Deck 13: Developing the Overall Audit Plan and Audit Program

Question 1

When controls are deemed ineffective and assessed control risk is at the maximum for a private company,which of the following would normally be true?

A) No emphasis is placed on the controls.
B) Relatively little emphasis is placed on the controls.
C) Moderate emphasis is placed on the controls.
D) Heavy emphasis is placed on the controls.

Answer 1

A

Question 2

Which of the following statements is not true?

A) Analytical procedures emphasize the overall reasonableness of transactions and balances.
B) Tests of controls are concerned with evaluating whether controls are sufficiently effective to justify reducing control risk and thereby reducing analytical review procedures.
C) Substantive tests of transactions emphasize the verification of transactions recorded in the journals and then posted in the general ledger.
D) Tests of details of balances emphasize the ending balances in the general ledger.

Answer 2

B

Question 3

Risk assessment procedures are performed by auditors during an audit in order to:

A) determine the risk of material misstatement in the financial statements.
B) determine the amount of testing of internal control.
C) determine the extent of testing of details of balances.
D) determine the extent of testing of transactions.

Answer 3

A

Question 4

Which of the following further audit procedures are used to determine whether all six transaction-related audit objectives have been achieved for each class of transactions?

A) Tests of controls
B) Risk assessment procedures
C) Substantive tests of transactions
D) Preliminary analytical procedures

Question 5

Many auditors perform extensive analytical procedures on audits because:

A) they are required by GAAS.
B) they pinpoint errors in accounts.
C) they indicate areas of potential risk and misstatement.
D) they are required for tests of controls.

Question 6

In the context of an audit of financial statements,substantive tests are audit procedures that:

A) may be eliminated under certain conditions.
B) are designed to discover significant subsequent events.
C) are designed to test for dollar misstatements.
D) will increase proportionately with the auditor's reliance on internal control.

Question 7

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

A) accounting treatment of transactions and balances is valid and proper.
B) internal control procedures are functioning as intended.
C) entity has complied with GAAP disclosure requirements.
D) entity has complied with requirements of quality control.

Question 8

Collectively,procedures performed to obtain an understanding of the entity and its environment,including internal controls,represent the auditor's:

A) audit strategy.
B) tests of controls.
C) risk assessment procedures.
D) tests of transactions.

Question 9

Which of the following would not be considered further audit procedures?

A) Tests of controls
B) Analytical procedures
C) Tests of details of balances
D) Risk assessment procedures

Question 10

Which of the following procedures would most likely be performed in response to the auditor's assessment of the risk of monetary misstatements in the financial statements?

A) Ratio analysis
B) Tests of controls
C) Tests of details of balances
D) Risk assessment procedures

Question 11

Tests of controls are directed toward the control's:

A) efficiency.
B) effectiveness.
C) cost and effectiveness.
D) cost benefit ratio.

Question 12

The primary emphasis in most tests of details of balances is on the:

A) balance sheet accounts.
B) revenue accounts.
C) cash flow statement accounts.
D) expense accounts.

Question 13

List each of the five types of audit tests and give at least two types of evidence that may be obtained from each type of test.

Question 14

You are auditing Rodgers and Company.After performing substantive analytical procedures you conclude that,for the accounts tested,the client's balance appears reasonable.This may indicate that:

A) details test of balances can be eliminated for those accounts.
B) certain tests of details of balances may be eliminated for those accounts.
C) control tests may be eliminated for those accounts.
D) control tests may be reduced for those accounts.

Question 15

A system walkthrough is primarily used to help the auditor:

A) test the ending account balances.
B) test the details of transactions.
C) determine whether internal controls are in place.
D) determine whether the audit engagement should be accepted.

Question 16

A procedure designed to test for monetary misstatements directly affecting the correctness of financial statement balances is a:

A) test of controls.
B) substantive test.
C) test of attributes.
D) monetary-unit sampling test.

Question 17

Shown below (1 through 5)are the five types of tests which auditors use to determine whether financial statements are fairly stated.Which three are substantive tests?
1)Risk assessment procedures
2)Tests of controls
3)Tests of transactions
4)Substantive analytical procedures
5)Tests of details of balances

A) 1, 2, and 3.
B) 3, 4, and 5.
C) 2, 3, and 5.
D) 2, 3, and 4.

Question 18

Which of the following is ordinarily designed to detect material dollar errors on the financial statements?

A) Tests of controls
B) Analytical review procedures
C) Computer controls
D) Tests of details of balances

Question 19

Analytical procedures:

A) involve comparisons of recorded amounts to expectations developed by management.
B) are only performed during the planning stage of the audit.
C) are required to be performed when auditing an account balance.
D) provide substantive evidence.

