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e. Ascertain the nature, timing and extent of resources
AUDITING THEORY
AT.1808-Audit Planning-An Overview
LECTURE NOTES
Audit Planning
The auditor plans the audit so that it will be performed in
an effective manner, i.e., to gain reasonable assurance
that the FSs are free from material misstatement.
Audit planning involves:
 establishing the overall audit strategy (a general
strategy) for the engagement; and
 developing an audit plan (a detailed approach for the
expected nature, timing and extent of the audit),
in order to reduce audit risk (i.e., the chance that audit
opinion is inappropriate) to an acceptably low level.
Main outputs of audit planning:
 The overall audit strategy or audit planning
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memorandum
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 The audit plan or audit programs or audit completion
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checklists
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Benefits of Audit Planning rs e
 Appropriate attention to important areas of the audit.
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 Identify and resolve potential problems on a timely
basis.
 Organize and manage the audit engagement so that it
is performed in an effective and efficient manner.
 Assist in the proper selection of engagement team
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members and the assignment of work to them.
 Facilitate the direction and supervision of engagement
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team members and the review of their work.
 Assist, where applicable, in coordination of work done
by auditors of components and experts.
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Audit Planning and Risks Assessment Activities
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Planning is not a discrete phase of an audit, but rather a
continual and iterative process. Planning, however,
includes consideration of the timing of certain activities
and audit procedures that need to be completed prior to
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the performance of further audit procedures (i.e., tests of
controls and substantive procedures).
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The following are the planning activities or procedures:
 Determining of materiality;
 Performing risks audit procedures (RAP), including
analytical procedures, to understand the entity and its
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environment, including the entity’s internal control;
 Identifying material classes of transactions, account
balances and disclosures;
 Identifying and assessing the risks of material
misstatements of the financial statements; and
 Finally, preparing the outputs of audit planning –
overall audit strategy and audit plan – containing the
auditor’s responses to the identified risks.
The nature and extent of the above planning activities will
vary according to:
 the size and complexity of the entity;
 the key engagement team members’ previous
experience with the entity; and
 the changes in circumstances that occur during the
audit engagement.
Involvement of Key Engagement Team Members
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 Work of component auditors in a group financial
statements audit
Work of Internal Auditors
Internal auditing is an appraisal activity established within
an entity as a service to the entity. The work of internal
auditors assists the external auditor in planning and
performing an effective audit.
Considering the work of internal auditors involve the
following two phases:
 Preliminary assessment of client’s internal auditing
function
 Evaluation and testing the work of internal auditing
function
Preliminary assessment of internal auditing function
includes determining whether or not internal audit function
appears relevant to specific areas of financial statements
audit. When the internal audit function appears relevant,
external auditors shall consider the internal auditor’s:
 Competence – professional qualifications and
experience
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 Objectivity (organizational status) – line of reporting
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results of internal audit normally directly to BOD’s
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audit committee
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 Due professional care – planning, supervision and
documentation of work
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 Scope of function – nature and extent of work
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The table below summarizes the external auditor’s
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responses depending in the result of assessment:
Result Response
Rely on the work of Evaluate and test the internal
internal auditor auditor’s work to confirm its
adequacy for external audit
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Not relying on the work Need not evaluate and test the
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of internal auditor internal auditor’s work
The external auditor may request assistance from internal
auditors in performing routine or mechanical audit
procedures provided the external auditor supervises and
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reviews internal auditors work
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The use of internal auditor’s work does not change the
external auditor’s responsibility for audit opinion; thus, no
reference is made in audit report
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Work of Experts (Specialist)
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Expert or specialist refers to a person or firm possessing
special skill, knowledge and experience in a particular field
other than accounting and auditing.
An expert may be
 Engaged by the entity;
 Engaged by the auditor;
 Employed by the entity; or
MULTIPLE CHOICE
Audit Planning
1. This involves establishing the overall audit strategy for
the engagement and developing an audit plan, in order
to reduce audit risk to an acceptably low level.
a. Audit procedures c. Audit program
b. Audit planning d. Audit working papers
2. The overall audit strategy sets the scope, timing and
direction of the audit, and guides the development of
the more detailed audit plan.
The audit plan is more detailed than the overall audit
strategy and includes the nature, timing and extent of
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The auditor shall document audit plan recording the
Since 1977
MAY 2015
The engagement partner and other key members of the
engagement team shall be involved in planning the audit,
including planning and participating in the discussion
among engagement team members, to draw on their
experience and insight, thereby enhancing the
effectiveness and efficiency of the planning process.
Results of Preliminary Engagement Activities
Please refer to the last topic “AT.1507” for the list of
preliminary engagement activities.
The results of preliminary engagement activities:
 assist the auditor in identifying and evaluating events
or circumstances that may adversely affect the
auditor’s ability to plan and perform the audit
engagement.
 enables the auditor to plan an audit engagement for
which, for example:
o The auditor maintains the necessary independence
and ability to perform the engagement.
o There are no issues with management integrity
that may affect the auditor’s willingness to
continue the engagement.
o There is no misunderstanding with the client as to
the terms of the engagement.
In an initial audit, the auditor may need to expand the
planning activities because the auditor does not ordinarily
have the previous experience with the entity than when
planning recurring engagements. For an initial audit
engagement, additional matters the auditor may consider
