Chapter 8 Audit Planning Study

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Chapter 8 Audit Planning

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Human Resource Management

15th Edition
John David Jackson, Patricia Meglich, Robert Mathis, Sean Valentine

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1. The development of a general D

strategy and a detailed
approach for the expected
nature, timing, and extent of
audit refers to:

a. Supervision b. Audit
procedures c. Directing d.
Planning
Chapter
2. The auditor8 Audit
should Planning
consider D Study
the nature, extent, and timing of
the work to be performed and
should prepare a written audit
program for every audit. Which
audit standard is most closely
related to this requirement?

a. The audit is to be performed

by a person or persons having
adequate technical training and
proficiency as an auditor.

b. In all matters relating to the

assignment, an independent
mental attitude is to be
maintained by the auditor(s).

c. Due professional care is to be

exercised in the planning and
performance of the audit and
preparation of the report.

d. The work is to be adequately

planned and assistants, if any,
are to be properly supervised.

3. Which of the following would D

a successor auditor normally
perform after acceptance of an
audit client?

a. Inquiry of predecessor
auditor regarding the client.

b. Review the SEC filings of the

client.

c. Inquiry of bankers regarding

the client.

d. Review of predecessor
auditor working papers.
Chapter 8understanding
4. To obtain an Audit Planning
of B Study
a continuing client's business in
planning an audit, an auditor
most likely would

a. Perform tests of details of

transactions and balances.

b. Review prior-year working

papers and the permanent file
for the client.

c. Read specialized industry

journals.

d. Reevaluate client's internal

control environment.
Chapter 8 following
5. Which of the Audit Planning
is B Study
required documentation in an
audit in accordance with
generally accepted auditing
standards?

a. A flowchart or narrative of the

information system describing
the recording and classification
of transactions for financial
reporting.

b. An audit program setting

forth in detail the procedures
necessary to accomplish the
engagement's objectives.

c. A planning memorandum
establishing the timing of the
audit procedures and
coordinating the assistance of
entity personnel.

d. An internal control
questionnaire identifying
policies and procedures that
assure specific objectives will
be achieved.
Chapter 8 following
6. Which of the Audit Planning B Study
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.

7. Analytical procedures used in C

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.
Chapter 8 Audit which
8. Analytical procedures, Planning C Study
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 c. As substantive
procedures

b. Overall review stage of the

audit d. None of the above
Chapter 8following
9. Which of the Audit Planning B Study
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.
Chapter 8 Audit
10. Which of the followingPlanning
is an C Study
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.
Chapter 8 following
11. Which of the Audit Planning
is an A Study
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.
Chapter 8 following
12. Which of the Audit Planning
is an C Study
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.
Chapter 8 Audit
13. Which of the followingPlanning B Study
statements is not correct about
materiality?

a. The concept of materiality

recognizes that some matters
are important for fair
presentation of financial
statements in conformity with
GAAP, while other matters are
not important.

b. An auditor considers
materiality for planning
purposes in terms of the largest
aggregate level of
misstatements that could be
material to any one of the
financial statements.

c. Materiality judgments are

made in light of surrounding
circumstances and necessarily
involve both quantitative and
qualitative judgments.

d. An auditor's consideration of
materiality is influenced by the
auditor's perception of the
needs of a reasonable person
who will rely on the financial
statements.
Chapter 8 the
14. The risk that Audit Planning
assertion A Study
contains material misstatements
that, when aggregated with
misstatements in other
assertions, could make the
entire financial statements
materially misstated is:

a. Individual audit risk b.

Inherent risk c. Control risk d.
Detection risk

15. Incremental risk is the A

increased risk that errors may
not be detected at the balance
sheet date because:

a. Audit procedures were

performed at an interim date

b. Inherent risk was assessed

too low.

c. Analytical procedures were

not performed.

d. Detection risk was set too

high a level.
Chapter 8 Audit
1. Adequate planning Planning
of the A Study
audit work helps the auditor of
accomplishing the following
objectives, except:

a. Gathering of all
corroborating audit evidence.

b. Ensuring that appropriate

attention is devoted to
important areas of the audit.

c. Identifying the areas that

need a service of an expert.

d. The audit work is completed

efficiently.

2. The extent of planning will D

vary according to any of the
following, except:

a. Size of the audit client.

b. Auditor's experience with the

entity and knowledge of the
business.

c. The nature and complexity of

the audit engagement

d. The assessed level of control

risk.
Chapter 8 following
3. Which of the Audit Planning
is least D Study
likely considered by the auditor
in developing the overall audit
plan?

a. Understanding of the
accounting and internal control
systems.

b. Relevant risk and materiality.

c. The involvement of other

auditors in the audit of major
component of financial
statements

d. The general level of

competence of audit assistants.

4. Which of the following is not C

considered by the CPA when he
makes an overall audit plan?

a. Identification of complex
accounting areas including
those involving accounting
estimates.

b. The information technology

used by the client.

c. The content of the

representation letters.

d. The nature and timing of

reports or other communication
with the entity that are
expected under the
engagement.
Chapter 8 Audit
5. Audit plan should
Planning C Study
A B C D

A. Precede action Yes No Yes

No

B. Be fixed Yes No No Yes

C. Be cost beneficial Yes Yes Yes

Yes

6. Which of the following least B

likely affect the form and
content of the overall audit
plan?

a. Complexity of the audit

engagement.

b. Methodology and
technology used by the auditor.
c. The entity's form of business
organization.

d. The size of the entity.

7. The audit program should D

contain the following, except:

a. Audit objective

b. Time budget for the various

audit areas

c. Set of planned audit

procedures

d. The combined assessed level

of inherent and control risk
Chapter 8 following
8. Which of the Audit will
Planning A Study
most likely help the auditor to
identify and understand the
events, transactions and
practices of his audit client?

a. Obtaining a sufficient
knowledge of the business of
his client.

b. Understanding of accounting
and internal control.

c. Testing control policies and

procedures.

d. Obtaining a representation
letter from the client
management.

9. The auditor should have or C

obtain a knowledge of the
client's business sufficient to:

a. Evaluate whether the financial

statements are materially
misstated.

b. Document material
weaknesses in accounting and
internal control systems.

c. Identify and understand

events, transactions and
practices that may have effect
on financial statements.

d. Have an overall evaluation of

whether financial assertions are
fairly presented in the financial
statements.
Chapter
10. The auditor8isAudit Planning
not expected A Study
to have

a. A particular knowledge of the

economy and the industry
within which the entity operates.
b. A particular knowledge of
how the entity operates.

c. A level of knowledge of
business ordinarily less than that
possessed by management.

d. A knowledge of business
which is used in assessing
inherent and control risk.

