BATCH20: AUD2

Audit programs are modified to suit the circumstances of particular engagements. A complete audit program usually should be developed

• A. When the engagement letter is prepared.
  

• B. After obtaining an understanding of the control environment and control activities components of the entity's internal control.

• C. After the auditor has obtained an understanding of the entity and its environment, including its internal control and assessed the risks of material misstatement.

• D. Prior to beginning the actual audit work.
  

In designing written audit programs, an auditor should establish specific audit objectives that relate primarily to the

• A. Selected audit techniques.

• B.. Cost-benefit of gathering audit evidence.

• C. Timing of audit procedures.

• D. Financial statement assertions.

An audit program should be designed for each individual audit and should incorporate steps and procedures to

• A. Detect and eliminate fraud of any type.

• B. Gather sufficient amount of management information available.
  

• C. Provide assurances that the objectives of the audit are satisfied.
  

• D. Insure that only material items are audited.

In connection with the planning phase of an audit engagement, which of the foliowing statements is always correct?

• A. Final staffing decisions must be made prior to completion of the planning stage.
  

• B. Observation of inventory count should be performed at year-end.

• C. A portion of the audit of a continuing audit client can be performed at interim dates.

• D. An engagement should not be accepted after the client's financial year-end.

Which of the following would an auditor most likely use in determining a preliminary judgment about materiality?

• A. The contents of the management representation letter.

• B. The anticipated sample size of the planned substantive tests.
  

• C. The entity's annualized interim financial statements.
  

• D. The results of internal control questionnaire.

A basic premise underlying analytical procedures is that

• A. Plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary.

• B. These procedures cannot replace tests of details of transactions and balances.

• C. Statistical tests of financial information may lead to the detection of material misstatements in the financial statements.
  

• D. The study of financial ratios is an acceptable alternative to the investigation of unusual fluctuations.
  

Which of the following statements concerning analytical procedures is true?

• A. Analytical procedures are more efficient, but not more effective, than tests of details of transactions.
  

• B. Analytical procedures used as risk assessment procedures use data aggregated at a high level.

• C. Analytical procedures can replace tests of controls in gathering audit evidence to support the assessed level of control risk.

• D. Analytical procedures usually involve comparisons of ratios developed from recorded amounts with ratios developed by management.
  

Internal auditing can affect the scope of the external auditor's audit of financial statements by

• A. Decreasing the external auditor's need to perform detailed tests.

• B. Eliminating the need to observe the physical inventory taking.

• C. Allowing the external auditor to limit his/her audit to the performance of substantive test procedures.
  

• D. Limiting direct testing by the external auditor to management assertions not directly tested by internal auditing.
  

The auditor's risk assessment procedures should always include the following, except

• A. Inquiries of management and of others within the entity.
  

• B. Analytical procedures.

• C. Observation and inspection.

• D. Substantive test procedures and tests of controls.

The auditor's risk assessment procedures

• A. By themselves, do not provide sufficient appropriate audit evidence on which to base the audit opinion.

• B. Should not consider information obtained from the auditor's previous experience with the entity.
  

• C. Are designed to detect material misstatements at the assertion level for classes of transactions, account balances and disclosures.
  

• D. Are designed to test the effectiveness of the entity's controls.