Question 20

Which of the following is true?

A) Tests of details of balances focus on the ending general ledger balances for both balance sheet and income statement accounts.
B) Tests of details of balances focus on the transactions during the period for both balance sheet and income statement accounts.
C) Tests of details of balances focus on the auditor's understanding of internal controls.
D) Tests of details of balances focus on comparisons of recorded amounts to expectations developed by the auditor.

Question 21

There are eight types of audit evidence:
physical examination,confirmation,inspection,observation,inquiries of the client,reperformance,analytical procedures,and recalculation.For each of the following types of audit tests,indicate the type(s)of evidence that can be obtained through the test:
(1)tests of controls,(2)substantive tests of transactions,(3)analytical procedures,and (4)tests of details of balances.

Question 22

Tests of controls should be performed after substantive tests of transactions.

Question 23

If tests of controls support the control risk assessment,then ________ in the audit risk model is increased.

A) planned detection risk.
B) planned inherent risk.
C) planned fraud risk.
D) planned assurance risk.

Question 24

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

Question 25

In order to promote audit efficiency the auditor considers cost in selecting audit tests to perform.Which of the following audit tests would be the most costly?

A) Analytical procedures
B) Risk assessment procedures
C) Tests of controls
D) Tests of details of balances

Question 26

Procedures to obtain an understanding of internal control generally provide sufficient appropriate evidence that a a control is operating effectively.

Question 27

Discuss the purposes of (1)substantive tests of transactions,(2)tests of controls,and (3)tests of details of balances.Give an example of each.

Question 28

Describe the five types of audit tests.Identify which of the five types are substantive tests,and which are used to reduce assessed control risk.

Question 29

An exception or deficiency found in a test of controls:

A) indicates a financial statement misstatement.
B) indicates the likelihood of a misstatement.
C) indicates that the financial statements are fairly stated.
D) indicates that an adverse opinion is warranted on the audit of internal control.

Question 30

Auditors use analytical procedures and tests of details of balances to satisfy planned detection risk.

Question 31

Tests of controls are performed to support a reduced assessment of detection risk.

Question 32

The auditor would design which of the following audit tests to detect possible monetary errors in the financial statements?

A) Control tests
B) Analytical procedures
C) Risk assessment procedures
D) Tests of operating effectiveness of controls over revenue and cash

Question 33

An increased extent of tests of controls is most likely to occur when:

A) it is a first-year audit.
B) the auditor is doing a "fraud audit."
C) controls are effective and the preliminary control risk assessment is low.
D) controls are ineffective and the preliminary control risk assessment is high.

Question 34

A major part of the auditor's risk assessment procedures is done to obtain an understanding of internal control.

Question 35

If no material differences are found using analytical procedures and the auditor concludes that misstatements are not likely to have occurred:

A) other substantive tests may be reduced.
B) it will be necessary to increase the tests of balances.
C) it will not be necessary to perform tests of balances.
D) it will be necessary to increase the tests of transactions.

Question 36

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.

Question 37

Analytical procedures are normally designed at the account level,whereas tests of controls and substantive tests of transactions are normally designed at the transaction-related objective level.

Question 38

Auditors must perform tests of controls separately from substantive tests of transactions.

Question 39

Which of the following audit tests is usually the least costly to perform?

A) Analytical procedures
B) Tests of controls
C) Tests of balances
D) Substantive tests of transactions

Question 40

When an auditor believes that analytical procedures indicate a reasonable possibility of misstatement,the auditor usually would:

A)
B)
C)
D)

Question 41

The results of tests of controls and substantive tests of transactions affect the design of tests of details of balances.

Question 42

Auditing standards recognize that in instances where a significant amount of audit evidence is in electronic form,it may not be possible to reduce detection risk to an acceptable level by performing only substantive tests.

Question 43

If internal controls are tested and are considered effective,the auditor generally will increase both substantive tests of transactions and tests of details of balances.

Question 44

Because of the high cost of tests of details of balances,auditors do not perform this type fo testing unless fraud is suspected.

Question 45

Three factors the auditor considers when assessing control risk are:
the auditor's belief concerning the effectiveness of internal controls,the results of tests of controls,and the cost-effectiveness of a reduced assessed control risk.Identify the combination of conditions for these three factors that is required before a reduction in substantive testing is permitted.

Question 46

Analytical procedures are the least costly type of audit test.

Question 47

A deficiency uncovered in the audit of internal control is explained by which of the following in relation to a financial statement misstatement?