in establishing the overall audit strategy and audit plan
include the following:
 Arrangements to review the predecessor auditor’s
working papers.
 Any major issues (including the application of
accounting principles or of auditing and reporting
standards).
 The audit procedures necessary to obtain sufficient
appropriate audit evidence regarding opening
balances.
 Other procedures required by the firm’s system of
quality control for initial audit engagements.
Overall Audit Strategy
Overall audit strategy (formerly known as “Audit Planning
Memorandum”) sets the scope, timing, and direction of the
audit, and guides the development of the audit plan.
In establishing the overall audit strategy, the auditor is
required to:
a. Identify the characteristics of the engagement that
define its scope
b. Ascertain the reporting objectives of the engagement
to plan the timing of the audit and the nature of the
communications required
c. Consider the factors that, in our professional
judgment, are significant in directing the engagement
team’s efforts
d. Consider the results of preliminary engagement
activities and, where applicable, whether knowledge
gained on other engagements performed by the
engagement partner for the entity is relevant
AT.1807
 Employed by the auditor.
The auditor considers the following when using the work
(assistance) of an expert:
 Materiality of an item being considered
 Risk of misstatement (nature and complexity)
 Quality and quantity of other audit evidence available
When using the work of an expert, the auditor should
assess and evaluate the expert’s
 Professional competence – Professional qualification,
experience and reputation
 Objectivity – expert’s relationship to the entity
 Scope of work – objective and source of data (inputs),
methods, models and assumptions used by the expert
After the above assessment and evaluation of the expert,
the external auditor shall test whether or not the result of
work of expert is consistent with auditor’s knowledge. The
external auditor may rely on the work of the expert if
deemed consistent. Otherwise, the inconsistency must be
resolved first before reliance can be made.
Work of Component Auditors
Key definitions
 Group financial statements – Financial statements that
include the financial information of more than one
component.
 Component – An entity or business activity for which
group or component management prepares financial
information that should be included in the group
financial statements.
 Group engagement team – Partners, including the
group engagement partner, and staff who establish the
overall group audit strategy, communicate with
component auditors, perform work on the
consolidation process, and evaluate the conclusions
drawn from the audit evidence as the basis for forming
an opinion on the group financial statements.
 Group engagement partner – The partner or other
person in the firm who is responsible for the group
audit engagement and its performance, and for the
auditor’s report on the group financial statements that
is issued on behalf of the firm.
 Component auditor – An auditor who, at the request of
the group engagement team, performs work on
financial information related to a component for the
group audit.
Direction, Supervision and Review
The auditor shall plan the nature, timing and extent of
direction and supervision of engagement team members
and the review of their work.
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audit procedures to be performed by engagement
team members in order to obtain sufficient appropriate
audit evidence to reduce audit risk to an acceptably
low level.
a. True, True c. False, False
b. True, False d. False, True
3. The overall audit strategy should be updated and
changed as necessary during the course of the audit.
The overall audit plan should be updated and changed
as necessary during the course of the audit.
a. True, True c. False, False
AT.1807
necessary to perform the engagement.
Characteristics that define the Scope of Engagement
 The applicable FRF
 Industry-specific reporting requirements
 The expected audit coverage
 The work of internal auditors
 The entity’s use of service organizations
 The effect of information technology
 The availability of client personnel and data.
Reporting Objectives, Timing of the Audit, and Nature of
Communications
 The entity’s timetable for reporting
 Meetings with management and TCWG to discuss the
nature, timing and extent of the audit work.
 The discussion with management and TCWG regarding
the expected type and timing of reports to be issued
and other communications, both written and oral,
including the auditor’s report, management letters and
communications to TCWG; and regarding the expected
communications on the status of audit work
throughout the engagement.
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 Communication with auditors of components.
 Communications among engagement team members,
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including the nature and timing of team meetings and
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timing of the review of work performed.
 Any other expected communications with third parties,
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including any statutory or contractual reporting
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responsibilities arising from the audit.
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Significant Factors, Preliminary Engagement Activities, and
Knowledge Gained on Other Engagements
 The determination of materiality and identification of
material classes of transactions, account balances and
disclosures
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 Preliminary identification of risk areas
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 The impact of the assessed ROMM at the FSs level
 Exercise of professional skepticism
 Internal control of the entity
 Significant business developments and the industry
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 Legal and regulatory development and framework
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Nature, Timing and Extent of Necessary Resources
 The selection of the engagement team (including,
where necessary, the engagement quality control
reviewer) and the assignment of audit.
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 Engagement budgeting and timetable.
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The auditor shall document the overall audit strategy
commonly in the form of a memorandum.
Audit Plan
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Audit plan (a.k.a., “audit program or audit completion
checklist”) is more detailed than the overall audit strategy
in that it includes the nature, timing and extent of audit
procedures to be performed by engagement team
members required to implement the overall audit strategy
into a comprehensive description of the work to be
performed.
The auditor shall develop an audit plan that shall include a
description of:
a. The nature, timing, and extent of planned risk
assessment procedures (RAP)
b. The nature, timing, and extent of planned further audit
procedures (FAP), which include tests of controls and
substantive procedures, at the assertion level
c. Other planned audit procedures that are required to be
carried out
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EXCEL PROFESSIONAL SERVICES, INC.
b. False, True d. True, False
4. In planning an audit engagement, the auditor is
required to develop and document a(an)
I. Overall Audit Plan
II. Flowchart
III. Overall Audit Strategy
a. Both II and III c. Both I and III
b. Both I and II d. I, II and III
5. The nature and extent of planning will vary according
the following, except
a. Size of the auditing firm
b. Complexity of the entity
c. Auditor’s experience with the entity
d. Changes in circumstances that occur during the
audit engagement
Benefit of Audit Planning
