AUDIT LEC4: AUDIT PLANNING AND MATERIALITY

A measure of 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 is the

• inherent risk.

• acceptable audit risk.

• statistical risk.

• financial risk.

The first phase in planning an audit and designing an audit approach is to

• accept the client and perform initial audit planning.

• set the preliminary judgment of materiality.

• understand the client's business and industry.

• perform preliminary audit procedures.

_______ is the risk that the financial statements contain a material misstatement due to fraud or error prior to the audit.

• Inherent risk

• Client business risk

• Acceptable audit risk

• Risk of material misstatement

In what order should the following steps occur?

A. Set preliminary judgment of materiality and performance materiality.

B. Understand the clients business and industry.

C. Perform preliminary analytical procedures.

D. Accept the client and perform initial audit planning.

• D, B, C, A

• B, A, C, D

• B, D, A, C

• D, C, B, A

Initial audit planning involves four matters. Which of the following is not one of these?

• Develop an overall audit strategy.

• Request that bank balances be confirmed.

• Schedule engagement staff and audit specialists.

• Identify the client's reason for the audit.

A written understanding detailing what the auditor expects from the client in performing an audit will normally be expressed in the

• management letter requested by the auditor.

• engagement letter.

• audit Plan.

• audit Strategy for the client.

Which of the following statements is true regarding communications between predecessor and successor auditors?

• The burden of initiating the communication rests with the predecessor.

• The predecessor's response can be limited to stating that no information will be provided.

• The predecessor should communicate with the successor only if the client is public.

• The predecessor auditor of a public company does not need permission from the client before communicating with the successor auditor.

The purpose of an engagement letter is to

• document the CPA firm's responsibility to external users of the audited financial statements.

• document the terms of the engagement.

• notify the audit staff of an upcoming engagement so that personnel scheduling can be facilitated.

• emphasize management's responsibility for approving the audit program.

The written communication stating the auditor cannot guarantee that all acts of fraud will be discovered is found in the

• engagement letter.

• representation letter.

• responsibility letter.

• client letter.

The two major factors affecting acceptable audit risk are

• inherent risk and the intended uses of the financial statements.

• control risk and the intended uses of the financial statements.

• the likely statement users and their intended uses of the statements.

• the audit firm and the intended uses of the statements