Name: Mahusay, Jeth A.

Date: December, 2020

Year: BSA-3 Instructor:Ms. Anna Mae Magbanua, CPA
Subject: Auditing and Assurance Principle
 
Module 2: AUDIT PHASE 1 
Lesson 4: Audit Planning 
 
Learning Activity: 
Review Exercises 
 
 
1. When obtaining an understanding of an entity's control environment,
an auditor should concentrate on the substance of management's policies
and procedures rather than their form because  
a. The auditor may believe that the policies and procedures are
inappropriate for that particular entity 
b. The board of directors may not be aware of management's
attitude toward the control environment 
c. Management may establish appropriate policies and procedures
but not act on them 
d. The policies and procedures may be so weak that no reliance is
contemplated by the auditor 
 
2. After studying and evaluating a client's existing internal control, an
auditor has concluded that the policies and procedures are well designed
and functioning as intended. Under these circumstances, the auditor
would most likely 
a. Perform further control tests to the extent outlined in the audit
program 
b. Determine the control policies and procedures that should
prevent or detect errors and fraud 
c. Set detection risk at a higher level than would be set under
conditions of weak internal control 
d. Set detection risk at a lower level than would be set under
conditions of weak internal control 
 
3. An auditor evaluates the existing internal control in order to 
a. Determine the extent of substantive tests which must be
performed 
b. Determine the extent of control tests which must be performed 
c. Ascertain whether irregularities are probable 
d. Ascertain whether any employees have incompatible functions 
  
4. Which of the following procedures would an auditor most likely
perform in planning a financial statement audit? 
a. Inquiring of the client's legal counsel concerning
pending litigation 
b. Comparing the financial statements to anticipated results 
c. Examining computer generated exception reports to verify the
effectiveness of internal controls 
d. Searching for unauthorized transactions that may aid in
detecting unrecorded liabilities 
 
5. Analytical procedures used in planning an audit should focus on 
a. Reducing the scope of tests of controls and substantive tests 
b. Providing assurance that potential material misstatements will be
identified 
c. Enhancing the auditor's understanding of the client's business 
d. Assessing the adequacy of the available evidential matter 
 
6. Analytical procedures, which means the analysis of significant ratios
and trends including the resulting investigation of fluctuations
and relationships that are inconsistent with other relevant information or
which deviate from predicted amounts are not required to be applied 
a. At the planning stage of the audit 
b. Overall review stage of the audit 
c. As substantive procedures 
d. None of the above 
 
7. Which of the following statements is correct concerning analytical
procedures? 
a. Analytical procedures usually involve comparisons of ratios
developed from recorded amounts to assertions developed by
management 
b. Analytical procedures used in planning an audit generally use
data aggregated at a high level 
c. Analytical procedures can replace tests of controls in gathering
evidence to support the assessed level of control risk 
d. Analytical procedures are more efficient, but not more effective,
than tests of details and transactions 
 
8. Which of the following is an effective audit planning and control
procedures that helps prevent misunderstandings and inefficient use of
audit personnel? 
a. Make copies, for inclusion in the working papers, of those client
supporting documents examined by the auditor 
 b. Provide the client with copies of the audit programs to be used
during the audit 
c. Arrange a preliminary conference with the client to discuss audit
objectives, fees, timing, and other information 
d. Arrange to have the auditor prepare and post any necessary
adjusting or reclassification entries prior to final closing 
 
9. Which of the following is an aspect of scheduling and controlling the
audit engagement? 
a. Including in the audit program a column for estimated and actual
time 
b. Performing audit work only after the client's books of account
have been closed for the period under examination 
c. Writing a conclusion in individual working papers indicating how
the results of the audit will affect the auditor's report 
d. Including in the engagement letter an estimate of the minimum
and maximum audit fee 
 
10. Which of the following is an engagement attribute for an audit of
an entity that processes most of its financial data in electronic form
without any paper documentation? 
a. Discrete phases of planning, interim, and year-end field work 
b. Increased effort to search for evidence of management fraud 
c. Performance of audit tests on a continuous basis 
d. Increased emphasis on the completeness assertion 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Lesson 5: Internal Control Consideration Introduction 
 