6. Adequate audit planning helps ensure that
attention is devoted:
a. b.
To important areas of the audit Yes Yes
So that potential problems are
promptly identified and
resolved
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So that the work is performed
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in an effective and efficient
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manner No Yes
7. Which of the following is not one of the three main
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reasons why the auditor should properly plan
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engagements?
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a. To enable proper on-the-job training of employees.
b. To enable the auditor to obtain sufficient
appropriate evidence.
c. To avoid misunderstandings with the client.
d. To help keep audit costs reasonable.
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8. Overall audit plan should
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a b c d
Precede action Yes No Yes
Be flexible Yes No Yes
Be cost beneficial Yes Yes No
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Overall Audit Strategy
9. The following are the matters to be considered by the
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auditor in establishing the overall audit strategy,
except
a. Defining the scope of the examination
b. Assess risk and materiality
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c. Computation of audit fees
d. Ascertaining the reporting objectives of the
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engagement
10. In developing the overall audit strategy for a new
client, factor not be considered is:
a. The terms of the engagement and any statutory
responsibilities.
b. The client’s business, including the structure of the
organization and accounting system used.
c. The specific procedures to be performed to gather
audit evidence.
d. The audit risk, and procedures to be performed to
achieve audit objectives.
Audit Plan
11. The audit plan includes:
a. a description of the nature, timing and extent of
planned risk assessment procedures sufficient to
assess the risk of material misstatement
b. a description of the nature, timing and extent of
planned further audit procedures at the assertion
level for each material class of transactions,
account balances and disclosures
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planned nature, timing and extent of risk assessment
procedures and further audit procedures (tests of controls
and substantive procedures) at the assertion level in
response to the assessed risks. The auditor may use
standard (pre-printed) audit programs, tailored as needed.
Audit program is a list of procedures used to gather
sufficient appropriate audit evidence. It serves as a set of
instructions to staff involved in the audit and as a means
to control and record the proper execution of the work.
Traditionally, the two types of audit programs only pertain
to further audit procedures (RAP), i.e., for test of controls
and substantive procedures, are:
a. Compliance test audit programs – this is prepared
when performing tests of controls, i.e., when the
auditor plans to rely on internal control that was
deemed to be preliminarily effective.
b. Substantive test audit program – this is prepared when
the auditor will perform substantive procedures for
each material class of transactions, account balance,
and disclosure.
Thus, the timing of preparing audit programs depend on
the following circumstances:
 Initial audit – prepared until the completion of review
and documentation of the entity’s internal control.
 Continuing audit – can be prepared in advance of
testing, since the auditor has prior knowledge of the
entity’s internal control and previous risks assessment.
Audit program (audit plan) for risks assessment
procedures is normally prepared in a separate
documentation.
Changes to Planning Decisions during the Course of
the Audit
The auditor shall update and change the overall audit
strategy and the audit plan as necessary during the course
of the audit.
The establishment of the overall audit strategy and the
detailed audit plan are not necessarily discrete or
sequential processes, but are closely inter-related since
changes in one may result in consequential changes to the
other.
Other Planning Considerations
Other planning considerations made by the auditor include
the following:
 Seeking assistance from the entity
 Considering the work perform by others
 Ensuring direction, supervision and review throughout
the audit.
Entity Assistance to the Auditor
The auditor may decide to discuss elements of planning
with the entity’s management to facilitate the conduct and
management of the audit engagement (for example, to
coordinate some of the planned audit procedures with the
work of the entity's personnel), but not so detailed to
compromise the effectiveness of the audit or making the
audit procedures too predictable.
Consideration of the Work Performed by Others
Considering work of others in an audit involved the
following:
 Relevance of the work of internal auditors
 Need for the work of experts (specialist)
www.prtc.com.ph AT.1807
c. Other planned audit procedures that are required
to be carried out so that the engagement complies
with our audit approach
d. All of the above
12. A listing of all the things which the auditor will do to
gather sufficient, competent evidence is the:
a. Audit strategy
b. Audit program
c. Audit procedure
d. Audit risk model
13. Which item would not be contained in an audit
program?
a. Staff assigned to the audit.
b. List of specific procedures (tasks) to be performed
and the objectives to be met that relate primarily
to financial statements assertions.
c. Documentation of system being reviewed.
appropriate
d. Estimated time required to perform each task.
c. d. 14. Those procedures specifically outlined in an audit
Yes Yes program are primarily designed to
a. Gather evidence.
b. Detect errors or irregularities.
No No c. Test internal systems.
d. Protect the auditor in the event of litigation
15. An audit should design the written audit program so
No Yes
that
a. all material transactions will be selected for
substantive testing.
b. substantive tests prior to the balance sheet date
will be minimized.
c. the audit procedures selected will achieve specific
objectives.
d. each account balance will be tested under either
tests of controls or tests of transactions.
16. The audit program usually cannot be finalized until the
a. consideration of the entity’s internal control
No structure has been completed.
Yes b. engagement letter has been signed by the auditor
Yes and the client.
c. reportable conditions have been communicated to
the audit committee of the board of directors.
d. search for unrecorded liabilities has been
performed and documented.
Audit Planning Activities
17. Which of the following parties would normally attend a
planning meeting held before the beginning of an audit
engagement to discuss relevant client information and
the audit approach to be taken in performing the
engagement?
a. Engagement partner and the client’s chief financial
officer
b. Engagement partner and audit manager
c. Engagement partner, audit manager, and senior
auditor
d. Engagement partner, audit manager, senior
auditor, and junior audit staff members
18. Which of the following would be least likely to be
considered an audit planning procedure?
a. Use an engagement letter.
b. Develop the overall audit strategy.
c. Perform risk assessment.
d. Develop the audit plan.
19. In planning an examination, the auditor would consider
all of the following matters, except
a. Anticipated reliance on internal controls.
b. Preliminary judgment about materiality levels for
audit purposes.
c. Financial statement items likely to require
adjustment.
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 EXCEL PROFESSIONAL SERVICES, INC. EXCEL PROFESSIONAL SERVICES, INC.

