Auditing and and Assurance Assurance Services, Services, 16e 16e (Arens/Elder/Beasley) Chapter 13 Overall Audit Strategy and Audit Program Program
13.1 Learning Objective 13-1 1) Shown below (1 through 5) 5 ) are the five types of tests which auitors use to eter!ine whether financial state!ents are fairly state. "hich three are substantive tests# 1. ris$ ris$ asses assess!e s!ent nt proceu proceures res %. test testss of cont contro rols ls 3. substa substanti ntive ve tests tests of tran transac sacti tions ons &. substa substanti ntive ve analyti analytical cal proce proceur ures es 5. tests of etails of balances ') 1 % an 3 ) 3 & an 5 *) % 3 an 5 +) % 3 an & 'nswer, er!s, hree types of substantive substantive tests which auitors use use +iff, asy Objective, LO 13-1 ''*S, /eflective thin$ing %) *ollectively *ollectively proceures perfor!e to obtain an unerstaning of the entity an its environ!ent incluing internal controls represent the auitor0s ') auit strategy. ) tests of controls. *) ris$ assess!ent proceures. +) tests of transactions. 'nswer, * er!s, roceures perfor!e to obtain unerstaning of entity an environ!ent incluing incluing internal controls +iff, asy Objective, LO 13-1 ''*S, /eflective thin$ing 3) "hich of the following woul not be consiere further auit proceures# ') tests of controls ) analytical proceures *) tests of etails of balances +) ris$ assess!ent proceures 'nswer, + er!s, 2ot consiere a further auit proceure +iff, asy Objective, LO 13-1 ''*S, /eflective thin$ing
&) "hich of the following proceures woul !ost li$ely be perfor!e in response to the auitor0s assess!ent of the ris$ of !onetary !isstate!ents in the financial state!ents# ') ratio analysis ) tests of controls *) tests of etails of balances +) ris$ assess!ent proceures 'nswer, * er!s, roceure perfor!e in response to auitor0s assess!ent assess!ent of ris$ of !onetary !isstate!ent +iff, asy Objective, LO 13-1 ''*S, /eflective thin$ing 5) "hich of the following further auit proceures are use to eter!ine whether all si transaction-relate auit objectives have been achieve for each class of transactions# ') tests of controls ) ris$ assess!ent proceures *) substantive tests of transactions +) preli!inary analytical proceures 'nswer, * er!s, 4urther auit proceures to eter!ine whether all si transaction-relate transaction-relate auit objectives have been achieve +iff, asy Objective, LO 13-1 ''*S, /eflective thin$ing ) 6ou 6ou are auiting /ogers an *o!pany. 'fter perfor!ing substantive analytical proceures you conclue that for the accounts teste the client0s balance appears reasonable. his !ay inicate that ') etails test of balances can be eli!inate for those accounts. ) certain tests of etails of balances !ay be eli!inate for those accounts. *) control tests !ay be eli!inate for those accounts. +) control tests !ay be reuce for those accounts. 'nswer, er!s, 'fter perfor!ing substantive substantive analytic proceures +iff, asy Objective, LO 13-1 ''*S, /eflective thin$ing
7) he purpose of tests of controls is to provie reasonable assurance that the ') accounting treat!ent of transactions an balances is vali an proper. ) internal control proceures are functioning as intene. *) entity has co!plie with 8'' isclosure re9uire!ents. +) entity has co!plie with re9uire!ents of 9uality control. 'nswer, er!s, urpose of tests of controls +iff, asy Objective, LO 13-1 ''*S, /eflective thin$ing :) ;n the contet of an auit of financial state!ents substantive tests are auit proceures that ') !ay be eli!inate uner certain conitions. ) are esigne to iscover significant subse9uent events. *) are esigne to test for ollar !isstate!ents. +) will increase proportionately with the auitor0s reliance on internal control. 'nswer, * er!s, Substantive tests +iff, asy Objective, LO 13-1 ''*S, /eflective thin$ing <) "hich of the following is true# ') ests of etails of balances focus on the ening general leger balances for both balance sheet an inco!e state!ent accounts. ) ests of etails of balances focus on the transactions uring the perio for both balance sheet an inco!e state!ent accounts. *) ests of etails of balances focus on the auitor0s unerstaning of internal controls. +) ests of etails of balances focus on co!parisons of recore a!ounts to epectations evelope by the auitor. 'nswer, ' er!s, ests of etails of balances focus on +iff, asy Objective, LO 13-1 ''*S, /eflective thin$ing 1=) ' syste! wal$through is pri!arily use to help the auitor ') test the ening account balances. ) test the etails of transactions. *) eter!ine whether internal controls have been properly i!ple!ente. +) eter!ine whether the auit engage!ent shoul be accepte. 'nswer, * er!s, Syste! wal$through +iff, asy Objective, LO 13-1 ''*S, /eflective thin$ing 11) /is$ assess!ent proceures are perfor!e by auitors uring an auit in orer to ') eter!ine the ris$ of !aterial !isstate!ent in the financial state!ents.