11. The auditor obtains C

knowledge of client's business

A B C D

Prior to acceptance of
engagement No No Yes Yes

Planning stage of the audit Yes

Yes Yes No

Testing of transactions stage No

Yes Yes Yes

12. Understanding the business A

and using this information
appropriately assists the auditor
in, except

a. Deciding whether to do tests

of controls.
b. Evaluating audit evidence.

c. Assessing risks and

identifying potential problems.

d. Planning and performing the

audit effectively and efficiently.
Chapter 8 Audit
13. Which of the followingPlanning
is the A Study
ultimate concern of the
knowledge about the business?

a. Consideration of how it
affects the financial statements
taken as a whole.

b. Assists the auditor in

enforcing quality control
procedures.

c. To assure that sufficient audit

evidence is obtained.

d. It assists in determining the

type of audit report to be
issued.

14. A knowledge of the business C

is a frame of reference within
which the auditor exercises
professional judgment. This
assists the auditor in carrying
out the following objectives,
except: a. Assessing risks and
identifying problems.

b. Evaluating audit evidence.

c. Determining the audit opinion

to be expressed.
d. Planning and performing the
audit effectively and efficiently.
Chapter 8the
15. Throughout Audit
coursePlanning
of the D Study
audit, the auditors make
judgment about many matters
where knowledge of the
business is important. These
procedures do not include: a.
Evaluating accounting estimates
and management
representations.

b. Identifying related parties

and related party transactions.

c. Assessing inherent and

control risks.

d. Assessing the
appropriateness of using
statistical sampling instead of
judgmental sampling.
Chapter 8 Audit
16. Which of the followingPlanning A Study
factors is inappropriately
relevant to the management's
assessment of the going
concern assumption?

a. The degree of uncertainty

associated with the outcome of
an event or condition decreases
significantly the further into the
future of judgment being made
about the outcome of an event
or condition.

b. Any judgment about the

future is based on information
available at the time at which
the judgment is made.
c. The size and complexity of
the entity, and the nature and
conditions of its business affect
the judgment regarding the
outcome of events or
conditions.

d. Subsequent events can

contradict a judgment which
was reasonable at the time it
was made.
Chapter 8 following
17. Which of the Audit Planning
may A Study
not cast significant doubt about
the going concern assumption
of an entity.

a. The entity heavily used equity

financing for investment in
permanent assets.

b. Non-compliance with capital

or other statutory requirements.

c. Pending legal or regulatory

proceeding against the entity
that may, if successful, result in
claims that are unlikely to be
satisfied.

d. Changes in legislation or
government policy expected to
adversely affect the entity.
Chapter 8 Audit
18. When events Planning
or conditions D Study
have been identified which may
cast significant doubt on the
entity's ability to continue as a
going concern, the auditor
should:

a. Review management's plans

for future actions based on its
going concern assessment.
b. Gather sufficient appropriate
audit evidence to confirm or
dispel whether or not a material
uncertainty exists through
carrying out procedures
considered necessary, including
considering the effect of any
plans of management and other
mitigating factors.

c. Seek written representations

from management regarding its
plans for future action.

d. All of the above.

19. Which of the following A

proposed actions may mostly
mitigate the going concern
problem of an entity?

a. Rescheduling of loan
payments.

b. More vigorous business

expansion.

c. Acquiring asset replacement

using short-term loans.

d. Increasing the amount of

cash dividends to be paid.
Chapter 8 Audit
20. The following Planning
are related to D Study
the auditor's responsibility to
assess the ability of the
company to continue as a going
concern?

I. The auditor should consider

the appropriateness of the
management's use of the going
concern assumption in the
preparation of the financial
statements.

II. The auditor is to consider

whether there are material
uncertainties about the entity's
ability to continue as a going
concern that needs to be
disclosed in the financial
statements.

III. The absence of any

reference to going concern
uncertainty in the auditor's
report is viewed as a guarantee
as to the entity's ability to
continue as a going concern.
Which of the foregoing
inappropriately describe(s) the
auditor's responsibility?

a. I only b. I and II only c. II only

d. III only
Chapter
21. The auditor8considers
Audit events
Planning C Study
and condition relating to the
going concern assumption
during the planning stage in
order to:

a. Help management do action

that may mitigate its going
concern problems.

b. Identifying the areas of

accounting and internal control
systems that need tests of
control.

c. To have a timely discussion

with management and a review
of management's plans and
resolutions of any identified
going concern issues.

d. In order to shorten
assessment period.
Chapter 8 disclosure
22. If adequate Audit Planning
is not C Study
made by the entity regarding
substantial doubt about its
ability to continue as a going
concern, the auditor should
include in his report specific
reference to the substantial
doubt as to ability of the
company to continue as a going
concern and should express:

a. Unqualified opinion with

explanatory paragraph

b. A subject to qualified opinion

or adverse opinion.

c. Either an "except for"

qualified opinion or an adverse
opinion.

d. A disclaimer of opinion.

23. If the auditor believes that C

the entity will not be able to
continue as a going concern
and the financial statements are
prepared on a going concern
basis, the auditor's report
should include: a. Unqualified
opinion with explanatory
paragraph. c. Adverse opinion.

b. Qualified opinion. d.
Disclaimer of opinion.
Chapter 8 Audit
24. If the auditor believes Planning
that D Study
management should extend its
assessment but the latter
refuses to do so, the auditor
should:

a. Rectify the lack of analysis by

management.

b. Extend his audit procedures

to obtain sufficiently
appropriate evidence regarding
the use of the going concern
assumption.

c. Emphasize this matter in the

audit report.

d. Consider a modification of
the report as a result of the
limitation in the scope of the
auditor's work.
Chapter 8 Audit
25. The management Planning
denied the A Study
auditor's request that the
management has to extend its
assessment of its going concern
ability. However, the auditor's
other procedures are sufficient
to assess the appropriateness of
management use of the going
concern assumption in the
preparation of the financial
statements. he auditor should
issue:

a. Unqualified opinion c.
Adverse opinion

b. Unqualified opinion with

explanatory paragraph d.
Disclaimer of opinion

1. This refers to the development C

of a general strategy and a
detailed approach for the
expected nature, timing and
extent of audit refers to:

A. Supervision C. Audit planning

B. Direction D, Pre-engagement
Chapter 8 Audit
2. Proper planning assuresPlanning
that D Study
(select the exception ):

A. Appropriate attention is
devoted to important areas of
the audit.

B. Potential problems ate

Identified.

