What is the main output of the audit process?

• Management letter
• Audit program
• Audit opinion
• Audit plan

What is inherent risk?

• The risk that controls fail
• The risk that the auditor fails to detect a misstatement
• The susceptibility of an assertion to misstatement before controls
• The risk of material misstatement due to fraud

What is the primary objective of understanding the entity during an audit?

• To assess the entity's tax obligations
• To identify misstatements due to fraud
• To understand internal control deficiencie
• To identify and assess the risks of material misstatement

Answer explanation

Understanding the entity helps auditors assess risks of material misstatement, which is the foundation of risk-based auditing.

Which of the following is NOT typically included in understanding the entity?

• Nature of operations
• Entity's financial reporting framework
• Auditor’s remuneration
• Internal control environment

Answer explanation

Auditor’s remuneration is unrelated to understanding the client’s operations or environment.

What is the primary purpose of audit confirmations?

• To obtain understanding of internal controls
• To gather audit evidence directly from a third party
• To verify management representations
• To reduce audit fees

Which of the following is TRUE about positive confirmation?

• The recipient is asked to respond only if there is an error
• The auditor sends it to internal management
• The recipient is asked to respond in all cases
• It is used only when control risk is low

Answer explanation

Positive confirmations require a response whether the information is correct or not.

Which assertion is most directly related to overstatement of revenue?

• Completeness
• Occurrence
• Accuracy
• Valuation

Inventory physically counted is recorded in the books, but some consigned goods (owned by the company) at a third-party warehouse are excluded. Which assertion is most violated?

• Existence
• Completeness
• Rights and Obligations
• Valuation

Answer explanation

Though it seems like completeness, the issue is ownership — the company has rights to those consigned goods.

According to SA 230, the primary objective of audit documentation is to:

• Fulfill client requests for audit evidence
• Ensure the auditor is legally protected
• Provide a sufficient record as the basis for the audit opinion and demonstrate compliance with auditing standards
• Assist management in preparing financial statements

By when must the auditor complete the final audit file, according to SA 230 and Crowe policy?

• Before the audit report date
• No later than 60 days after the audit report date
• No later than 60 days after the financial statement date
• No later than 60 days after completion of fieldwork