) eter!ine the a!ount of testing of internal control. *) eter!ine the etent of testing of etails of balances. +) eter!ine the etent of testing of transactions. 'nswer, ' er!s, /is$ assess!ent proceures +iff, >oerate Objective, LO 13-1 ''*S, /eflective thin$ing opic, ublic 1%) ests of controls are irecte towar the control0s ') efficiency. ) effectiveness. *) cost an effectiveness. +) cost benefit ratio. 'nswer, er!s, ests of controls +iff, >oerate Objective, LO 13-1 ''*S, /eflective thin$ing 13) ' proceure esigne to test for !onetary !isstate!ents irectly affecting the c orrectness of financial state!ent balances is a ') test of controls. ) substantive test. *) test of attributes. +) !onetary unit sa!pling test. 'nswer, er!s, roceures esigne to test for !onetary !isstate!ents +iff, asy Objective, LO 13-1 ''*S, /eflective thin$ing 1&) 'nalytical proceures ') focus on the ening balances for inco!e state!ent accounts. ) are only perfor!e uring the planning stage of the auit. *) are re9uire to be perfor!e when auiting an account balance. +) provie substantive evience. 'nswer, + er!s, 'nalytical proceures +iff, >oerate Objective, LO 13-1 ''*S, /eflective thin$ing
15) he pri!ary e!phasis in !ost tests of etails of balances is on the ') balance sheet accounts. ) revenue accounts. *) cash flow state!ent accounts. +) epense accounts. 'nswer, ' er!s, ri!ary e!phasis in !ost tests of etails of balances +iff, >oerate Objective, LO 13-1 ''*S, /eflective thin$ing 1) "hich of the following state!ents is not true# ') 'nalytical proceures e!phasi?e the overall reasonableness of transactions an balances. ) ests of controls are concerne with evaluating whether controls are sufficiently effective to justify reucing control ris$ an thereby reucing analytical review proceures. *) Substantive tests of transactions e!phasi?e the verification of transactions recore in the journals an then poste in the general leger. +) ests of etails of balances e!phasi?e the ening balances in the general leger. 'nswer, er!s, ests of controls +iff, >oerate Objective, LO 13-1 ''*S, /eflective thin$ing 17) >any auitors perfor! etensive analytical proceures because ') they are re9uire by 8''S. ) they pinpoint errors in accounts. *) they inicate areas of potential ris$ an !isstate!ent. +) they are re9uire for tests of controls. 'nswer, * er!s, 'uitors perfor! etensive analytical proceures +iff, >oerate Objective, LO 13-1 ''*S, /eflective thin$ing
1:) he auitor has eter!ine that a $ey control in the auit of the sales an collection cycle is that recore sales are supporte by authori?e shipping ocu!ents an approve custo!er orers. "hat typical test of controls shoul be use in this situation# ') a!ine a sa!ple of uplicate sales invoices to eter!ine that each on is supporte by an authori?e shipping ocu!ent an approve custo!er orer. ) Observe whether shipping ocu!ents are forware aily to billing an observe when they are bille. *) a!ine a sa!ple of sales invoices an agree prices to the authori?e co!puter price list. +) @se auit software to trace postings fro! the batch o f sales transactions to the subsiiary an general legers. 'nswer, ' er!s, ests of controls +iff, >oerate Objective, LO 13-1 ''*S, /eflective thin$ing 1<) "hich of the following is orinarily esigne to etect !aterial ollar errors on the financial state!ents# ') tests of controls ) analytical review proceures *) co!puter controls +) tests of etails of balances 'nswer, + er!s, +esigne to etect !aterial ollar errors on the financial state!ents +iff, >oerate Objective, LO 13-1 ''*S, /eflective thin$ing %=) List each of the five types of auit tests. 'nswer, A ris$ assess!ent proceures A tests of controls A substantive tests of transactions A substantive analytical proceures A tests of etails of balances er!s, ypes of auit tests +iff, >oerate Objective, LO 13-1 ''*S, /eflective thin$ing
%1) +escribe the five types of auit tests. ;entify which of the five types are substantive tests an which are use to reuce assesse control ris$. 'nswer, he five types of auit tests use to eter!ine whether financial state!ents are fairly state are, ris$ assess!ent proceures tests of controls substantive tests of transactions substantive analytical proceures an tests of etails of balances. Substantive tests of transactions substantive analytical proceures an tests of etails of balances are substantive tests whereas proceures to obtain an unerstaning of internal control an tests of controls are use to reuce assesse control ris$. 'uitors use substantive analytical proceures an tests of etails of balances to satisfy planne etection ris$. Substantive tests of transactions affect both control ris$ an planne etection ris$ because they test the effectiveness of internal controls an the ollar a!ounts of the transactions. er!s, ypes of auit tests +iff, >oerate Objective, LO 13-1 ''*S, /eflective thin$ing %%) +iscuss the purposes of (1) substantive tests of transactions (%) tests of controls an (3) tests of etails of balances. 