C. Work is completed
expeditiously,

D. An unqualified opinion
isexpressed.

3. The outputs of audit planning D

are:

A. An overall audit strategy that

sets out the direction, scope
and focus of the audit team's
efforts

B. A detailed audit plan

containing the nature, extent,
and timing of risk assessment
procedures and planned further
audit procedures at the
assertion level.

C. Audit programs, tailored as

needed to reflect the particular
engagement circumstances.

D. All of the answers

Chapter 8 Audit
4. An audit plan Planning
contains the A Study
nature, extent, and timing of
procedures for gathering
evidence.Regarding audit
procedures, which of the
following best describes risk
assessment procedures?

A. This category of procedures

is used to obtain an
understanding of the entity and
its environment, including its
internal control, to assess the
risks of material misstatement at
the financial statement and
assertion levels.

B. This category of procedures

is used to test the operating
effectiveness of controls in
preventing, or detecting and
correcting, material
misstatements at the assertion
level.

C. This category of procedures

is used to detect material
misstatements at the assertion
level.

D. All of these statements

describe risk assessment
procedures.
Chapter 8 planning
5. The extent of Audit will
Planning D Study
vary according to the following:

A. Size of the audit client.

B. Auditor's experience with the

entity and knowledge of the
business.

C. The nature and complexity of

the audit engagement

D. All of these affect the extent

of planning.

6. PSA 315 requires:

D
A. Obtaining an understanding
of the entity and its environment

B. Discussion among
engagement team members
about the risk of material
misstatement in the financial
statements.

C. Identifying and assessing the

risks of material misstatement

D. All of the answers.

Chapter 8following
7. Which of the Audit Planning B Study
statements best describes
"observation"?

A. Physical examination of
tangible assets. or the
examination of records or
documents, whether internal or
external, in paper form.
electronic form, or other media.

B. Looking at a process or
procedure being performed by
others,

C. Seeking information of
knowledgeable persons, both
financial and non-
financialinformation.

D. Evaluating financial
information through a study of
plausible relationships among
both financial and non-financial
data.
Chapter 8 understanding
8. The auditor's Audit Planning D Study
of the entity and Its
environment consists an
understanding of the following
aspects:

A. Industry, regulatory and

other external factors, including
the applicable financial
reporting framework

B. Nature of the entity, Including

the entity's selection and
application of accounting
policies

C. Objectives and strategies and

the related business risks that
may result in a material
misstatement of the financial
statements

D. All of these
Chapter 8 Audit
9. An auditor obtains an Planning D Study
understanding of the entity and
Its environment in order to

A. Make constructive
suggestions concerning
improvements to the client's
Internal control.

B. Develop an attitude of
professional skepticism
concerning management's
financial statement assertions

C. Evaluate whether the

aggregation of known
misstatements causes the
financial statements taken as a
whole to be materially
misstated.

D. Understand the events and

transactions that may have an
effect on the client's financial
statements.

10. A person or firm possessing A

special skill, knowledge and
experience in a particular field
excluding accounting and
auditing.

A. Expert C. Multi skilled

personnel

B. Quality control reviewer D.

Taxation specialist
Chapter
11. In which of8
theAudit Planning
following A Study
situations would an expert be
least likely contracted by a
CPA?

A. Application of accounting
methods in computing inventory
balances.

B. Determination of fair values

using specialized statistical
techniques.

C. Legal opinions concerning

interpretations of engagements,
statutes and regulations.

D. Valuations of certain types of

assets like land and buildings.

12. Religious Corp. has a few A

large accounts receivable that
total P1,000,000. Pilgrim Corp.
hasa large number of small
accounts receivable that also
total P1,000,000. The
importance of an error in any
one account is, therefore,
greater for Religious Corp. than
for Pilgrim Corp.

This is an example of the

auditor's concept of.

A. Materiality C. Reasonable
assurance.

B. Comparative analysis D.
Relative risk.
Chapter 8 Audit
13. In considering Planning
materiality for D Study
planning purposes, an auditor
believes that misstatements
aggregating P10,000 would
have a material effect on an
entity's profit and loss, but that
misstatements would have to
aggregate P20,000 to materially
affect the statement of financial
position. Ordinarily, it would be
appropriate to design auditing
procedures that would be
expected to detect
misstatements' that aggregate:

A. P30,000 B. P20,000 C.
P15,000 D. P10,000

14. When the auditors allocate C

the preliminary judgment about
materiality to account balances,
the materiality allocated to any
given account balance is
referred to as:

A. The error range C. Tolerable

misstatement.

B. The materiality range. D.

Tolerable materiality.
Chapter
15. Regardless8ofAudit
how thePlanning D Study
allocation of the preliminary
judgment about materiality was
done, when the audit is
complete the auditor must be
confident that the combined
errors in all accounts are

A. Less than the preliminary

judgment

B. Equal to the preliminary

judgment

C. More than the preliminary

judgment.

D. Less than or equal to the

preliminary judgment.

16. The relationship between B

materiality and audit risk is:

A. Direct. B. Inverse. C.
Indeterminable. D. None of
these.

17. When setting a preliminary A

judgment about materiality,

A. More evidence is required

for a low peso amount than for
a high peso amount.

B. Less evidence IS required for

a low peso amount than for a
high peso amount.

C. The same amount of

evidence is required for either
low or high peso amounts.

D. There is no relationship
between it and the peso
amount of evidence needed.
Chapter 8 Audit
18. These are events or Planning B Study
conditions that provide an
opportunity, a motive or a
means to commit fraud, or
indicate that fraud may already
have occurred,

A. Audit risk. C. Risk of material

misstatement.

B. Fraud risk factors. D. Fraud

indications.

19. Which of the following C

characteristics most likely would
heighten an auditor's concern
about the risk of intentional
manipulation of financial
statements?

A. Turnover of senior
accounting personnel is low

B. Insiders recently purchased

additional shares of the entity's
stock

C. Management places
substantial emphasis on
meeting earnings projections

D. The rate of change in the

entity's industry is slow.
Chapter
20. This refers8
toAudit
acts of Planning C Study
omission or commission by the
entity being audited which are
contrary to prevailing laws or
regulations:

A. Fraud B. Error C. Non-

compliance D. Misstatements

21. One of the considerations in D

audit planning is obtaining a
knowledge of the client's
business.An auditor obtains
knowledge about a new client's
business and its industry to

A. Make constructive
suggestions concerning
improvements to the client's
internal control.

B. Develop an attitude of
professional skepticism
concerning management's
financial statement assertions.

C. Evaluate whether the

aggregation or known
misstatements causes the
financial

statements taken as a whole to

be materially misstated.

