Question 1

Policy and procedures governing the acceptance and continuance of client relationships are contained primarily in:
A) ASA 620.
B) ASA 315.
C) ASA 220.
D) ASA 210.

Accepted Answer

ASA 220 deals with quality control for an audit of financial statements, which includes policies and procedures for acceptance and continuance of client relationships.

Question 2

Why is it essential to plan an audit engagement with the goal of accumulating sufficient evidence?
A) to minimise legal liability and maintain the firm's good reputation in the business community
B) to help the firm remain competitive
C) to facilitate good client relations
D) all of the above

Accepted Answer

Planning an audit engagement with the goal of accumulating sufficient evidence is essential to minimise legal liability and maintain the firm's good reputation in the business community. Adequate evidence helps auditors to support the conclusions reached and defend them in case of dispute or litigation. It also helps to ensure that the audit complies with professional standards by providing reasonable assurance that financial statements are free of material misstatements. This, in turn, can enhance the firm's reputation in the business community, helping it to remain competitive, and maintain good client relations.

Question 3

What are the three main reasons why the auditor should properly plan engagements?
1)to enable the auditor to obtain sufficient appropriate evidence
2)to help keep audit costs reasonable
3)to avoid misunderstandings with the client
4)to earn audit fees for the firm.
A) 1, 2, 3
B) 1, 2, 4
C) 1, 3, 4
D) 2, 3, 4

Accepted Answer

The three main reasons why the auditor should properly plan engagements are to enable the auditor to obtain sufficient appropriate evidence, to help keep audit costs reasonable, and to avoid misunderstandings with the client. Option 4, to earn audit fees for the firm, is not a valid reason for proper planning, as it could compromise audit independence and objectivity.

Question 4

A measure of the auditor's assessment of the likelihood that there are material misstatements in an account before considering the effectiveness of the client's internal control is called:
A) control risk.
B) acceptable audit risk.
C) inherent risk.
D) statistical risk.

Accepted Answer

Inherent risk is the measure of the auditor's assessment of the likelihood that there are material misstatements in an account before considering the effectiveness of the client's internal control. Control risk is the risk that the client's internal control will not prevent or detect a material misstatement. Acceptable audit risk is the risk that the auditor is willing to accept in the form of presumably undetected misstatements. There is no such thing as statistical risk in auditing terminology.

Question 5

A clear understanding of the terms of the engagement should exist between the client and the public accounting firm, as documented in the engagement letter required by:
A) ASA 220.
B) APES 110.
C) ASA 210.
D) ASA 620.

Accepted Answer

ASA 210 requires an engagement letter to be issued for all audits, reviews, and other assurance engagements. The engagement letter should clearly state the terms of the engagement, including the responsibilities of both the auditor and the client. ASA 220 deals with quality control for audits, while APES 110 is an ethical standard for professional accountants. ASA 620 deals with using the work of an auditor's expert.

Question 6

Assessing acceptable audit risk and inherent risk is an important part of audit planning, because it helps to determine the:
A) timing of audit procedures.
B) amount of evidence that will need to be accumulated.
C) fees to charge for the audit.
D) all of the above

Accepted Answer

Assessing acceptable audit risk and inherent risk helps auditors determine the amount of evidence that will need to be accumulated to reduce audit risk to an acceptably low level, guiding the nature, timing, and extent of audit procedures.

Question 7

What is the purpose of planning an engagement in order to avoid misunderstandings with the client?
A) to minimise legal liability and maintain the firm's good reputation in the business community
B) to help the firm remain competitive
C) to facilitate good client relations
D) all of the above

Accepted Answer

The answer of What is the purpose of planning an...

Question 8

Which factor would NOT be considered by an audit firm in deciding whether to accept a new client?
A) the client's probability of achieving an unqualified opinion
B) the client's standing in the business community
C) the client's relation with its previous audit firm
D) the client's financial stability

Accepted Answer

While the client's probability of achieving an unqualified opinion may be a factor considered during the audit, it would not typically be a deciding factor in whether or not to accept a new client. The other factors listed (standing in the business community, relation with previous audit firm, financial stability) would likely have more bearing on the decision to accept a new client.

Question 9

The development of the audit program is the final stage in:
A) the client acceptance decision.
B) audit planning.
C) the engagement letter.
D) documenting independence.

Accepted Answer

The development of the audit program is part of the audit planning process, which is a crucial stage in the audit where the auditor identifies and assesses the risks of material misstatement, determines the audit scope and objectives, and plans the nature, timing, and extent of audit procedures to obtain sufficient appropriate audit evidence. The client acceptance decision, engagement letter, and documenting independence are separate stages in the audit process.

Question 10

When a company changes auditors, the Code of Ethics for Professional Accountants requires communication between the predecessor and successor auditors.The burden of initiating the communication rests with the:
A) ASIC.
B) predecessor.
C) client.
D) successor.

Accepted Answer

The Code of Ethics for Professional Accountants specifies that the successor auditor has the responsibility to initiate communication with the predecessor auditor when a change of auditors is taking place. This is to ensure that the successor has all the necessary information to perform the audit effectively.

Question 11

Which two risks are assessed early in the planning stages of the audit?
A) acceptable audit risk and business risk
B) business risk and inherent risk
C) acceptable audit risk and inherent risk
D) none of the above

Accepted Answer

Acceptable audit risk and inherent risk are assessed early in the planning stages of the audit. Acceptable audit risk is the level of risk that the auditor is willing to accept that the financial statements may be materially misstated after the audit has been completed. Inherent risk is the risk of material misstatement of the financial statements before any consideration of the control environment. Business risk and detection risk are assessed later in the audit process.