d. The kind of opinion (unqualified, qualified,
disclaimer, or adverse), likely to be given.
20. Which of the following is not typically included in initial
audit planning?
a. Client acceptance/continuation decisions.
b. Determination of the purpose of the audit.
c. Obtain an understanding with the client.
d. Perform analytical procedures as substantive tests.
21. A CPA is conducting the first examination of a client’s
financial statements. The CPA hopes to reduce the
audit work by consulting with the predecessor auditor
and reviewing the predecessor’s working papers. This
procedure is
a. Acceptable if the CPA refers in the audit report the
reliance upon the predecessor auditor’s work.
b. Required if the CPA is to render an unqualified
opinion.
c. Acceptable if the client and the predecessor auditor
agree to it.
d. Unacceptable because the CPA should bring an
independent viewpoint to a new engagement.
22. An initial audit requires more audit time to complete
classify and report such information and specific a. The entity II. Experience and reputation in the field in which the
inquiry into individual items including detailed b. The audit committee of the board of directors auditor is seeking audit evidence.
testing of transactions and recommending c. The employer-employee relationship which exists III. Relationship to the entity.
improvements thereto. for other employees a. I, II, III c. I and III
d. Establishment of adequate accounting and internal d. The line functions of the organization b. I and II d. III only
control systems.
32. Which of the following in relation to the relationship 36. The risk that an expert’s objectivity will be impaired
26. The independent auditor should acquire an between internal auditing and the external auditor is increases when the expert is related in some other
understanding of a client’s internal audit function to false? manner to the entity (e.g., by being financially
determine whether the work of internal auditors will be a. All judgments relating to the audit of the financial dependent upon or having an investment in the entity)
a factor in determining the nature, timing and extent statements are those of the external auditor. and the expert is
of the independent auditor’s procedures. The work b. Internal auditors should exercise the same degree a. Engaged by the entity
performed by internal auditors might be such a factor of independence as required of the external b. Employed by the entity
when the internal auditor’s work includes auditor. c. Engaged by the auditor
a. Verification of the mathematical accuracy of c. The role of internal auditing is determined by d. Employed by the auditor
invoices management and its objectives differ from those of
37. Each of the following procedures requires the
b. Review of administrative practices to improve the external auditor who is appointed to report
assistance of an expert, except
efficiency and achieve management objectives independently on the financial statements.
a. Determining the physical condition or quantity of
c. Study and evaluation of internal accounting control d. The external auditor has the sole responsibility for
underground mineral.
d. Preparation of internal financial reports for the audit opinion expressed and that responsibility
b. Determining the value of works of art.
management purposes/ is not reduced by any use mane of internal
c. Determining the adequacy of disclosure in the
auditing.
27. The work of internal auditors may affect the notes to the financial statements.
independent’s auditor’s 33. For which of the following judgments may an d. Interpreting major contracts.
I. Procedures performed in obtaining an independent auditor share responsibility with an