D. Understand the events and

transactions that may have an
effect on the client's financial
statements.
Chapter
22. When the 8 Audit auditor
continuing Planning C Study
intends to use information
about the entity and its
environment obtained in prior
periods, the auditor should

A. Seek permission with the

client in using the prior period
information obtained by
theauditor.

B. Determine whether to
equitably reduce the audit fee
due to lower audit effort
expended during the
engagement.

C. Determine whether changes

have occurred that may affect
the relevance of such
information in the current audit.

D. Assess control risk as "high"

for the assertions affected by
the prior-period information.
Chapter
23. According8toAudit
PSA 315,Planning
the D Study
auditor should document:

A. The discussion among the

engagement team

B. Key elements of the

understanding obtained
regarding each of the aspects
of the entity and its
environment, including each of
the internal control components

C. The identified and assessed

risks of material misstatement at
the financial statement level and
at the assertion level, the risks
identified and related controls
evaluated

D. All of the choices

Chapter 8 an
24. In obtaining Audit Planning E Study
understanding of a client's
objectives, strategies and
related business risks,
theauditor would most likely
consider the following as
business risks, except:

A. The entity does not have the

personnel or expertise to deal
with the changes in the industry.

B. There is increased product

liability.

C. Demand has not been

accurately estimated.

D. The entity relies more on

debt financing rather than
equity financing.

E. All of the above are

considered.

25. A reason to establish A

internal control is to:

A. Have a basis for planning the

audit.

B. Provide reasonable
assurance that the objectives of
the organization are achieved.

C. Encourage compliance with

organizational objectives.

D. Ensure the accuracy,

reliability and timeliness of
information.
Chapter 8 how
1. A measure of Audit Planning
willing the B Study
auditor is to accept that the
financial statements may be
materially misstated after the
audit is completed and an
unmodified opinion has been
issued is the

A. Inherent risk.

B. Acceptable audit risk.

C. Control risk.

D. Detection risk.

2. Which of the following is not D

one of the three primary
objectives of effective internal
control?

A. Reliability of financial
reporting.

B. Efficiency and effectiveness

of operations.

C. Compliance with laws and

regulations.

D. Assurance of elimination of
business risk.
Chapter 8 following
3. Which of the Audit Planning C Study
statements concerning the
relevance of various types of
controls to a financial statement
audit is correct?

A. All controls are ordinarily

relevant to a financial statement
audit.

B. Controls over safeguarding of

assets and liabilities are of
primary importance, while
controls over the reliability of
financial reporting may also be
relevant.

C. Controls over the reliability

of financial reporting are
ordinarily most directly relevant
to a financial statement audit,
but other controls may also be
relevant.

D. An auditor may ordinarily

ignore a consideration of
controls when a substantive
audit approach is taken.
Chapter
4. An auditor 8 Audit
should Planning
consider C Study
two key issues when obtaining
an understanding of a client's
internal controls. These issues
are

A. The effectiveness and

efficiency of the controls.

B. The frequency and

effectiveness of the controls.

C. The design and

implementation of the controls.

D. The implementation and

efficiency of the controls.

5. Authorizations can be either B

general or specific. Which of the
following is not an example of a
general authorization?

A. Automatic reorder points for

raw materials inventory.

B. A sales manager's
authorization for a sales return.

C. Credit limits for various

classes of transactions.

D. A sales price list for

merchandise.
Chapter 8 Audit
6. An auditor should Planning
obtain B Study
sufficient knowledge of an
entity's information system,
including the related business
processes relevant to financial
reporting, to understand the

A. Policies used to detect the

concealment of fraud.

B. Process used to prepare

significant accounting estimates.

C. Safeguards used to limit

access to computer facilities.

D. Procedures used to assure

proper authorization of
transactions.
Chapter 8following
7. Which of the Audit Planning C Study
controls most likely would
provide reasonable assurance
that all credit sales transactions
of an entity are recorded?

A. The accounting department

supervisor controls the mailing
of monthly statements to
customers and investigates any
differences reported by
customers.

B. The accounting department

supervisor independently
reconciles, on a monthly basis,
the accounts receivable
subsidiary ledger to the
accounts receivable control
account.

C. The billing department

supervisor matches
prenumbered shipping
documents with entries in the
sales journal.

D. The billing department

supervisor sends copies of
approved sales orders to the
credit department for
comparison to authorized credit
limits and current customer
account balances.
Chapter 8 following
8. Which of the Audit Planning C Study
control activities in an entity's
revenue/receipt cycle would
provide reasonable assurance
that all billed sales are correctly
posted to the accounts
receivable ledger?

A. Each shipment of goods on

credit is supported by a
prenumbered sales invoice.

B. The accounts receivable

subsidiary ledger is reconciled
daily to the accounts receivable
control account in the general
ledger.

C. Daily sales summaries are

compared to daily postings to
the accounts receivable ledger.

D. Each sales invoice is

supported by a prenumbered
shipping document.
Chapter 8following
9. Which of the Audit Planning C Study
controls is not usually
performed in the accounts
payable department?

A. Indicating on the voucher the

affected asset and expense
accounts to be debited.

B. Approving vouchers for

payment by having an
authorized employee sign the
vouchers.

C. Accounting for unused

prenumbered purchase orders
and receiving reports.

D. Matching the vendor's

invoice with the related
purchase requisition, purchase
order, and receiving report.
Chapter 8 Audit
10. After gaining an Planning B Study
understanding of internal
control and assessing the risks
of material misstatement, an
auditor decided to perform
tests of controls. The auditor
most likely decided that

A. Additional evidence to
support a further reduction in
control risk is not available.

B. It is not possible or
practicable to reduce the risks
of material misstatement at the
assertion level to an acceptably
low level with audit evidence
obtained only from substantive
test procedures.

C. There were many internal

control weaknesses that could
allow misstatements to enter the
accounting system.

D. An increase in the assessed

level of control risk is justified
for certain financial statement
assertions.
Chapter
11. An auditor 8 Audit
may decide Planning
to A Study
assess control risk at the
maximum level for certain
assertions because the auditor
believes

A. Controls are unlikely to

pertain to the assertions.

B. The entity's control

components are interrelated.

C. Sufficient appropriate audit

evidence to support the
assertions is likely to be
available.