8ive an ea!ple of each. 'nswer, he purpose of substantive tests of transactions is to eter!ine whether all si transaction-relate auit objectives have been satisfie for each class of transactions. 4or ea!ple as part of the auitor0s test of the accuracy objective for sales the auitor woul co!pare the a!ount recore in the sales journal for a sa!ple of sales transactions with the total on the corresponing sales invoices. he purpose of tests of controls is to eter!ine the effectiveness of both the esign an operations of specific internal controls. 4or ea!ple the auitor !ight observe for a !onth whether state!ents are !aile to all custo!ers. he purpose of tests of etails of balances is to eter!ine the !onetary correctness of the accounts to which they relate. he confir!ation of accounts receivable is an ea!ple. er!s, Substantive tests of transactions tests of controls an tests of etails of balances +iff, >oerate Objective, LO 13-1 ''*S, /eflective thin$ing
%3) here are three stages of the auit in which analytical proceures are perfor!e. ;entify each of these three stages an for each stage iscuss the purpose of perfor!ing analytical proceures in that stage. 'lso inicate in which stage(s) analytical proceures are re9uire by current professional auiting stanars. 'nswer, 'nalytical proceures are perfor!e in the auit planning stage to help the auitor ecie the other evience neee to satisfy sufficient co!petent evience re9uire!ents. 'nalytical proceures can also be perfor!e as substantive tests in the testing phase of the auit. 'nalytical proceures are perfor!e in the auit co!pletion phase as a final test of reasonableness. 'uiting stanars re9uire that analytical proceures be perfor!e in the planning an co!pletion phases of every auit. er!s, 'nalytical proceures in stages of auit +iff, >oerate Objective, LO 13-1 ''*S, /eflective thin$ing %&) 4or auto!ate controls the auitor0s proceures to eter!ine whether the auto!ate control has been i!ple!ente cannot also serve as the test of that control. 'nswer, 4'LS er!s, ests of controls auit tests +iff, >oerate Objective, LO 13-1 ''*S, /eflective thin$ing %5) roceures to obtain an unerstaning of internal control generally provie sufficient appropriate evience that a control is operating effectively. 'nswer, 4'LS er!s, ;nternal controls +iff, asy Objective, LO 13-1 ''*S, /eflective thin$ing %) Substantive tests are proceures esigne to test for ollar !isstate!ents that irectly affect the correctness of financial state!ent balances. 'nswer, /@ er!s, Substantive tests +iff, asy Objective, LO 13-1 ''*S, /eflective thin$ing %7) /is$ assess!ent proceures are perfor!e to assess the ris$ of !aterial !isstate!ent in the financial state!ents. 'nswer, /@ er!s, /is$ assess!ent proceures +iff, >oerate Objective, LO 13-1 ''*S, /eflective thin$ing %:) ests of controls shoul be perfor!e after substantive tests of transactions. 'nswer, 4'LS
er!s, ests of controls an substantive tests of transactions +iff, >oerate Objective, LO 13-1 ''*S, /eflective thin$ing %<) ests of etails of balances e!phasi?e the overall reasonableness of transactions an the general leger balances. 'nswer, 4'LS er!s, ests of etails of balances +iff, >oerate Objective, LO 13-1 ''*S, /eflective thin$ing 3=) 'uitors !ust perfor! tests of controls separately fro! substantive tests of transactions. 'nswer, 4'LS er!s, ests of controls an substantive tests of transactions +iff, >oerate Objective, LO 13-1 ''*S, /eflective thin$ing 31) One factor that eter!ines the a!ount of aitional evience re9uire for tests of controls is the planne reuction in control ris$. 'nswer, /@ er!s, *ontrol ris$ +iff, *hallenging Objective, LO 13-1 ''*S, /eflective thin$ing 3%) ests of controls are perfor!e to support a reuce assess!ent of etection ris$. 'nswer, 4'LS er!s, roceures to obtain an unerstaning of internal control +iff, *hallenging Objective, LO 13-1 ''*S, /eflective thin$ing
