired increases when the expert is related in some other manner to the entity (e.g., by being financially dependent upon or having an investment in the entity) and the expert is a. Engaged by the entity b. Employed by the entity c. Engaged by the auditor d. Employed by the auditor

d.

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33. 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? a. b. c. d. Materiality of misstatements Yes No No Yes Evaluation of accounting estimates No Yes No Yes

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Work of Expert 34. Which statement is incorrect regarding the auditor’s use of the work of an expert? a. When using the work performed by an expert, the auditor should obtain sufficient appropriate audit evidence that such work is adequate for the purposes of the audit. b. “Expert” means a person or firm possessing special skill, knowledge and experience in a particular field other than accounting and auditing. c. The auditor's education and experience enable the auditor to be knowledgeable about business matters in general, but the auditor is not expected to have the expertise of a person trained for or qualified to engage in the practice of another profession or occupation. d. When the auditor uses the work of an expert employed by the auditor, that work is used in the employee's capacity as an assistant on the audit.

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37. Each of the following procedures requires the assistance of an expert, except a. Determining the physical condition or quantity of underground mineral. b. Determining the value of works of art. c. Determining the adequacy of disclosure in the notes to the financial statements. d. Interpreting major contracts.

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35. When planning to use the work of an expert, the auditor should assess the objectivity of the expert. This will involve considering the expert's: I. Professional certification or licensing by, or membership in, an appropriate professional body.

38. During an audit, the auditor may need the assistance of an expert in obtaining sufficient appropriate evidence. A common example is a. Determining the sufficiency and appropriateness of evidential matter obtained. b. Evaluating the potential financial statements effect of an employee fraud. c. Evaluating the integrity of management. d. Determination of amounts using actuarial computations. 39. When determining the need to use the work of an expert, the auditor would consider the following, except a. The professional certification or licensing by, or membership in, an appropriate professional body. b. The quantity and quality of other audit evidence available. c. The materiality of the financial statement item being considered. d. The risk of misstatement based on the nature and complexity of the matter being considered. Work of Component Auditors 40. An auditor who, at the request of the group engagement team, performs work on financial information related to a component for the group audit is a a. Group Auditor b. Component Auditor c. Group Engagement Team d. Component Engagement Team - now do your STD-

SELF-TEST DRILL (STD) 1. When planning an examination, an auditor should a. Consider whether the extent of substantive tests may be reduced based on the results of the internal control questionnaire. b. Make preliminary judgments about materiality levels for audit purposes. c. Conclude whether changes in compliance with prescribed control procedures justifies reliance on them d. Prepare a preliminary draft of the management representation letter. 2. Which of the following procedures would an auditor https://www.coursehero.com/file/14402589/AT1808-Audit-Planning/

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ordinarily perform during an audit planning? a. Review the client’s bank reconciliation b. Obtain client’s representation letter c. Obtain understanding of the client’s business and industry d. Review and evaluate client’s internal control 3. Which of the following statements is incorrect about audit planning documentation? a. Although the precise form and content of the overall audit plan (overall audit strategy) may vary, it should sufficiently detailed to guide the development of an audit program.

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AT.1808

EXCEL PROFESSIONAL SERVICES, INC. b. c. d.

The audit plan and related audit program are not connected and should no longer be changed once the audit has started. The audit program should set out the nature, timing and extent of planned audit procedures required to implement the overall audit plan. In preparing audit program, the auditor should consider the specific assessments of inherent and control risks and the required level of assurance to be provided by substantive tests.

4. Which of the following procedures would an auditor least likely perform in planning a financial statement audit? a. Selecting a sample of vendor’s invoices for comparison to receiving reports b. Reading the current year’s interim financial statements c. Coordinating the assistance of the entity personnel in data preparation d. Discussing matters that may affect the audit with firm personnel responsible for non-audit services to the entity

6. When obtaining an understanding and performing a preliminary assessment of the internal audit function, the auditor should consider the internal auditors’ OrganizaScope of Technical competence tional status functions and due care a. Yes Yes Yes b. Yes No Yes c. Yes No No d. No Yes No

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7. You have been asked to assess the organizational independence of an internal audit activity. You should consider all of the following factors except a. functional reporting to the board and administrative reporting to the chief executive officer. b. the criteria of education and experience considered necessary when filling vacant positions on the internal audit staff. c. the degree to which internal auditors assume operational responsibilities. d. a limitation on the scope of objectives for the engagements included in the review.

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10. Which of the following is not an expert upon whose work an auditor may rely on? a. Internal auditor b. Appraiser c. Engineer d. Actuary 11. Which of the following least likely requires the services of an expert? a. Valuations of certain types of assets like land and buildings. b. Legal opinions concerning interpretations of engagements, statutes and regulations. c. Determination of amounts using specialized techniques. d. Application of accounting methods in computing inventory balances.

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5. Early appointment of the independent auditor 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.

the important criteria include organizational status, scope of function, technical competence and due professional care. Which of the following relates to the criteria of due professional care? a. Policies for hiring and training the internal auditing staff and their experience and professional qualifications. b. Existence of adequate audit manuals, work programs and working papers. c. The internal auditor will need to be free to communicate fully with the external auditor d. Whether management acts on internal audit recommendations and how this is evidenced.

8. During the initial planning phase of an audit, a CPA most likely would a. Identify specific internal control activities that are likely to prevent fraud. b. Evaluate the reasonableness of the client’s accounting estimates. c. Discuss the timing of the audit procedures with the client’s management. d. Inquire of the client’s attorney as to whether any unrecorded claims are probable of assertion.

12. The preparation of audit program and audit planning memo is the responsibility of the client’s a. Management b. Independent auditor c. Internal auditor d. Expert 13. The principal reason for developing a written audit program is to help ensure that the a. audit work is properly supervised b. audit work is properly planned and documented c. audit report contains only significant findings d. work of different auditors is properly coordinated 14. Avoiding misunderstandings with the client is important for: Good client Facilitating high-quality work relations at a reasonable cost a. Yes Yes b. No No c. Yes No d. No Yes 15. Sue is conducting an external audit of ABC Company’s financial statements. Joel is an internal auditor working for ABC. Which of the following should Sue consider when deciding whether she can rely on Joel’s findings in her audit? a. Whether Joel has ever worked as an external auditor of financial statements b. Whether Joel owns any shares in the company that he works for c. Joel’s level of education and the number of years of experience Joel has as an internal auditor d. Whether or not Joel will agree to let Sue have access to his working papers

9. When obtaining an understanding and performing a preliminary assessment of the internal audit function,

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AT.1808

What is audit planning and documentation?

What matters should be documented regarding audit planning?

Which of the following is required documentation in an audit?

Which one of the following statements is incorrect concerning the concept of materiality?