D. More emphasis on tests of

controls than substantive tests is
warranted.
Chapter 8 following
12. Which of the Audit Planning A Study
statements is correct
concerning an auditor's
assessment of control risk?

A. Assessing control risk may be

performed concurrently during
an audit with obtaining an
understanding of the entity's
internal control.

B. Evidence about the operation

of controls in prior audits may
not be considered during the
current year's assessment of
control risk.

C. The basis for an auditor's

conclusions about the assessed
level of control risk need not be
documented unless control risk
is assessed at the maximum
level.

D. The lower the assessed level

of control risk, the less
assurance the evidence must
provide that the controls are
operating effectively.
Chapter 8 Audit
13. In performing Planning
tests of the A Study
operating effectiveness of an
entity's controls, an auditor
selects from a variety of
techniques, including

A. Reperformance and
observation.

B. Inquiry and analytical

procedures.

C. Comparison and
confirmation.

D. Inspection and verification.

14. Which of the following tests B

of controls most likely would
help assure an auditor that
goods shipped are properly
billed?

A. Scan the sales journal for

sequential and unusual entries.

B. Examine shipping documents

for matching sales invoices.

C. Compare the accounts

receivable ledger to daily sales
summaries.
D. Inspect unused sales invoices
for consecutive prenumbering.
Chapter 8are
15. When there Audit Planning
numerous C Study
property and equipment
transactions during the year, an
auditor who plans to assess
control risk at a low level usually
performs

A. Tests of controls and

extensive tests of property and
equipment balances at the end
of the year.
B. Analytical procedures for
current year property and
equipment transactions.

C. Tests of controls and limited

tests of current year property
and equipment transactions.

D. Analytical procedures for

property and equipment
balances at the end of the year.

1. Which of the following would B

an auditor most likely use in
determining the auditor's
preliminary judgment about
materiality?

A. The anticipated sample size

of the planned substantive tests.

B. The entity's annualized interim

financial statements.

C. The results of the internal

control questionnaire.

D. The contents of the

management representation
letter.
Chapter 8 following
2. Which of the Audit Planning D Study
statements concerning
materiality is not correct?

A. When establishing the overall

audit strategy, the auditor shall
determine materiality for the
financial statements as a whole.

B. If, in the specific

circumstances of the entity,
there is one or more particular
classes of transactions, account
balances or disclosures for
which misstatements of lesser
amounts than materiality for the
financial statements as a whole
could reasonably be expected
to influence the economic
decisions of users taken on the
basis of the financial statements,
the auditor shall also determine
the materiality level or levels to
those particular classes of
transactions, account balances
or disclosures.

C. Determining materiality
involves the exercise of
professional judgment.

D. The materiality level for the

financial statements as a whole
determined in the planning
stage of the audit should not be
affected by changes in the
circumstances of the
engagement.
Chapter 8 Audit used
3. Analytical procedures Planning
in C Study
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 and identifying areas
of potential risk.

D. Assessing the adequacy of

the available evidential matter.

4. Which of the following would B

not be considered an analytical
procedure?

A. Estimating payroll expense

by multiplying the number of
employees by the average
hourly wage rate and the total
hours worked.

B. Projecting an error rate by

comparing the results of a
statistical sample with the actual
population characteristics.

C. Computing accounts
receivable turnover by dividing
credit sales by the average net
receivables.

D. Developing the expected

sales based on the sales trend
of the prior five years.
Chapter 8 following
5. Which of the Audit Planning C Study
auditing procedures most likely
would assist an auditor in
identifying related party
transactions?

A. Inspecting correspondence
with lawyers for evidence of
unreported contingent
liabilities.

B. Vouching accounting records

for recurring transactions
recorded just after the balance
sheet date.

C. Reviewing confirmations of
loans receivable and payable
for indications of guarantees.

D. Performing analytical
procedures for indications of
possible financial difficulties.

6. Which of the following most D

likely would indicate the
existence of related parties?

A. Writing down obsolete

inventory just before year-end.

B. Failing to correct previously

identified internal control
deficiencies.

C. Depending on a single
product for the success of the
entity.

D. Borrowing money at an
interest rate significantly below
the market rate.
Chapter
7. If the results8ofAudit Planning
the auditor's B Study
expert's work do not provide
sufficient appropriate audit
evidence or are not consistent
with other audit evidence, the
auditor should

A. Report the matter to the

appropriate regulatory agency
of the government.

B. Resolve the matter.

C. Withdraw from the

engagement.

D. Express an unqualified
opinion with reference to the
work of the expert.

8. The five major phases in A

conducting a risk based audit
process are:

A. Audit planning and risks

assessment activities

B. Preliminary engagement
activities

C. Completing the audit and

post-audit responsibilities

D. Reporting and
communication

E. Responses to assessed risks

The proper sequence in

applying the above steps is:

A. BAECD B. BAEDC C. BEACD

D. BEADC
Chapter 8 against
9. The audit risk Auditwhich
Planning B Study
the auditor and those who rely
on his/her opinion require

reasonable protection is a
combination of three separate
risks at the account balance or
class of transactions level. The
first risk is inherent risk. The
second risk is that material
misstatements will not be
prevented or detected by
internal control. The third risk is
that

A. The auditor will reject a

correct account balance as
incorrect.

B. Material misstatements that

occur will not be detected by
the audit

C. The auditor will apply an

inappropriate audit procedure

D. The auditor will apply an

inappropriate measure of audit
materiality.
Chapter
10. Analytical 8 Audit Planning
procedures D Study
enable the auditor to predict
the balance or quantity of an
item under audit. Information to
develop this estimate can be
obtained from all of the
following, except
A. Comparison of financial data
with data for comparable prior
periods, anticipated results (e.g.,
budgets and forecasts), and
similar data for the industry in
which the entity operates.

B. Study of the relationships of

elements of financial data that
would be expected to conform
to a predictable pattern based
upon the entity's experience.

C. Study of the relationships of

financial data with relevant
nonfinancial data

D. Tracing transactions through

the system to determine
whether procedures are being
applied as prescribed
Chapter 8 following
11. Which of the Audit Planning B Study
procedures would an auditor
would an auditor mist likely
perform in planning a financial
statement audit?

A. Reviewing investment
transactions of the audit period
to determine whether related
parties were credited

B. Performing analytical
procedures to identify areas
that may represent specific risks

C. Reading the minutes of

stockholder and director
meetings to discover whether
any unusual transactions have
incurred

D. Obtaining a written
representation letter from the
client to emphasize
managements responsibilities.
Chapter 8 following
12. Which of the Audit Planning D Study
statements is correct
concerning an auditor's use of
the work of a specialist?