13.% Learning Objective 13-% 1) ;n orer to pro!ote auit efficiency the auitor co nsiers cost in selecting auit tests to perfor!. "hich of the following auit tests woul be the !ost costly# ') substantive analytical proceures ) ris$ assess!ent proceures *) tests of controls +) tests of etails of balances 'nswer, + er!s, >ost costly auit test +iff, >oerate Objective, LO 13-% ''*S, /eflective thin$ing %) 'n eception or eficiency foun in a test of controls ') inicates a financial state!ent !isstate!ent. ) inicates the li$elihoo of a !isstate!ent. *) inicates that the financial state!ents are fairly state. +) inicates that an averse opinion is warrante on the auit of internal control. 'nswer, er!s, ception or eficiency in test of controls +iff, >oerate Objective, LO 13-% ''*S, /eflective thin$ing 3) ;f no !aterial ifferences are foun using analytical proceures an the auitor conclues that !isstate!ents are not li$ely to have occurre ') other substantive tests !ay be reuce. ) it will be necessary to increase the tests of balances. *) it will not be necessary to perfor! tests of balances. +) it will be necessary to increase the tests of transactions. 'nswer, ' er!s, ;f no !aterial ifferences are foun using analytical proceures +iff, >oerate Objective, LO 13-% ''*S, /eflective thin$ing &) "hich of the following auit tests is usually the least costly to perfor!# ') substantive analytical proceures ) tests of controls *) tests of balances +) substantive tests of transactions 'nswer, ' er!s, Least costly auit test +iff, >oerate Objective, LO 13-% ''*S, /eflective thin$ing 5) 'n increase etent of tests of controls is !ost li$ely to occur when
') it is a first-year auit. ) the auitor is oing a Bfrau auit.B *) controls are effective an the preli!inary control ris$ assess!ent is low. +) controls are ineffective an the preli!inary control ris$ assess!ent is high. 'nswer, * er!s, ;ncrease etent of tests of controls !ost li$ely to occur +iff, >oerate Objective, LO 13-% ''*S, /eflective thin$ing ) "hen an auitor believes that analytical proceures inicate a reasonable possibility of !isstate!ent the auitor usually woul A)
erfor! aitional tests of controls +ecie to !oify tests of etails of balances 6es 6es B)
erfor! aitional tests of controls +ecie to !oify tests of etails of balances 2o 2o C)
erfor! aitional tests of controls +ecie to !oify tests of etails of balances 6es 2o D)
erfor! aitional tests of controls +ecie to !oify tests of etails of balances 2o 6es 'nswer, + er!s, 'nalytical proceures inicate reasonable possibility of !isstate!ent +iff, >oerate Objective, LO 13-% ''*S, /eflective thin$ing 7) ;f tests of controls support the control ris$ assess!ent then CCCCCCCC in the auit ris$ !oel is increase. ') planne etection ris$ ) planne inherent ris$ *) planne frau ris$ +) planne assurance ris$ 'nswer, ' er!s, *ontrol ris$ assess!ent an planne etection ris$ +iff, >oerate Objective, LO 13-% ''*S, /eflective thin$ing :) he auitor woul esign which of the following auit tests to etect possible !onetary errors in the financial state!ents#
') control tests ) substantive analytical proceures *) ris$ assess!ent proceures +) tests of operating effectiveness of controls over revenue an cash 'nswer, er!s, 'uit tests to etect possible !onetary errors in the financial state!ents +iff, >oerate Objective, LO 13-% ''*S, /eflective thin$ing <) he reliance the auitor places on substantive tests in relation to the reliance place on internal control varies in a relationship that is orinarily ') parallel. ) inverse. *) irect. +) e9ual. 'nswer, er!s, /eliance auitor places on substantive tests an internal controls +iff, *hallenging Objective, LO 13-% ''*S, /eflective thin$ing 1=) ' eficiency uncovere in the auit of internal control is eplaine by which of the following in relation to a financial state!ent !isstate!ent# ') the a!ount of the !isstate!ent ) the li$elihoo of the !isstate!ent *) the a!ount li$elihoo an classification of the !isstate!ent +) the a!ount an the classification of the !isstate!ent 'nswer, er!s, +eficiency uncovere in auit of internal control +iff, *hallenging Objective, LO 13-% ''*S, /eflective thin$ing 11) Several factors influence the auitor0s choice of the types of tests to select incluing ') the availability of the types of evience. ) the relative costs of each type of test. *) the effectiveness of the internal controls. +) all of the above. 'nswer, + er!s, Selecting types of tests to perfor! +iff, >oerate Objective, LO 13-% ''*S, /eflective thin$ing 1%) here are eight types of auit evience, physical ea!ination confir!ation inspection observation in9uiries of the client reperfor!ance analytical proceures an recalculation. 4or each of the following types of auit tests inicate the type(s) of evience that can be obtaine through the test, (1) tests of controls (%) substantive tests of transactions (3) analytical