Learning Activity: 
Review Exercises 
 
1. Which of the following is correct regarding internal control system? 
a. Internal control system refers to all the policies and procedures
adopted by the auditor to assist in achieving management's
objective 
b. A strong environment, by itself, ensure the effectiveness of the
internal control system 
c. In the audit of financial statements, the auditor is only
concerned with those policies and procedures within the accounting
and internal control systems that are relevant to the financial
statements 
d. The internal control system is confined to those matters which
relate directly to the functions of the accounting system 
 
2.  Which of the following is correct about internal control? 
a. Accounting and internal control systems provide management
with conclusive evidence that objectives are reached 
b. One of the inherent limitations of accounting and internal control
systems is the possibility that the procedures may become
inadequate due to changes in conditions, and compliance with
procedures may deteriorate 
c. Most internal controls tend to be directed at non-routine
transactions 
d. Management does not consider costs of the accounting and
internal control systems 
 
3. Corporate directors, management, external auditors, and internal
auditors all play important roles in creating a proper control environment.
Top management is primarily responsible for 
a. Establishing a proper environment and specifying overall internal
control 
b. Reviewing the reliability and integrity of financial information and
the means used to collect and report such information 
c. Ensuring that external and internal auditors adequately monitor
the control environment 
d. Implementing and monitoring controls designed by the board of
directors 
 
4. In an audit of financial statements, an auditor's primary consideration
regarding a control is whether it 
a. Reflects management's philosophy and operating style 
b.  Affects management's financial statement assertions 
c. Provides adequate safeguards over access to assets 
d. Enhances management's decision-making processes 
 
5. Effective internal control 
a. Eliminates risk and potential loss to the organization 
b. Cannot be circumvented by management 
c. Is unaffected by changing circumstances and conditions
encountered by the organization 
d. Reduces the need for management to review exception reports
on a day-to-day basis 
 
6. Which of the following statements about internal control is correct? 
a. Properly maintained internal controls reasonably assure that
collusion among employees cannot occur 
b. Establishing and maintaining internal control is the
internal auditor’s responsibility 
c. Exceptionally strong control allows the auditor to
eliminate substantive tests 
d. The cost-benefit relationship should be considered in designing
internal control. 
 
7. A proper understanding of the client's internal control is an integral
part of the audit planning process. The results of the understanding 
a. Must be reported to the shareholders and the SEC 
b. Bear no relationship to the extent of substantive testing to be
performed 
c. Are not reported to client management 
d. May be used as the basis for withdrawing from an
audit engagement 
 
8.  Audit evidence concerning segregation of duties ordinarily is best
obtained by 
a. Performing tests of transactions that corroborate management's
financial statement assertions 
b. Observing the employees as they apply specific controls 
c. Obtaining a flowchart of activities performed by
available personnel 
d. Developing audit objectives that reduce control risk 
 
9. Based on a consideration of internal control completed at an interim
date, the auditor assessed control risk at a low level and performed
interim substantive tests. The records and procedures would most likely
be tested again at year-end if 
a. Tests of controls were not performed by the internal auditor
during the remaining period 
b. Internal control provides a basis for limiting the extent of
substantive testing 
c. The auditor used nonstatistical sampling during the interim
period testing of controls 
d. Inquiries and observations lead the auditor to believe that
conditions have changed 
 
10. Although substantive tests may support the accuracy of
underlying records, these tests frequently provide no affirmative evidence
of segregation of duties because 
a. Substantive tests rarely guarantee the accuracy of the records if
only a person who performs incompatible functions 
b. The records may be accurate even though they are maintained
by a person who performs incompatible functions 
c. Substantive tests relate to the entire period under audit, but
tests of controls ordinarily are confined to the period during which
the auditor is on the client's premises 
d. Many computerized procedures leave no audit trail of who
performed them, so substantive tests may necessarily be limited to
inquiries and observation of office personnel