A. The auditor need not obtain

an understanding of the
methods and assumptions used
by the specialist.

B. The auditor may not use the

work of a specialist in matters
material to the fair presentation
of the financial statements.

C. The reasonableness of the

specialist's assumptions and
their applications are strictly the
auditor's responsibility.

D. The work of a specialist who

has a contractual relationship
with the client may be
acceptable under certain
circumstances.
Chapter 8 Audit
13. Control activities Planning
component A Study
of internal control

A. Consists of the policies and

procedures that help ensure
that management directives are
carried out

B. Includes the governance and

management functions and the
attitudes, awareness, and
actions of those charged with
governance and management
concerning the entity's internal
control and its importance in
the entity.

C. Is the entity's process for

identifying business risks
relevant to financial reporting
objectives and deciding about
actions to address those risks,
and the results thereof.

D. Consists of the procedures

and records established to
initiate, record, process, and
report entity transactions (as
well as events and conditions)
and to maintain accountability
for the related assets, liabilities
and equity.
Chapter 8 Audit
1. The development Planning
of a general D Study
strategy and a detailed
approach for the expected
nature, timing, and extent of
audit refers to:

a. Supervision b. Audit
procedures c. Directing d.
Planning

2. The auditor should consider D

the nature, extent, and timing of
the work to be performed and
should prepare a written audit
program for every audit. Which
audit standard is most closely
related to this requirement?

a. The audit is to be performed

by a person or persons having
adequate technical training and
proficiency as an auditor.

b. In all matters relating to the

assignment, an independent
mental attitude is to be
maintained by the auditor(s).

c. Due professional care is to be

exercised in the planning and
performance of the audit and
preparation of the report.

d. The work is to be adequately

planned and assistants, if any,
are to be properly supervised.
Chapter 8 following
3. Which of the Audit Planning
would D Study
a successor auditor normally
perform after acceptance of an
audit client?

a. Inquiry of predecessor
auditor regarding the client.

b. Review the SEC filings of the

client.

c. Inquiry of bankers regarding

the client.

d. Review of predecessor
auditor working papers.

4. To obtain an understanding of B
a continuing client's business in
planning an audit, an auditor
most likely would

a. Perform tests of details of

transactions and balances.

b. Review prior-year working

papers and the permanent file
for the client.

c. Read specialized industry

journals.

d. Reevaluate client's internal

control environment.
Chapter 8 following
5. Which of the Audit Planning
is B Study
required documentation in an
audit in accordance with
generally accepted auditing
standards?

a. A flowchart or narrative of the

information system describing
the recording and classification
of transactions for financial
reporting.

b. An audit program setting

forth in detail the procedures
necessary to accomplish the
engagement's objectives.

c. A planning memorandum
establishing the timing of the
audit procedures and
coordinating the assistance of
entity personnel.

d. An internal control
questionnaire identifying
policies and procedures that
assure specific objectives will
be achieved.
Chapter 8 following
6. Which of the Audit Planning B Study
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.

7. Analytical procedures used in C

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.
Chapter 8 Audit which
8. Analytical procedures, Planning C Study
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 c. As substantive
procedures

b. Overall review stage of the

audit d. None of the above
Chapter 8following
9. Which of the Audit Planning B Study
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.
Chapter 8 Audit
10. Which of the followingPlanning
is an C Study
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.
Chapter 8 following
11. Which of the Audit Planning
is an A Study
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.
Chapter 8 following
12. Which of the Audit Planning
is an C Study
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.
Chapter 8 Audit
13. Which of the followingPlanning B Study
statements is not correct about
materiality?

a. The concept of materiality

recognizes that some matters
are important for fair
presentation of financial
statements in conformity with
GAAP, while other matters are
not important.

b. An auditor considers
materiality for planning
purposes in terms of the largest
aggregate level of
misstatements that could be
material to any one of the
financial statements.

c. Materiality judgments are

made in light of surrounding
circumstances and necessarily
involve both quantitative and
qualitative judgments.

d. An auditor's consideration of
materiality is influenced by the
auditor's perception of the
needs of a reasonable person
who will rely on the financial
statements.
Chapter 8 the
14. The risk that Audit Planning
assertion A Study
contains material misstatements
that, when aggregated with
misstatements in other
assertions, could make the
entire financial statements
materially misstated is:

a. Individual audit risk b.

Inherent risk c. Control risk d.
Detection risk

15. Incremental risk is the A

increased risk that errors may
not be detected at the balance
sheet date because:

a. Audit procedures were

performed at an interim date

b. Inherent risk was assessed

too low.

c. Analytical procedures were

not performed.

d. Detection risk was set too

high a level.
Chapter 8 Audit
1. Adequate planning Planning
of the A Study
audit work helps the auditor of
accomplishing the following
objectives, except:

a. Gathering of all
corroborating audit evidence.

b. Ensuring that appropriate

attention is devoted to
important areas of the audit.

c. Identifying the areas that

need a service of an expert.

d. The audit work is completed

efficiently.

2. The extent of planning will D

vary according to any of the
following, except:

a. Size of the audit client.

b. Auditor's experience with the

entity and knowledge of the
business.

c. The nature and complexity of

the audit engagement

d. The assessed level of control

risk.
Chapter 8 following
3. Which of the Audit Planning
is least D Study
likely considered by the auditor
in developing the overall audit
plan?

a. Understanding of the
accounting and internal control
systems.

b. Relevant risk and materiality.

c. The involvement of other

auditors in the audit of major
component of financial
statements

d. The general level of

competence of audit assistants.

4. Which of the following is not C

considered by the CPA when he
makes an overall audit plan?

a. Identification of complex
accounting areas including
those involving accounting
estimates.

b. The information technology

used by the client.

c. The content of the

representation letters.

d. The nature and timing of

reports or other communication
with the entity that are
expected under the
engagement.
Chapter 8 Audit
5. Audit plan should
Planning C Study
A B C D

A. Precede action Yes No Yes

No

B. Be fixed Yes No No Yes

C. Be cost beneficial Yes Yes Yes

Yes

6. Which of the following least B

likely affect the form and
content of the overall audit
plan?

a. Complexity of the audit

engagement.

b. Methodology and
technology used by the auditor.
c. The entity's form of business
organization.

d. The size of the entity.