proceures an (&) tests of etails of balances. 'nswer, 1. Tests of controls. ;nspection observation in9uiries of the client reperfor!ance %. Substantive tests of transactions. ;nspection in9uiries of the client reperfor!ance recalculation 3. Substantive analytical procedures. ;n9uiries of the client analytical proceures &. Tests of details of balances. hysical ea!ination confir!ation inspection in9uiries of the client reperfor!ance recalculation er!s, /elationship of auit tests an types of auit evience +iff, *hallenging Objective, LO 13-% ''*S, /eflective thin$ing 13) ests of controls are generally !ore costly to perfor! than analytical proceures. 'nswer, /@ er!s, *ost of tests of controls vs. analytical proceures +iff, asy Objective, LO 13-% ''*S, /eflective thin$ing 1&) Only tests of etails of balances involve p hysical ea!ination an confir!ation. 'nswer, /@ er!s, Substantive tests of etails of balances cost +iff, asy Objective, LO 13-% ''*S, /eflective thin$ing 15) 'nalytical proceures are the least costly type of auit test. 'nswer, /@ er!s, 'nalytical proceures cost +iff, asy Objective, LO 13-% ''*S, /eflective thin$ing 1) ;n a co!puteri?e environ!ent the auitor can often perfor! substantive tests of transactions 9uic$ly for a large sa!ple of transactions. 'nswer, /@ er!s, *osts of obtaining auit evience +iff, asy Objective, LO 13-% ''*S, /eflective thin$ing 17) he cost of each type of evience oes not vary in ifferent situations. 'nswer, 4'LS er!s, *osts of obtaining auit evience +iff, asy Objective, LO 13-% ''*S, /eflective thin$ing
1:) ecause of the high cost of tests of etails of balances auitors o not perfor! this type of testing unless frau is suspecte. 'nswer, 4'LS er!s, ests of etails of balances +iff, >oerate Objective, LO 13-% ''*S, /eflective thin$ing 1<) he auitor0s unerstaning of internal control perfor!e as part of ris$ assess!ent proceures provies the basis for the auitor0s initial assess!ent of control ris$. 'nswer, /@ er!s, Dariation in auit evience in cycles +iff, asy Objective, LO 13-% ''*S, /eflective thin$ing %=) 'nalytical proceures are the !ost epensive type of auit test to perfor! because of the epertise an training re9uire to properly use the!. 'nswer, 4'LS er!s, 'nalytical proceures cost +iff, >oerate Objective, LO 13-% ''*S, /eflective thin$ing %1) he results of tests of controls an substantive tests of transactions affect the esign of tests of etails of balances. 'nswer, /@ er!s, /esults of tests of controls affect esign of tests of etails of balances +iff, >oerate Objective, LO 13-% ''*S, /eflective thin$ing %%) ;f internal controls are teste an are consiere effective the auitor generally will increase both substantive tests of transactions an tests of etails of balances. 'nswer, 4'LS er!s, 'uitor0s preli!inary assess!ent of control ris$ +iff, >oerate Objective, LO 13-% ''*S, /eflective thin$ing %3) ests of controls provie evience about the li$elihoo for !isstate!ents in a client0s financial state!ents. 'nswer, /@ er!s, ests of controlsE >isstate!ents in client0s financial state!ents +iff, asy Objective, LO 13-% ''*S, /eflective thin$ing %&) 'n eception in a test of control provies only an inication of the li$elihoo of !onetary
!isstate!ents in the financial state!ents because tests of controls o not reveal whether !onetary !isstate!ents have actually occurre. 'nswer, /@ er!s, ception in test of controlE ;nication of li$elihoo of !onetary !isstate!ents +iff, asy Objective, LO 13-% ''*S, /eflective thin$ing 13.3 Learning Objective 13-3 1) "hich of the following is generally not inclue in the Bevience !iB# ') tests of controls ) substantive tests of transactions *) ris$ assess!ent proceures +) tests of etails of balances 'nswer, * er!s, vience !i +iff, >oerate Objective, LO 13-3 ''*S, /eflective thin$ing %) he CCCCCCCC is the co!bination of the types of tests to obtain sufficient appropriate evience for a cycle. here are li$ely to be variations in the !i fro! cycle to cycle epening on the circu!stances of the auit. ') testing !i ) evience !i *) auit process !i +) proceures !i 'nswer, er!s, vience !i +iff, asy Objective, LO 13-3 ''*S, /eflective thin$ing
3) "hich of the following woul !ost li$ely not be inclue in the evience !i for an integrate auit of a public co!pany0s financial state!ents an internal control over financial reporting# ') sophisticate internal controls ) etensive substantive analytical proceures *) etensive tests of etails of balances +) low inherent ris$ 'nswer, * er!s, vience !i +iff, >oerate Objective, LO 13-3 ''*S, /eflective thin$ing opic, ublic &) ;f the auitor fins etensive control test eviations an significant !isstate!ents while perfor!ing substantive tests of transactions an substantive analytical proceures ') the cost of the auit shoul ecrease. ) the auitor will conclue that internal controls are effective. *) etensive tests of etails of balances will nee to be perfor!e. +) all of the above 'nswer, * er!s, vience !i +iff, >oerate Objective, LO 13-3 ''*S, /eflective thin$ing 5) he evience !i inclues ris$ assess!ent proceures. 'nswer, 4'LS er!s, vience !i an ris$ assess!ent proceures +iff, >oerate Objective, LO 13-3 ''*S, /eflective thin$ing ) he choice of which types of tests to use an how etensively they nee to be perfor!e !ust be the sa!e for all auits. 'nswer, 4'LS er!s, vience !i an ris$ assess!ent proceures +iff, >oerate Objective, LO 13-3 ''*S, /eflective thin$ing
