Question 1

The audit program is normally contained in the current file of the auditor's working papers.

Accepted Answer

The audit program is a document created by the auditor to outline the planned procedures and tasks to be completed during the audit. It is typically kept in the auditor's working papers, which contain all of the documentation and evidence gathered during the audit.

Question 2

The engagement letter may also include an agreement to provide other services such as tax returns or
management consulting.

Accepted Answer

The engagement letter may indeed include an agreement for additional services beyond the scope of the original engagement.

Question 3

One hundred percent acceptable audit risk means that the auditor wants complete certainty that the financial statements are not materially misstated.

Accepted Answer

One hundred percent acceptable audit risk means that the auditor is willing to accept some level of risk that the financial statements may be materially misstated. Therefore, complete certainty is not the desired outcome.

Question 4

The auditor's primary concern is the risk of material misstatements in the financial statements due to business risk.

Accepted Answer

The auditor's primary concern is to identify the risk of material misstatements in the financial statements, which can arise due to various factors such as business risk, fraud risk, control risk, etc. However, business risk is one of the important factors that auditors consider while assessing the risk of material misstatements in the financial statements.

Question 5

A predecessor (old) auditor who has been contacted by a successor (new) auditor for information about the client must obtain permission from the client before providing any confidential information to the successor auditor.

Accepted Answer

The predecessor auditor must obtain permission from the client before providing any confidential information to the successor auditor to maintain client confidentiality.

Question 6

When an auditor decides on a higher acceptable audit risk, one effect is that the auditor wants to be more certain the accounts are not materially misstated.

Accepted Answer

When an auditor decides on a higher acceptable audit risk, it means that the auditor is willing to accept a higher risk of material misstatement in the accounts. This in turn means that the auditor is willing to be less certain that the accounts are not materially misstated. Therefore, the statement in the question is false.

Question 7

Only those adjusting and reclassification entries that significantly affect the fair presentation of financial statements (i.e. material entries) should be documented or summarised in the auditor's working papers.

Accepted Answer

The answer of Only those adjusting and reclassification entries that...

Question 8

When an auditor decides there is higher inherent risk for an account, one potential effect is that less audit evidence will be required for that account.

Accepted Answer

When there is higher inherent risk for an account, it actually increases the audit evidence needed for that account, rather than reducing it. This is because higher inherent risk means there is a greater likelihood of material misstatements in the account, so the auditor needs sufficient evidence to ensure the account is fairly presented.

Question 9

Material transactions between the client and the client's related parties must be disclosed in the client's financial statements and in the auditor's report.

Accepted Answer

The answer of Material transactions between the client and the...

Question 10

ASA 300.05 requires:
The auditor shall plan the audit so that the engagement will be performed in an effective manner.

Accepted Answer

ASA 300.05 specifically states that the auditor must plan the audit in a way that it is performed effectively.

Question 11

Working papers prepared by the client for the auditor are the property of the auditor.

Accepted Answer

The answer of Working papers prepared by the client for...

Question 12

Information such as organisation charts, flowcharts and questionnaires related to the auditor's understanding of internal control is typically included in the permanent files of the auditor's working papers.

Accepted Answer

This is true. Permanent files contain a record of important and relevant documentation that are useful to the auditors in future audits, including those related to the understanding of internal control.

Question 13

As inherent risk decreases, audit expertise should normally increase.

Accepted Answer

Inherent risk refers to the susceptibility of an account balance or class of transactions to misstatement that could be material, either individually or when aggregated with misstatements in other balances or classes, assuming that there were no related internal controls. Audit expertise relates to the auditor's understanding and skill set in auditing a particular area or industry. There is not a direct correlation where a decrease in inherent risk necessitates an increase in audit expertise. Instead, as inherent risk decreases, the auditor may assess that the risk of material misstatement is lower, which could affect the nature, timing, and extent of audit procedures, but does not inherently require increased audit expertise.

Question 14

ACL is a software package which assists auditors by performing tests on a client's electronic data.

Accepted Answer

ACL (Audit Command Language) is a software package used by auditors to perform data analysis and automated audits on a client's electronic data. It can assist auditors by performing various tests and analysis including data extraction, sampling, sorting, filtering, and more.

Question 15

The objective of audit documentation is to provide reasonable assurance that an adequate audit was conducted.

Accepted Answer

The objective of audit documentation is indeed to provide reasonable assurance that an adequate audit was conducted. This is achieved by documenting the auditor's work, evidence gathered, and conclusions reached during the audit process. The documentation is also essential in supporting the auditor's opinion and serves as a reference for future audits.

Question 16

When a successor (new) auditor contacts a company's previous auditor, the predecessor auditor is required to respond to the request for information.

Accepted Answer

The AICPA's Code of Professional Conduct requires the predecessor auditor to respond to the successor auditor's request for information, as long as the client has given permission for the release of the information.

Question 17

For prospective clients that have previously been audited by another firm, the new auditor is required to communicate with the previous auditor.

Accepted Answer

As per auditing standards, the new auditor is required to communicate with the previous auditor to gather information about the previous year's audit and any issues or findings. This helps the new auditor to plan and perform the audit effectively.

Question 18

Two major factors that affect acceptable audit risk are inherent risk and control risk.

Accepted Answer

Acceptable audit risk is primarily affected by the auditor's willingness to accept the risk that the financial statements may be materially misstated after the audit is completed, not directly by inherent risk and control risk, which are components of audit risk.

Question 19

Adjusting and reclassification entries are normally included in the current files of the auditor's working papers.

Accepted Answer

Adjusting and reclassification entries are important components of the audit process and are typically documented in the current files of the auditor's working papers.

Question 20

The primary purpose of an engagement letter is to establish a clear understanding of the terms of the engagement between the client and the auditor.

Accepted Answer

An engagement letter is a legal document that outlines the terms, scope, and objectives of the engagement between the client and the auditor. It is meant to establish a clear understanding of the responsibilities and expectations of each party to minimize misunderstandings and disagreements.

Quiz 6: Audit Planning and Documentation