7. The audit program should D

contain the following, except:

a. Audit objective

b. Time budget for the various

audit areas

c. Set of planned audit

procedures

d. The combined assessed level

of inherent and control risk
Chapter 8 following
8. Which of the Audit will
Planning A Study
most likely help the auditor to
identify and understand the
events, transactions and
practices of his audit client?

a. Obtaining a sufficient
knowledge of the business of
his client.

b. Understanding of accounting
and internal control.

c. Testing control policies and

procedures.

d. Obtaining a representation
letter from the client
management.

9. The auditor should have or C

obtain a knowledge of the
client's business sufficient to:

a. Evaluate whether the financial

statements are materially
misstated.

b. Document material
weaknesses in accounting and
internal control systems.

c. Identify and understand

events, transactions and
practices that may have effect
on financial statements.

d. Have an overall evaluation of

whether financial assertions are
fairly presented in the financial
statements.
Chapter
10. The auditor8isAudit Planning
not expected A Study
to have

a. A particular knowledge of the

economy and the industry
within which the entity operates.
b. A particular knowledge of
how the entity operates.

c. A level of knowledge of
business ordinarily less than that
possessed by management.

d. A knowledge of business
which is used in assessing
inherent and control risk.

11. The auditor obtains C

knowledge of client's business

A B C D

Prior to acceptance of
engagement No No Yes Yes

Planning stage of the audit Yes

Yes Yes No

Testing of transactions stage No

Yes Yes Yes

12. Understanding the business A

and using this information
appropriately assists the auditor
in, except

a. Deciding whether to do tests

of controls.
b. Evaluating audit evidence.

c. Assessing risks and

identifying potential problems.

d. Planning and performing the

audit effectively and efficiently.
Chapter 8 Audit
13. Which of the followingPlanning
is the A Study
ultimate concern of the
knowledge about the business?

a. Consideration of how it
affects the financial statements
taken as a whole.

b. Assists the auditor in

enforcing quality control
procedures.

c. To assure that sufficient audit

evidence is obtained.

d. It assists in determining the

type of audit report to be
issued.

14. A knowledge of the business C

is a frame of reference within
which the auditor exercises
professional judgment. This
assists the auditor in carrying
out the following objectives,
except: a. Assessing risks and
identifying problems.

b. Evaluating audit evidence.

c. Determining the audit opinion

to be expressed.
d. Planning and performing the
audit effectively and efficiently.
Chapter 8the
15. Throughout Audit
coursePlanning
of the D Study
audit, the auditors make
judgment about many matters
where knowledge of the
business is important. These
procedures do not include: a.
Evaluating accounting estimates
and management
representations.

b. Identifying related parties

and related party transactions.

c. Assessing inherent and

control risks.

d. Assessing the
appropriateness of using
statistical sampling instead of
judgmental sampling.
Chapter 8 Audit
16. Which of the followingPlanning A Study
factors is inappropriately
relevant to the management's
assessment of the going
concern assumption?

a. The degree of uncertainty

associated with the outcome of
an event or condition decreases
significantly the further into the
future of judgment being made
about the outcome of an event
or condition.

b. Any judgment about the

future is based on information
available at the time at which
the judgment is made.
c. The size and complexity of
the entity, and the nature and
conditions of its business affect
the judgment regarding the
outcome of events or
conditions.

d. Subsequent events can

contradict a judgment which
was reasonable at the time it
was made.
Chapter 8 following
17. Which of the Audit Planning
may A Study
not cast significant doubt about
the going concern assumption
of an entity.

a. The entity heavily used equity

financing for investment in
permanent assets.

b. Non-compliance with capital

or other statutory requirements.

c. Pending legal or regulatory

proceeding against the entity
that may, if successful, result in
claims that are unlikely to be
satisfied.

d. Changes in legislation or
government policy expected to
adversely affect the entity.
Chapter 8 Audit
18. When events Planning
or conditions D Study
have been identified which may
cast significant doubt on the
entity's ability to continue as a
going concern, the auditor
should:

a. Review management's plans

for future actions based on its
going concern assessment.
b. Gather sufficient appropriate
audit evidence to confirm or
dispel whether or not a material
uncertainty exists through
carrying out procedures
considered necessary, including
considering the effect of any
plans of management and other
mitigating factors.

c. Seek written representations

from management regarding its
plans for future action.

d. All of the above.

19. Which of the following A

proposed actions may mostly
mitigate the going concern
problem of an entity?

a. Rescheduling of loan
payments.

b. More vigorous business

expansion.

c. Acquiring asset replacement

using short-term loans.

d. Increasing the amount of

cash dividends to be paid.
Chapter 8 Audit
20. The following Planning
are related to D Study
the auditor's responsibility to
assess the ability of the
company to continue as a going
concern?

I. The auditor should consider

the appropriateness of the
management's use of the going
concern assumption in the
preparation of the financial
statements.

II. The auditor is to consider

whether there are material
uncertainties about the entity's
ability to continue as a going
concern that needs to be
disclosed in the financial
statements.

III. The absence of any

reference to going concern
uncertainty in the auditor's
report is viewed as a guarantee
as to the entity's ability to
continue as a going concern.
Which of the foregoing
inappropriately describe(s) the
auditor's responsibility?

a. I only b. I and II only c. II only

d. III only
Chapter
21. The auditor8considers
Audit events
Planning C Study
and condition relating to the
going concern assumption
during the planning stage in
order to:

a. Help management do action

that may mitigate its going
concern problems.

b. Identifying the areas of

accounting and internal control
systems that need tests of
control.

c. To have a timely discussion

with management and a review
of management's plans and
resolutions of any identified
going concern issues.

d. In order to shorten
assessment period.
Chapter 8 disclosure
22. If adequate Audit Planning
is not C Study
made by the entity regarding
substantial doubt about its
ability to continue as a going
concern, the auditor should
include in his report specific
reference to the substantial
doubt as to ability of the
company to continue as a going
concern and should express:

a. Unqualified opinion with

explanatory paragraph

b. A subject to qualified opinion

or adverse opinion.

c. Either an "except for"

qualified opinion or an adverse
opinion.

d. A disclaimer of opinion.

23. If the auditor believes that C

the entity will not be able to
continue as a going concern
and the financial statements are
prepared on a going concern
basis, the auditor's report
should include: a. Unqualified
opinion with explanatory
paragraph. c. Adverse opinion.

b. Qualified opinion. d.
Disclaimer of opinion.
Chapter 8 Audit
24. If the auditor believes Planning
that D Study
management should extend its
assessment but the latter
refuses to do so, the auditor
should:

a. Rectify the lack of analysis by

management.

b. Extend his audit procedures

to obtain sufficiently
appropriate evidence regarding
the use of the going concern
assumption.

c. Emphasize this matter in the

audit report.

d. Consider a modification of
the report as a result of the
limitation in the scope of the
auditor's work.

