Question 1

The auditor's objective in obtaining an understanding of the client's business and risks is to assess the overall risk of material misstatement in the financial statements.

Accepted Answer

This statement is true. The auditor's understanding of the client's business and risks is used to evaluate the risk of material misstatement in the financial statements, which informs the auditor's overall audit strategy and approach.

Question 2

The detailed audit plan guides development of the overall audit strategy.

Accepted Answer

The overall audit strategy guides the development of the detailed audit plan, not the other way around.

Question 3

What are the benefits of scheduling interim audit work as part of your audit time budget?

Accepted Answer

The answer of What are the benefits of scheduling interim...

Question 4

Since auditing is a public profession,auditors are obligated to continue auditing a client once they start.

Accepted Answer

Auditors have the right to resign from a client engagement if they identify significant issues that cannot be resolved with the client. Additionally, if there are independence issues, it may be necessary to withdraw from the engagement. However, auditors must follow certain procedures when resigning to ensure that the resignation is appropriate and that stakeholders are informed of the reasons for it.

Question 5

During the preliminary analytical review,the auditor discovered that the auditee forecast sales of 10,000 units but only 5,000 were sold.The auditors should consider performing a careful lower-of-cost-or-net realizable value analysis of the year-end inventory.

Accepted Answer

The discrepancy between the auditee's sales forecast and actual sales could indicate potential obsolescence or damage to the inventory, which would require a lower-of-cost-or-net realizable value analysis to determine the appropriate valuation of the inventory.

Question 6

Relationships on the financial statements that do not make sense may indicate problem areas in the accounts.

Accepted Answer

Relationships between certain financial statement items can provide insight into the financial health of a company. If these relationships do not make sense, such as a high profit margin but a low return on assets, it may indicate issues with the accounting or other problem areas that require further investigation.

Question 7

When there is a change in auditors,the Rules of Professional Conduct do not permit the predecessor auditor to give information to the successor auditor without explicit approval by the client.

Accepted Answer

This is true according to the Rules of Professional Conduct. The predecessor auditor cannot disclose any client information without the explicit consent of the client. This is to maintain client confidentiality and ensure that there is no breach of trust between the auditor and the client.

Question 8

Analytical procedures are required at the beginning,during the testing phase and the end of an audit.

Accepted Answer

The answer of Analytical procedures are required at the beginning,during...

Question 9

The enquiries of the client that result from preliminary analytical review provide direct evidence about the amounts in the financial statements.

Accepted Answer

Preliminary analytical review helps in identifying areas of potential risk or concern by comparing financial information over time or against industry norms, but it does not provide direct evidence about specific amounts in the financial statements. Direct evidence would come from detailed testing of transactions and balances.

Question 10

Overall materiality is used to identify and assess risks,to design audit procedures to be done in response to the assessed risks,and to evaluate the results of sampling procedure

Accepted Answer

Overall materiality is primarily used to determine the nature, timing, and extent of audit procedures that should be performed to reduce audit risk to an acceptably low level. It is not used to identify and assess risks; that is the role of risk assessment procedures.

Question 11

List and briefly explain four factors that increase the auditor's risk from accepting an audit engagement.

Accepted Answer

The answer of List and briefly explain four factors that...

Question 12

Analytical procedures consist of evaluating financial information by studying financial and nonfinancial data and looking for plausible or implausible relationships.The procedures can range from making simple comparisons to using complex models involving many relationships and elements of data.They can involve time-series comparisons of recorded amounts and ratios developed from recorded amounts,and they always include comparison to expectations developed by the auditors.
Required: A)Describe the broad purposes of analytical procedures.
B)Identify the sources of information from which an auditor develops expectations.

Accepted Answer

The answer of Analytical procedures consist of evaluating financial information...

Question 13

Audit planning is an ongoing process where information gained as the audit is performed may result in changes to the plan.

Accepted Answer

Audit planning is not a one-time event; it is an ongoing process that involves continuous information gathering and assessment. As the audit proceeds, the auditor may discover new information, risks, or opportunities that require changes to the audit plan. Therefore, the audit plan should be considered a flexible roadmap that guides the audit team's efforts and adapts to the circumstances encountered throughout the audit.

Question 14

Overall materiality is determined by the auditor at the planning stage of the audit and remains fixed throughout the audit process.

Accepted Answer

Overall materiality is not fixed throughout the audit process. It may need to be revised if there are changes in the circumstances or information obtained during the audit.

Question 15

The CASs provide the overall objective of a financial statement auditor and set out the requirements that must be met to meet that objective.

Accepted Answer

CASs (Canadian Auditing Standards) do indeed provide the overall objective of a financial statement auditor and set out the requirements to meet that objective.

Question 16

An intentional misstatement for an amount lower than both overall and performance materiality is still likely to be considered material.

Accepted Answer

Materiality is a relative measure, and even misstatements below the overall and performance materiality thresholds may still impact the judgment of a reasonable user. Therefore, intentional misstatements for amounts lower than overall and performance materiality are still likely to be considered material.

Question 17

Materiality levels determined at the planning stage are used to decide how much work to do on each financial statement account.

Accepted Answer

Materiality levels are used to determine the significance of financial statement accounts and to decide how much work should be done on each account during the audit process. This helps in efficient allocation of resources and focusing on high-risk areas.

Question 18

The overall audit strategy typically includes ________.
A)the detailed audit plan
B)specific procedures for determining inherent and control risk
C)decisions about unusual client accounting principles
D)audit evidence gathering procedures

Accepted Answer

The answer of The overall audit strategy typically includes ________.
A)the...

Question 19

Preliminary analytical procedures revealed that the gross profit margin increased unexpectedly from last year.As a result,the auditor should consider an increased risk of material misstatement in both sales and inventory.

Accepted Answer

An unexpected increase in gross profit margin may indicate that either sales have increased or inventory costs have decreased. Therefore, the auditor should consider an increased risk of material misstatement in both sales and inventory to ensure the increase in gross profit margin is not due to fraudulent activities.

Question 20

Materiality is primarily a quantitative calculation.

Accepted Answer

Materiality is not just a quantitative calculation but also involves a qualitative analysis of the information being presented. Materiality considers the overall significance, context, and user needs in determining the importance of information. Therefore, materiality is both a quantitative and qualitative assessment.

Quiz 5: Preliminary Audit Planning: Understanding the Auditees Business