A) The amount of the misstatement
B) The likelihood of the misstatement
C) The amount, likelihood, and classification of the misstatement
D) The amount and the classification of the misstatement

Question 48

Which of the following is not a valid basis for omitting an audit test in forming an opinion on the clients financial statements?

A) The difficulty and expense involved in testing a particular item
B) The relative risk involved
C) The degree of reliance on the relevant internal controls
D) The relationship between the cost of obtaining evidence and its usefulness

Question 49

If inherent risk is increased to medium from low,tests of details of balances can be reduced.

Question 50

Auditors who test manual controls that rely on IT-generated reports must consider:

A) the effectiveness of management's review.
B) automated controls over the accuracy of information in the report.
C) both A and B
D) neither A or B.

Question 51

Tests of controls are generally more costly to perform than analytical procedures.

Question 52

The reliance the auditor places on substantive tests in relation to the reliance placed on internal control varies in a relationship that is ordinarily:

A) parallel.
B) inverse.
C) direct.
D) equal.

Question 53

The extent of tests of details of balances cannot be reduced when transaction-related audit objectives have been satisfied by tests of controls or substantive tests of transactions.

Question 54

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

Question 55

Once auditors determine an automated control is functioning properly,they can focus subsequent tests on assessing whether any changes have occurred that will limit the effectiveness of the control.

Question 56

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

Question 57

In the audit of a public company,automated controls must be tested if they are considered to be key controls for reducing the likelihood of material misstatements in the financial statements.

Question 58

An exception in a test of control provides only an indication of the likelihood of monetary misstatements in the financial statements because tests of controls do not reveal whether monetary misstatements have actually occurred.

Question 59

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.

Question 60

Only tests of details of balances involve physical examination and confirmation.

Question 61

The choice of which types of tests to use and how extensively they need to be performed must be the same for all audits.

Question 62

When testing details of balances,most audit procedures satisfy only one balance-related objective,but more than one audit procedure should be used to test each objective.

Question 63

Substantive tests of transactions and control tests are often conducted simultaneously.

Question 64

Which of the following types of evidence is not available when using substantive tests of transactions?

A) Inspection
B) Confirmation
C) Inquiries of the client
D) Reperformance

Question 65

When designing an audit program for tests of details of balances,the auditor should make assumptions about inherent risk and control risk,and predictions concerning the outcome of tests of controls,substantive tests of transactions,and analytical procedures.

Question 66

When designing tests of controls and substantive tests an auditor is gathering evidence to satisfy the transaction related audit objectives.What are the four steps the auditor would normally follow to reduce assessed control risk?

Question 67

Transaction related audit objectives would most likely be performed in which phase of the audit process?

A) Plan and design audit approach
B) Perform audit tests for controls and transactions
C) Perform analytical procedures and tests of balances
D) Complete the audit and issue the audit report

Question 68

The document that details the specific audit procedures for each type of test is the:

A) audit strategy.
B) audit program.
C) audit procedure.
D) audit risk model.

Question 69

When designing the audit program and the particular audit tests,the auditor should keep in mind that:

A) the audit program is broken down into two parts-the risk assessment procedures and the tests of details of balances.
B) the tests of controls will not vary depending on assessed control risk.
C) analytical procedures performed during substantive testing are generally more focused and more extensive than those done as part of planning.
D) auditing standards require that the tests contained in the audit program must be approved by the PCAOB.

Question 70

Presentation and disclosure related audit objectives would be performed in which phase of the audit process?

A) Plan and design audit approach
B) Perform audit tests for controls and transactions
C) Perform analytical procedures and tests of balances
D) Complete the audit and issue the audit report

Question 71

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

A) Substantive tests of transactions
B) Tests of controls
C) Risk assessment tests
D) Tests of details of balances

Question 72

Which of the following is generally not included in the "evidence mix"?

A) Tests of controls
B) Substantive tests of transactions
C) Risk assessment procedures
D) Tests of details of balances

Question 73

Auditing standards require a written audit program.

Question 74

Which audit tests involve physical examination and confirmation?

A) Tests of controls
B) Tests of transactions
C) Tests of balances
D) Analytical procedures

Question 75

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.

Question 76

Discuss the relationship of each of the following to the extent of planned tests of details of balances: (1) tolerable misstatement, (2) inherent risk, (3) control risk, and (4) acceptable audit risk.

Question 77

The evidence mix includes risk assessment procedures.

Question 78

Which of the following types of procedures will be performed in an audit of internal control over financial reporting?

A)
B)
C)
D)

Question 79

Auditors must use considerable professional judgment to determine any change in audit procedures that can be made when the level of inherent risk is increased or decreased.

Question 80

If all transaction-related audit objectives are met,the auditor does not need to perform substantive tests of balances to determine realizable value.