Question 1

Assessing Whether Misstatements Are Material.
What additional information might the auditor choose to analyze to determine whether or not the financial statements are misstated by a material amount?

Accepted Answer

The answer of Assessing Whether Misstatements Are Material.
What additional information...

Question 2

Assume that the external auditor decides that because of work performed by internal auditors, the audit risk has been reduced to an acceptable level. As a result of this assessment, the auditor can do which of the following?
A) The auditor must test the assertions directly and document a separate conclusion.
B) The auditor can decide that direct testing is not necessary.
C) The auditor must delegate the responsibility of expressing an opinion to the internal auditors.
D) The auditor can assume that inherent risk is zero.

Accepted Answer

If the external auditor determines that the audit risk has been reduced to an acceptable level due to the work of the internal auditors, the auditor can decide that direct testing is not necessary. However, the auditor is still responsible for obtaining sufficient and appropriate audit evidence to support the opinion. Therefore, the auditor cannot assume that inherent risk is zero or delegate the responsibility of expressing an opinion to the internal auditors. Testing the assertions directly and documenting a separate conclusion may be necessary in some cases, but it is not mandatory if the auditor is satisfied with the work of the internal auditors.

Question 3

Considering Qualitative Factors.
What are the considerations that may cause a quantitatively small misstatement to be considered material?

Accepted Answer

The answer of Considering Qualitative Factors.
What are the considerations that...

Question 4

Effect of Internal Audit's Work on the External Audit.
Provide examples of audit judgments made by the external auditor which would not typically be delegated to the internal auditor.

Accepted Answer

The answer of Effect of Internal Audit's Work on the...

Question 5

Audit Program for Goodwill Impairment Testing.
Outline the major elements of an audit program to determine whether there is a goodwill impairment, and if there is, the extent of the goodwill impairment.

Accepted Answer

The answer of Audit Program for Goodwill Impairment Testing.
Outline the...

Question 6

Evaluating the Quality of Client's Internal Audit Function.
An external auditor assesses the quality of the internal audit function to determine whether the internal auditors' work is relevant to the external audit and of sufficient quantity and quality. Describe the three factors of the internal audit function that would be considered by the external auditor in this quality assessment.

Accepted Answer

The answer of Evaluating the Quality of Client's Internal Audit...

Question 7

Auditing Merger and Acquisition Transactions.
How does a company measure the cost of an acquisition of another company? What factors often complicate the determination of actual cost? Explain how each factor complicates the calculation of cost and the steps the auditor has to take to reach a conclusion about the cost of the acquisition.

Accepted Answer

The answer of Auditing Merger and Acquisition Transactions.
How does a...

Question 8

Critical Criteria in Assessing Identified Internal Control Deficiencies.
What general factors should be considered by an auditor in evaluating whether or not a control deficiency is a material weakness, or a significant deficiency, or a control issue of lesser severity?

Accepted Answer

The answer of Critical Criteria in Assessing Identified Internal Control...

Question 9

In making judgments about the effect of the internal auditors' work on the external auditor's procedures in specific audit areas, which of the following is not one of the issues related to the specific audit areas that is considered by the external auditor?
A) Materiality of the financial statement amounts.
B) Risk of material misstatement of the assertions related to these financial statement amounts.
C) Degree of subjectivity involved in the evaluation of the audit evidence gathered in support of the assertions.
D) All of the above are considered by the auditor.

Accepted Answer

All of the issues mentioned (materiality, risk of material misstatement, and degree of subjectivity) are considered by the external auditor in evaluating the effect of the internal auditors' work on specific audit areas. Therefore, choice D is the correct answer.

Question 10

A best practice is to have an oversight of the internal audit function as a responsibility of which of the following?
A) Management.
B) Internal auditors.
C) Audit committee.
D) External auditors.

Accepted Answer

The audit committee is responsible for overseeing the internal audit function in order to ensure its independence, effectiveness, and objectivity. This is a best practice recommended by various governance frameworks and standards, including the Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing. Management is responsible for establishing and maintaining effective internal controls, while internal auditors are responsible for providing independent and objective assurance and consulting services. External auditors are responsible for providing an opinion on the financial statements, but they do not have the same level of oversight over the internal audit function as the audit committee.

Question 11

Purpose of Materiality Judgments and Common Benchmarks.
What are the key perspectives and concerns that auditors should be aware of when making materiality judgments? Explain the purpose of materiality judgments and common benchmarks.

Accepted Answer

The answer of Purpose of Materiality Judgments and Common Benchmarks.
What...

Question 12

Which of the following is the international body that sets standards for the practice of internal auditing across the world?
A) The Internal Audit Reporting Standards Board.
B) The Institute of Internal Auditors.
C) The International Accounting Standards Board.
D) The Charter of Certified Internal Auditors.

Accepted Answer

The Institute of Internal Auditors (IIA) is the international professional association and standard-setting body for internal auditors worldwide. The IIA sets standards for the practice of internal auditing and also provides certification programs for internal auditors. Choices A, C, and D are not international bodies that set standards for internal auditing.

Quiz 16: Advanced Topics Concerning Complex Auditing Judgments

Assessing Whether Misstatements Are Material. What additional information might the auditor choose to analyze to determine whether or not the financial statements are misstated by a material amount?

Assume that the external auditor decides that because of work performed by internal auditors, the audit risk has been reduced to an acceptable level. As a result of this assessment, the auditor can do which of the following?

Considering Qualitative Factors. What are the considerations that may cause a quantitatively small misstatement to be considered material?

Effect of Internal Audit's Work on the External Audit. Provide examples of audit judgments made by the external auditor which would not typically be delegated to the internal auditor.

Audit Program for Goodwill Impairment Testing. Outline the major elements of an audit program to determine whether there is a goodwill impairment, and if there is, the extent of the goodwill impairment.

Critical Criteria in Assessing Identified Internal Control Deficiencies. What general factors should be considered by an auditor in evaluating whether or not a control deficiency is a material weakness, or a significant deficiency, or a control issue of lesser severity?

In making judgments about the effect of the internal auditors' work on the external auditor's procedures in specific audit areas, which of the following is not one of the issues related to the specific audit areas that is considered by the external auditor?

A best practice is to have an oversight of the internal audit function as a responsibility of which of the following?

Purpose of Materiality Judgments and Common Benchmarks. What are the key perspectives and concerns that auditors should be aware of when making materiality judgments? Explain the purpose of materiality judgments and common benchmarks.

Which of the following is the international body that sets standards for the practice of internal auditing across the world?