13.& Learning Objective 13-& 1) he ocu!ent that etails the specific auit proceures for each type of test is the ') auit strategy. ) auit progra!. *) auit proceure. +) auit ris$ !oel. 'nswer, er!s, 'uit progra! +iff, asy Objective, LO 13-& ''*S, /eflective thin$ing %) 'uitors follow a four step approach to reuce assesse control ris$. "hich of the following is not one of the four# ') 'pply transaction-relate auit objectives to a class of transactions. ) ;entify accounts that have high inherent ris$. *) ;entify $ey controls that reuce control ris$. +) 4or potential !isstate!ents esign appropriate substantive tests of transactions. 'nswer, er!s, 'pproach to reuce assesse control ris$ +iff, >oerate Objective, LO 13-& ''*S, /eflective thin$ing 3) "hen esigning the auit progra! an the particular auit tests the auitor shoul $eep in !in that ') the auit progra! is bro$en own into two parts-the ris$ assess!ent proceures an the tests of etails of balances. ) the tests of controls will not vary epening on assesse control ris$. *) analytical proceures perfor!e uring substantive testing are generally !ore focuse an !ore etensive than those one as part of planning. +) auiting stanars re9uire that the tests containe in the auit progra! !ust be approve by the *'O. 'nswer, * er!s, ;!portant consieration in eveloping the auit progra! +iff, >oerate Objective, LO 13-& ''*S, /eflective thin$ing
&) he auitor obtaine an age list of receivables an trace the accounts to the !aster file foote the scheule an trace the a!ounts to the general leger. "hich balance-relate auit objective was !et# ') eistence ) cutoff *) etail tie-in +) all of the above 'nswer, * er!s, alance-relate auit objectives +iff, asy Objective, LO 13-& ''*S, thical unerstaning an reasoning 5) "hen esigning tests of controls an substantive tests an auitor is gathering evience to satisfy the transaction-relate auit objectives. "hat are the four steps the auitor woul nor!ally follow to reuce assesse control ris$# 'nswer, 1. 'pply the transaction-relate auit objectives to the class of transactions being teste. %. ;entify $ey controls that shoul reuce control ris$ for each transaction-relate auit objective. 3. +evelop appropriate tests of controls for all internal controls that are use to reuce the preli!inary assess!ent of control ris$ below !ai!u! ($ey controls). &. 4or potential types of !isstate!ents relate to each transaction-relate auit objective esign appropriate substantive tests of transactions consiering eficiencies in internal control an epecte results of the tests of controls. er!s, 4our-step approach to reuce assesse control ris$ +iff, >oerate Objective, LO 13-& ''*S, /eflective thin$ing ) One of the !ost challenging parts of auiting is properly applying the factors that affect tests of etails of balances. 'nswer, /@ er!s, ests of etails of balances +iff, >oerate Objective, LO 13-& ''*S, /eflective thin$ing 7) 'uiting stanars re9uire a written auit progra!. 'nswer, /@ er!s, 'uiting stanarsE 'uit progra! +iff, asy Objective, LO 13-& ''*S, /eflective thin$ing
:) "hen esigning an auit progra! for tests of etails of balances the auitor shoul !a$e assu!ptions about inherent ris$ an control ris$ an preictions conc erning the outco!e of tests of controls substantive tests of transactions an analytical proceures. 'nswer, /@ er!s, +esigning auit progra!E ;nherent ris$ an control ris$E ests of controls substantive tests of transactions an analytical proceures +iff, asy Objective, LO 13-& ''*S, /eflective thin$ing <) Once set uring the planning phase the auit progra! cannot be revise. 'nswer, 4'LS er!s, 'uit progra! +iff, >oerate Objective, LO 13-& ''*S, /eflective thin$ing 1=) ;nherent ris$ can be etene to iniviual balance-relate auit objectives. 'nswer, /@ er!s, ;nherent ris$ +iff, >oerate Objective, LO 13-& ''*S, /eflective thin$ing 11) "hen controls are effective an control ris$ is assesse as low auitors put heavy e!phasis on tests of balances. 'nswer, 4'LS er!s, *ontrol ris$ assess!ent +iff, >oerate Objective, LO 13-& ''*S, /eflective thin$ing 13.5 Learning Objective 13-5 1) here is a irect relationship between the CCCCCCCC transaction-relate auit objective an the CCCCCCCC balance-relate auit objective. ') occurrenceE eistence ) ti!ingE cutoff *) posting an su!!ari?ationE etail tie-in +) all of the above 'nswer, + er!s, /elationship of transaction-relate auit objectives to balance-relate auit objectives +iff, >oerate Objective, LO 13-5 ''*S, /eflective thin$ing