m
than a recurring audit. One of the reasons for this is 38. During an audit, the auditor may need the assistance

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understanding of internal control entity’s internal auditor who is assessed to be both
that of an expert in obtaining sufficient appropriate
II. Procedures performed in assessing the risk of competent and objective?

co

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a. new auditors are usually assigned to an initial evidence. A common example is
material misstatement a. b. c. d.

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audit. a. Determining the sufficiency and appropriateness of
III. Substantive procedures performed in gathering Materiality of
b. predecessor auditors need to be consumed. evidential matter obtained.
direct evidence misstatements Yes No No Yes

o.

o.
c. the client's business, industry and internal control b. Evaluating the potential financial statements effect
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are unfamiliar to the auditor and need to be of an employee fraud.
b. I and II only estimates No Yes No Yes
carefully studied. c. Evaluating the integrity of management.
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c. II and III only
d. a larger proportion of customer accounts Work of Expert d. Determination of amounts using actuarial
d. I, II and III
receivable need to be confirmed on an initial audit. 34. Which statement is incorrect regarding the auditor’s computations.
28. Which of the following statements in relation to the use of the work of an expert?
Other Planning Considerations 39. When determining the need to use the work of an
preliminary assessment of internal auditing is false? a. When using the work performed by an expert, the
Entity Assistance to the Auditor expert, the auditor would consider the following,
a. During the course of planning the audit, the auditor should obtain sufficient appropriate audit
aC s

aC s
23. Which of the following is an effective audit planning except
external auditor should perform a preliminary evidence that such work is adequate for the
procedure that helps prevent misunderstandings and a. The professional certification or licensing by, or
vi y re