25. The management denied the A

auditor's request that the
management has to extend its
assessment of its going concern
ability. However, the auditor's
other procedures are sufficient
to assess the appropriateness of
management use of the going
concern assumption in the
preparation of the financial
statements. he auditor should
issue:

a. Unqualified opinion c.
Adverse opinion

b. Unqualified opinion with

explanatory paragraph d.
Disclaimer of opinion
Chapter
1. This refers to8the
Audit Planning
development C Study
of a general strategy and a
detailed approach for the
expected nature, timing and
extent of audit refers to:

A. Supervision C. Audit planning

B. Direction D, Pre-engagement

2. Proper planning assures that D

(select the exception ):

A. Appropriate attention is
devoted to important areas of
the audit.

B. Potential problems ate

Identified.

C. Work is completed
expeditiously,

D. An unqualified opinion
isexpressed.
Chapter
3. The outputs8ofAudit Planning
audit planning D Study
are:

A. An overall audit strategy that

sets out the direction, scope
and focus of the audit team's
efforts

B. A detailed audit plan

containing the nature, extent,
and timing of risk assessment
procedures and planned further
audit procedures at the
assertion level.

C. Audit programs, tailored as

needed to reflect the particular
engagement circumstances.

D. All of the answers

Chapter 8 Audit
4. An audit plan Planning
contains the A Study
nature, extent, and timing of
procedures for gathering
evidence.Regarding audit
procedures, which of the
following best describes risk
assessment procedures?

A. This category of procedures

is used to obtain an
understanding of the entity and
its environment, including its
internal control, to assess the
risks of material misstatement at
the financial statement and
assertion levels.

B. This category of procedures

is used to test the operating
effectiveness of controls in
preventing, or detecting and
correcting, material
misstatements at the assertion
level.

C. This category of procedures

is used to detect material
misstatements at the assertion
level.

D. All of these statements

describe risk assessment
procedures.
Chapter 8 planning
5. The extent of Audit will
Planning D Study
vary according to the following:

A. Size of the audit client.

B. Auditor's experience with the

entity and knowledge of the
business.

C. The nature and complexity of

the audit engagement

D. All of these affect the extent

of planning.

6. PSA 315 requires:

D
A. Obtaining an understanding
of the entity and its environment

B. Discussion among
engagement team members
about the risk of material
misstatement in the financial
statements.

C. Identifying and assessing the

risks of material misstatement

D. All of the answers.

Chapter 8following
7. Which of the Audit Planning B Study
statements best describes
"observation"?

A. Physical examination of
tangible assets. or the
examination of records or
documents, whether internal or
external, in paper form.
electronic form, or other media.

B. Looking at a process or
procedure being performed by
others,

C. Seeking information of
knowledgeable persons, both
financial and non-
financialinformation.

D. Evaluating financial
information through a study of
plausible relationships among
both financial and non-financial
data.
Chapter 8 understanding
8. The auditor's Audit Planning D Study
of the entity and Its
environment consists an
understanding of the following
aspects:

A. Industry, regulatory and

other external factors, including
the applicable financial
reporting framework

B. Nature of the entity, Including

the entity's selection and
application of accounting
policies

C. Objectives and strategies and

the related business risks that
may result in a material
misstatement of the financial
statements

D. All of these
Chapter 8 Audit
9. An auditor obtains an Planning D Study
understanding of the entity and
Its environment in order to

A. Make constructive
suggestions concerning
improvements to the client's
Internal control.

B. Develop an attitude of
professional skepticism
concerning management's
financial statement assertions

C. Evaluate whether the

aggregation of known
misstatements causes the
financial statements taken as a
whole to be materially
misstated.

D. Understand the events and

transactions that may have an
effect on the client's financial
statements.

10. A person or firm possessing A

special skill, knowledge and
experience in a particular field
excluding accounting and
auditing.

A. Expert C. Multi skilled

personnel

B. Quality control reviewer D.

Taxation specialist
Chapter
11. In which of8
theAudit Planning
following A Study
situations would an expert be
least likely contracted by a
CPA?

A. Application of accounting
methods in computing inventory
balances.

B. Determination of fair values

using specialized statistical
techniques.

C. Legal opinions concerning

interpretations of engagements,
statutes and regulations.

D. Valuations of certain types of

assets like land and buildings.

12. Religious Corp. has a few A

large accounts receivable that
total P1,000,000. Pilgrim Corp.
hasa large number of small
accounts receivable that also
total P1,000,000. The
importance of an error in any
one account is, therefore,
greater for Religious Corp. than
for Pilgrim Corp.

This is an example of the

auditor's concept of.

A. Materiality C. Reasonable
assurance.

B. Comparative analysis D.
Relative risk.
Chapter 8 Audit
13. In considering Planning
materiality for D Study
planning purposes, an auditor
believes that misstatements
aggregating P10,000 would
have a material effect on an
entity's profit and loss, but that
misstatements would have to
aggregate P20,000 to materially
affect the statement of financial
position. Ordinarily, it would be
appropriate to design auditing
procedures that would be
expected to detect
misstatements' that aggregate:

A. P30,000 B. P20,000 C.
P15,000 D. P10,000

14. When the auditors allocate C

the preliminary judgment about
materiality to account balances,
the materiality allocated to any
given account balance is
referred to as:

A. The error range C. Tolerable

misstatement.

B. The materiality range. D.

Tolerable materiality.
Chapter
15. Regardless8ofAudit
how thePlanning D Study
allocation of the preliminary
judgment about materiality was
done, when the audit is
complete the auditor must be
confident that the combined
errors in all accounts are

A. Less than the preliminary

judgment

B. Equal to the preliminary

judgment

C. More than the preliminary

judgment.

D. Less than or equal to the

preliminary judgment.

16. The relationship between B

materiality and audit risk is:

A. Direct. B. Inverse. C.
Indeterminable. D. None of
these.

17. When setting a preliminary A

judgment about materiality,

A. More evidence is required

for a low peso amount than for
a high peso amount.

B. Less evidence IS required for

a low peso amount than for a
high peso amount.

C. The same amount of

evidence is required for either
low or high peso amounts.

D. There is no relationship
between it and the peso
amount of evidence needed.