%) ;f all transaction-relate auit objectives are !et the auitor oes not nee to perfor! substantive test of balances to !eet the reali?able value auit objective. 'nswer, 4'LS er!s, /elationship of transaction-relate auit objectives to balance-relate auit objectives +iff, >oerate Objective, LO 13-5 ''*S, /eflective thin$ing 3) he auitor perfor!s tests of controls an substantive proceures to obtain assurance that all auit objectives are achieve for infor!ation an a!ounts inclue in those isclosures. 'nswer, /@ er!s, resentation an isclosure-relate objectives +iff, >oerate Objective, LO 13-5 ''*S, /eflective thin$ing 13. Learning Objective 13- 1) "hat type of test is use to obtain the !ost types of evience# ') substantive tests of transactions ) tests of controls *) ris$ assess!ent tests +) tests of etails of balances 'nswer, + er!s, ype of test use to obtain !ore types of evience +iff, *hallenging Objective, LO 13- ''*S, /eflective thin$ing %) "hich phase(s) of the auit uses in9uiries of clients as a type of evience# ') plan an esign ) tests of controls an substantive tests of transactions *) co!pletion of the auit an issuance of the auit report +) all of the above 'nswer, + er!s, vience an auit phases +iff, >oerate Objective, LO 13- ''*S, /eflective thin$ing
3) "hich auit tests involve physical ea!ination an confir!ation# ') tests of controls ) tests of transactions *) tests of etails of balances +) analytical proceures 'nswer, * er!s, 'uit tests that involve physical ea!ination an confir!ation +iff, *hallenging Objective, LO 13- ''*S, /eflective thin$ing &) "hich of the following types of evience is not available when using substantive tests of transactions# ') inspection ) confir!ation *) in9uiries of the client +) reperfor!ance 'nswer, er!s, ypes of evience not available when using substantive tests of transactions +iff, *hallenging Objective, LO 13- ''*S, /eflective thin$ing 5) resentation an isclosure objectives are pri!arily aresse in the tests of etails of balances phase of the auit. 'nswer, 4'LS er!s, 4our phases of the auit process +iff, >oerate Objective, LO 13- ''*S, /eflective thin$ing 13.7 Learning Objective 13-7 1) resentation an isclosure relate auit objectives woul be perfor!e in which phase of the auit process# ') plan an esign auit approach ) perfor! auit tests for controls an transactions *) perfor! analytical proceures an tests of balances +) co!plete the auit an issue the auit report 'nswer, + er!s, resentation an isclosure-relate auit objective perfor!e in what phase of auit process +iff, >oerate Objective, LO 13-7 ''*S, /eflective thin$ing
%) ransaction-relate auit objectives woul !ost li$ely be perfor!e in which phase of the auit process# ') plan an esign auit approach ) perfor! tests of controls an substantive tests of transactions *) perfor! substantive analytical proceures an tests of etails of balances +) co!plete the auit an issue the auit report 'nswer, er!s, ransaction-relate auit objectives perfor!e in what phase of auit process +iff, >oerate Objective, LO 13-7 ''*S, /eflective thin$ing 3) "hich of the following is an accurate state!ent regaring the four phases of the auit process# ') 'fter the planning stage the auitor shoul have a well-efine auit strategy an plan an a specific auit progra! for the entire auit. ) he objective of phase ;;; is to perfor! tests of controls. *) +uring phase ;; the auitor !ust evaluate the going-concern assu!ption. +) 'll of the above are correct state!ents. 'nswer, ' er!s, 4our phases of the auit process +iff, >oerate Objective, LO 13-7 ''*S, /eflective thin$ing &) "hich of the following tests co!!only occur together# ') substantive tests of transactions an tests of controls ) substantive tests of transactions an obtaining an unerstaning of internal controls *) analytical proceures an tests of controls +) tests of controls an tests of etails of balances 'nswer, ' er!s, ests that occur together +iff, >oerate Objective, LO 13-7 ''*S, /eflective thin$ing 5) ests of controls an substantive tests of transactions are an i!portant eter!inant of the etent of the auitor0s use of tests of etails of ba lances. "hich of the following is true# ') hey are li$ely to be perfor!e prior to the client0s en of the fiscal year. ) hey are li$ely to eli!inate the nee for tests of etails of balances. *) hey are li$ely to have no i!pact on the planne tests of etails of balances. +) hey are li$ely to be use only in the auit of internal control. 'nswer, ' er!s, 4our parts of ';*' *oe of rofessional *onuct +iff, >oerate Objective, LO 13-7 ''*S, /eflective thin$ing ) "hen the auitor has co!plete the tests of etails of balances an enters phase ;D of the