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assessment of the internal audit function when it purposes of the audit.
inefficient use of audit personnel? membership in, an appropriate professional body.
appears that internal auditing is relevant to the b. “Expert” means a person or firm possessing special
a. Arrange to make copies, for inclusion in the audit b. The quantity and quality of other audit evidence
external audit of the financial statements in skill, knowledge and experience in a particular field
files, of those client supporting documents available.
specific audit areas. other than accounting and auditing.
examined by the auditor. c. The materiality of the financial statement item
b. The external auditor should obtain a sufficient c. The auditor's education and experience enable the
ed d

ed d
b. Arrange to provide the client with copies of the being considered.
understanding of internal audit activities to assist auditor to be knowledgeable about business
audit programs to be used during the audit. d. The risk of misstatement based on the nature and
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in planning the audit and developing an effective matters in general, but the auditor is not expected
c. Arrange a preliminary conference with the client to complexity of the matter being considered.
audit approach. to have the expertise of a person trained for or
discuss audit objectives, fees, timing, and other
c. Effective internal auditing will often allow a qualified to engage in the practice of another Work of Component Auditors
information.
modification in the nature, timing, reduction in the profession or occupation. 40. An auditor who, at the request of the group
d. Arrange to have the auditor prepare and post any
extent and even eliminate in its entire some d. When the auditor uses the work of an expert
is

is
engagement team, performs work on financial
necessary adjusting or reclassification entries prior
procedures performed by the external auditor. employed by the auditor, that work is used in the information related to a component for the group audit
to final closing.
d. In some cases, after having considered the employee's capacity as an assistant on the audit. is a
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Work of Internal Auditor activities of internal auditing, the external auditor a. Group Auditor
35. When planning to use the work of an expert, the
24. Which of the following is most correct regarding may decide that internal auditing will have no b. Component Auditor
auditor should assess the objectivity of the expert.
external auditors use of internal auditors directly on effect on external audit procedures. c. Group Engagement Team
This will involve considering the expert's:
the audit engagement? d. Component Engagement Team
29. To assess the objectivity of the internal auditors, an I. Professional certification or licensing by, or
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a. Discourage
b. Prohibit
c. Encourage
d. Permit
25. The scope and objectives of internal auditing vary
widely and depend on the size and structure of the
entity and the requirements of its management
(engagement objectives). Ordinarily, internal auditing
activities include one or more of the following, except
a. Review of the economy, efficiency and
effectiveness of operations including non-financial
controls of an entity.
b. Review of compliance with laws, regulations and
other external requirements and with management
policies and directives and other internal
requirements.
c. Examination of financial and operating information
including review of the means to identify, measure,
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independent auditor would most likely
a. Consider the professional qualifications and
experience of the internal auditors.
b. Consider the proper planning, supervision and
documentation of internal auditor’s work.
c. Consider the nature and extent of the internal
auditors’ assignment.
d. Consider the organizational level to which the
internal auditors report the results of their work.
30. To maximize independence, the internal auditors
should report to the
a. Audit committee of the board of directors
b. CEO/President
c. Controller
d. Chief Financial Officer
31. To operate effectively, an internal auditor must be
independent of
AT.1808
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membership in, an appropriate professional
- now do your STD-
body.
SELF-TEST DRILL (STD)
1. When planning an examination, an auditor should ordinarily perform during an audit planning?
a. Consider whether the extent of substantive tests a. Review the client’s bank reconciliation
may be reduced based on the results of the b. Obtain client’s representation letter
internal control questionnaire. c. Obtain understanding of the client’s business and
b. Make preliminary judgments about materiality industry
levels for audit purposes. d. Review and evaluate client’s internal control
c. Conclude whether changes in compliance with
3. Which of the following statements is incorrect about
prescribed control procedures justifies reliance on
audit planning documentation?
them
a. Although the precise form and content of the
d. Prepare a preliminary draft of the management
overall audit plan (overall audit strategy) may
representation letter.
vary, it should sufficiently detailed to guide the
development of an audit program.
2. Which of the following procedures would an auditor
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EXCEL PROFESSIONAL SERVICES, INC.