Question 12

What is featured in ASA 220?
A) guidance regarding planning of an audit
B) audit evidence
C) analytical procedures to be undertaken in an audit
D) quality control for an audit

Accepted Answer

ASA 220 specifically deals with quality control for an audit of financial statements. It outlines the responsibilities of the auditor regarding quality control procedures for audits.

Question 13

Which one of the following measures how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued?
A) financial risk.
B) inherent risk
C) statistical risk
D) acceptable audit risk

Accepted Answer

Acceptable audit risk is the measure of the auditor's willingness to accept the risk of undiscovered material misstatements in the financial statements after issuing an unqualified opinion. It considers the inherent risk, control risk, and detection risk in determining the overall audit risk. Therefore, it is the best choice for the given scenario. Financial risk is the risk of loss due to a firm's financial structure, while inherent risk refers to the risk of material misstatement in the absence of any internal controls. Statistical risk is not a recognized concept in auditing.

Question 14

The auditor plans the engagement to keep costs reasonable.This is essential to:
A) minimise legal liability and maintain the firm's good reputation in the business community.
B) help the firm remain competitive.
C) facilitate good client relations.
D) all of the above

Accepted Answer

The answer of The auditor plans the engagement to keep...

Question 15

Assessing acceptable audit risk and inherent risk is an important part of audit planning because it helps to determine the:
A) timing of audit procedures.
B) staff to be assigned to the engagement.
C) fees to charge for the audit.
D) all of the above

Accepted Answer

The answer of Assessing acceptable audit risk and inherent risk...

Question 16

Auditors should plan engagements properly to:
A) ensure a cost-effective audit.
B) gain a clear understanding of the client.
C) avoid client misunderstandings.
D) all of the above

Accepted Answer

Planning engagements properly helps auditors achieve all three objectives of ensuring a cost-effective audit, gaining a clear understanding of the client, and avoiding client misunderstandings. By carefully planning an audit, auditors can identify areas that may require additional attention and resources, communicate expectations to the client, and ensure that the audit is conducted in a timely and efficient manner. This helps to minimize costs, improve the quality of the audit, and promote a positive relationship with the client.

Question 17

What is the last step in accepting an audit engagement within the initial planning phase?
A) identifying why the client wants an audit
B) obtaining background information
C) performing preliminary analytical procedures
D) developing the overall audit plan and programs

Accepted Answer

Developing the overall audit plan and programs is the final step in accepting an audit engagement within the initial planning phase. Identifying why the client wants an audit, obtaining background information, and performing preliminary analytical procedures are all important steps in the initial planning phase, but they precede developing the overall audit plan and programs.

Question 18

What is required by auditors according to ASA 210?
A) Document their understanding of the engagement in working papers.
B) Communicate with the previous auditor.
C) Obtain knowledge of the business.
D) Use analytical procedures in the planning stage.

Accepted Answer

According to ASA 210, the auditor is required to document their understanding of the engagement in working papers. This includes documenting the nature, timing, and extent of planned audit procedures as well as the results of the auditor's assessment of the risks of material misstatement.

Answer: C 
 ASA 210 also requires the auditor to obtain knowledge of the business and industry in which the entity operates. This includes understanding the entity's operations, the terms of its contracts, and the regulatory environment in which it operates.

Answer: D 
 While analytical procedures may be used in the planning stage of the audit, they are not specifically required by ASA 210.

Therefore, the best choices are A and C.

Question 19

What should an engagement letter include, according to ASA 210?
A) the responsibilities of the auditor and management
B) the engagement's objectives
C) the engagement's limitations
D) all of the above

Accepted Answer

According to ASA 210, an engagement letter should include all of the above - the responsibilities of the auditor and management, the engagement's objectives, and the engagement's limitations. This ensures that both parties have a clear understanding of their roles, the scope of the engagement, and any constraints or limitations that may affect the audit process.

Question 20

Which one of the following is NOT a major reason 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 competent evidence
C) to help keep audit costs reasonable
D) to avoid misunderstandings with the client

Accepted Answer

Proper planning of engagements is not primarily related to on-the-job training of employees. The other options, such as obtaining sufficient competent evidence, keeping audit costs reasonable, and avoiding misunderstandings with the client, are major reasons why proper planning is essential for successful audit engagements.

Quiz 6: Audit planning and documentation

Policy and procedures governing the acceptance and continuance of client relationships are contained primarily in:

Why is it essential to plan an audit engagement with the goal of accumulating sufficient evidence?

What are the three main reasons why the auditor should properly plan engagements? 1) to enable the auditor to obtain sufficient appropriate evidence 2) to help keep audit costs reasonable 3) to avoid misunderstandings with the client 4) to earn audit fees for the firm.

A measure of the auditor's assessment of the likelihood that there are material misstatements in an account before considering the effectiveness of the client's internal control is called:

A clear understanding of the terms of the engagement should exist between the client and the public accounting firm, as documented in the engagement letter required by:

Assessing acceptable audit risk and inherent risk is an important part of audit planning, because it helps to determine the:

What is the purpose of planning an engagement in order to avoid misunderstandings with the client?

Which factor would NOT be considered by an audit firm in deciding whether to accept a new client?

The development of the audit program is the final stage in:

When a company changes auditors, the Code of Ethics for Professional Accountants requires communication between the predecessor and successor auditors.The burden of initiating the communication rests with the:

Which two risks are assessed early in the planning stages of the audit?

What is featured in ASA 220?

Which one of the following measures how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued?

The auditor plans the engagement to keep costs reasonable.This is essential to:

Assessing acceptable audit risk and inherent risk is an important part of audit planning because it helps to determine the:

Auditors should plan engagements properly to:

What is the last step in accepting an audit engagement within the initial planning phase?

What is required by auditors according to ASA 210?

What should an engagement letter include, according to ASA 210?

Which one of the following is NOT a major reason why the auditor should properly plan engagements?