Question 1

The independent auditor should acquire an understanding of the internal audit function as it relates to
the independent auditor's study and evaluation of internal control because (c.) The work performed by
internal auditors may be a factor in determining the nature, timing, and extent of the independent
auditor's procedures.

One of the factors that an independent auditors consider in determining the nature, timing and extent
of audit procedures to be performed is the understanding the internal audit function of an enity.
Understanding the internal audit function of an entity, how it operates, how it works enable the
independent auditor to know more about the entity being audited and can effectively assessed the level
of control risk to be recognized by an auditor and can help in determining the acceptable level of
detection risk for the effective conduct an audit. If the internal control of the entity is strong, it may
reduce the audit tasks of an auditor like when the auditor has an understanding that the entity's internal
control is functioning well and can be reiled on, the auditor may reduce the substantive test that he may
preform (performing less substantive procedures, performing the tests at interim and using smaller
sample size) but increasing tests of controls to provide evidence that the internal control is functioning
well and if the internal control is weak, the auditor must perform excessive substantive tests
(performing more effective substantive procedures, performing year-end prcedures and using larger
sample size) to detect material misstatements in the entity's financial statements due to weak internal
control. The work performed by an internal auditor, maintaining the reliability of the financial
statements to be audited by an independent auditor is essential to determine how much work the
auditor must perform in providing reasonable assurance that the financial statements are free from
material misstatements.

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Question 2

An auditor's purpose for further testing of internal control procedures is to (b.) Provide a basis for
reducing the assessed level of control risk below that which resulted from the auditor's initial
understanding of internal control.

Control risk is the risk that material misstatements that could occur in an account balance or class of
transactions will not be prevented or detected and corrected on a timely basis by accounting and
internal control systems. Control risk is related to the effectiveness of the client's internal control. If the
auditor has a knowledge that the internal control of an entity is strong and appears to be reliable, the
auditor should determine whether it is efficient to obtain evidence to justify an assessment of control
risk at a lower level. If the auditor concludes that it is more efficient to rely on the entity's internal
control systems, the auditor would plan to assess control risk at less than high level and thus the auditor
must perform further testing of internal control to determine the effectiveness of such policies and
procedures that he will rely on. Assessing the level of control risk at lower level means that the entity's
internal control is strong and reliable thus the auditor must perform further testing of control to obtain
evidence that the internal control is functioning well.

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Question 3

The factor that most likely affects the auditor's judgment about the quantity, type, and content of
working papers is (b.) The effectiveness of the existing internal control.

The effectiveness of an entity's internal control is one of the factor that affects the auditor's judgement
about the quantity, type and content of working papers the auditor need to be worked on. If the entity's
internal control is strong and can be relied on, the auditor's task can be reduced like the substantive
tests to be performed can be reduced for the internal control is functioning effectively but if the internal
control of an entity is weak, the auditor must perform excessive substantive test to determine material
misstatements potentially present in the financial statements of the entity. The auditor's judgement of
how much work he should do depends on the effectiveness of the internal control of an entity,
therefore, for the audit to be conducted effectively, the internal control of an entity must be effective
and functioning well.

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Question 4

Flowcharting as a means of internal control evaluation provides the following advantage over the use of
questionnaires and descriptive narratives because of it's (b.) Ease in following information flow.
Flowchart is one of the used form of documenting the auditor's understanding of the internal control of
the entity. Flowchart diagrams the flow of transactions and documents thus it ease in following the
information flow of the transaction and activities of an entity making it more useful to the auditor in
conducting an audit. Questionnaires and descriptive narratives can also be used but it is more easy and
convenient to use flowchart in documenting the auditor's understanding of the entity's internal control
for an auditor to trace up the activities that most likely fraud or errors can occured than questionnaires
and descriptive narratives that although they provide some useful information, it is much difficult to
trace up potential existence of fraud and error rather than in a flow chart diagram.

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Question 5

In connection with the examination of financial statements by an independent auditor, the client
suggests that members of the internal audit staff be utilized to minimize audit costs. Among the
following tasks the (b.) Preparation of schedules for negative accounts receivable responses could most
appropriately be delegated to the internal audit staff.

The preparation of schedules for negative accounts receivable responses can be delegated to the
members of internal audit staff to utilized the minimization of audit costs for the internal audit staff has
more knowledge about this for this occured under their care and the internal audit staff have access to
important documents and information within the entity about the receivables and other necessary
information needed in preparing the schedule of this negative receivables and to minimize the audit
costs of an enity. The internal audit of the company is responsible for maintaining the reliability of
financial statements information needed by an auditor in conducting an audit for an audit to be
successful in providing reasonable assurance that financial statements are free from material
misstatements due to fraud or errors.