b. The audit plan and related audit program are not
connected and should no longer be changed once
the audit has started.
c. The audit program should set out the nature,
timing and extent of planned audit procedures
required to implement the overall audit plan.
d. In preparing audit program, the auditor should
consider the specific assessments of inherent and
control risks and the required level of assurance to
be provided by substantive tests.
4. Which of the following procedures would an auditor
least likely perform in planning a financial statement
audit?
a. Selecting a sample of vendor’s invoices for
comparison to receiving reports
b. Reading the current year’s interim financial
statements
c. Coordinating the assistance of the entity personnel
in data preparation
d. Discussing matters that may affect the audit with
firm personnel responsible for non-audit services
to the entity
5. Early appointment of the independent auditor will
m
er as
the important criteria include organizational status,
scope of function, technical competence and due
professional care. Which of the following relates to the
criteria of due professional care?
a. Policies for hiring and training the internal auditing
staff and their experience and professional
qualifications.
b. Existence of adequate audit manuals, work
programs and working papers.
c. The internal auditor will need to be free to
communicate fully with the external auditor
d. Whether management acts on internal audit
recommendations and how this is evidenced.
10. Which of the following is not an expert upon whose
work an auditor may rely on?
a. Internal auditor
b. Appraiser
c. Engineer
d. Actuary
11. Which of the following least likely requires the services
of an expert?
a. Valuations of certain types of assets like land and
buildings.

enable: b. Legal opinions concerning interpretations of

a. a more thorough examination to be performed. engagements, statutes and regulations.
co

b. a proper study and evaluation of internal control to c. Determination of amounts using specialized
eH w

be performed. techniques.
c. sufficient competent evidential matter to be d. Application of accounting methods in computing
o.

obtained. inventory balances.

rs e

d. a more efficient examination to be planned.

12. The preparation of audit program and audit planning
ou ourc

6. When obtaining an understanding and performing a memo is the responsibility of the client’s
preliminary assessment of the internal audit function, a. Management
the auditor should consider the internal auditors’ b. Independent auditor
Organiza- Scope of Technical competence c. Internal auditor
tional status functions and due care d. Expert
aC s

a. Yes Yes Yes

13. The principal reason for developing a written audit
vi y re

b. Yes No Yes
program is to help ensure that the
c. Yes No No a. audit work is properly supervised
d. No Yes No b. audit work is properly planned and documented
7. You have been asked to assess the organizational c. audit report contains only significant findings
ed d

independence of an internal audit activity. You should d. work of different auditors is properly coordinated
ar stu

consider all of the following factors except 14. Avoiding misunderstandings with the client is
a. functional reporting to the board and important for:
administrative reporting to the chief executive Good client Facilitating high-quality work
officer. relations at a reasonable cost
b. the criteria of education and experience considered
sh is

a. Yes Yes
necessary when filling vacant positions on the
b. No No
internal audit staff.
Th

c. Yes No
c. the degree to which internal auditors assume
d. No Yes
operational responsibilities.
d. a limitation on the scope of objectives for the 15. Sue is conducting an external audit of ABC Company’s
engagements included in the review. financial statements. Joel is an internal auditor working
for ABC. Which of the following should Sue consider
8. During the initial planning phase of an audit, a CPA
when deciding whether she can rely on Joel’s findings
most likely would
in her audit?
a. Identify specific internal control activities that are
a. Whether Joel has ever worked as an external
likely to prevent fraud.
auditor of financial statements
b. Evaluate the reasonableness of the client’s ac-
b. Whether Joel owns any shares in the company that
counting estimates.
he works for
c. Discuss the timing of the audit procedures with the
c. Joel’s level of education and the number of years
client’s management.
of experience Joel has as an internal auditor
d. Inquire of the client’s attorney as to whether any
d. Whether or not Joel will agree to let Sue have
unrecorded claims are probable of assertion.
access to his working papers
9. When obtaining an understanding and performing a
preliminary assessment of the internal audit function,  - end of AT.1808 - 

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