auit process she !ust still perfor! auit proceures for which of the following# ') contingent liabilities an e!ployee co!pensation ) contingent liabilities an subse9uent events *) subse9uent events an contractual co!!it!ents +) subse9uent events an unrecore liabilities 'nswer, er!s, 'uit proceures perfor!e in phase & of auit process +iff, >oerate Objective, LO 13-7 ''*S, /eflective thin$ing 7) "hich of the following auit tests woul be regare as a test of controls# ') co!parison of the inventory pricing to venors0 invoices ) tests of the signatures on cancele chec$s to boar of irectors0 authori?ations *) tests of the aitions to property plant an e9uip!ent by physical inspections +) review of the specific ite!s !a$ing up the balance in a given general leger account 'nswer, er!s, ests of controls auit tests +iff, >oerate Objective, LO 13-7 ''*S, 'nalytic thin$ing :) "hich of the following auit tests for! the basis for an auitor0s report on internal control over financial reporting# ') analytical proceures ) tests of transactions *) tests of controls +) tests of etails of balances 'nswer, * er!s, 'uit tests that for! basis for auitor0s report on internal control +iff, >oerate Objective, LO 13-7 ''*S, /eflective thin$ing opic, ublic
<) >anage!ent i!ple!ents internal controls to ensure that all re9uire footnote isclosures are accurate. 'uitors tests those controls to provie evience supporting the CCCCCCCC presentation. ') co!pleteness an valuation ) co!pleteness an accuracy *) rights an obligations an eistence +) occurrence an accuracy 'nswer, er!s, hase & of auit +iff, >oerate Objective, LO 13-7 ''*S, /eflective thin$ing 1=) 't what point in the auit process are tests of etails !ost appropriately esigne# ') plan an esign auit approach ) perfor! auit tests of controls an substantive tests of transactions *) perfor! substantive analytical proceures an tests of etails of balances +) co!plete the auit an issue the auit report 'nswer, * er!s, 4our phases of the auit process +iff, >oerate Objective, LO 13-7 ''*S, /eflective thin$ing 11) "hich of the following is not co!plete uring phase ;D of the auit# ') Obtain a client representation letter. ) /ea infor!ation in the annual report to !a$e sure that it is consistent with the financial state!ents. *) erfor! substantive tests of transactions. +) erfor! final analytical proceures. 'nswer, * er!s, 4our phases of the auit process +iff, >oerate Objective, LO 13-7 ''*S, /eflective thin$ing
1%) 4or clients with highly sophisticate co!puteri?e accounting syste!s auitors perfor! tests throughout the year to ientify significant or unusual transactions. his approach is calle CCCCCCCC an is fre9uently use in integrate auits of financial state!ents an internal control for public co!panies. ') continuous auit progra! ) continuous auiting *) continuous analytical testing +) continuous auit !i 'nswer, er!s, *ontinuous auiting +iff, >oerate Objective, LO 13-7 ''*S, /eflective thin$ing opic, ublic 13) 'nalytical proceures perfor!e uring phase ;;; of the auit ') !ust be perfor!e before the balance sheet ate. ) can be use as a !eans of planning an irecting other auit tests to specific areas. *) shoul be one after tests of etails of balances. +) are epensive an are therefore not fre9uently use by the auitor. 'nswer, er!s, 4our phases of the auit process +iff, >oerate Objective, LO 13-7 ''*S, /eflective thin$ing 1&) ;n phase ;D of the auit co!plete the auit an issue an auit report there are five activities re9uire. List below the activities. 'nswer, 1. perfor! aitional tests for presentation an isclosure %. accu!ulate final evience 3. evaluate results &. issue auit report 5. co!!unicate with auit co!!ittee an !anage!ent er!s, hase & of auit +iff, >oerate Objective, LO 13-7 ''*S, /eflective thin$ing
15) ;n accu!ulating final evience upon which to base an auit opinion the auitor shoul perfor! four activities. List the activities below. 'nswer, 1. perfor! final analytical proceures %. evaluate the going concern assu!ption 3. obtain a client representation letter &. rea infor!ation in the annual report to ensure that it is consistent with the financial state!ents er!s, 'ccu!ulating final evience an final activities +iff, >oerate Objective, LO 13-7 ''*S, /eflective thin$ing 1) +iscuss the !ajor activities an proceures perfor!e by the auitor in the plan an esign of the auit approach. 'nswer, he !ajor activities perfor!e in the planning an esign phase (hase ;) are, A accept client an perfor! initial planning A unerstan the client0s business an inustry A perfor! preli!inary analytical proceures A set preli!inary jug!ent of !ateriality an perfor!ance !ateriality A ientify significant ris$s ue to frau or error A assess inherent ris$ A unerstan internal control an assess control ris$ A finali?e overall auit strategy an auit plan er!s, >ajor activities an proceures perfor!e by auitor in the plan an esign of the auit approach +iff, *hallenging Objective, LO 13-7 ''*S, /eflective thin$ing 17) he auitor !ust co!!unicate significant eficiencies in internal control only after the entire auit is co!plete to ensure the auitor has a sufficient unerstaning of the circu!stances surrouning the eficiency. 'nswer, 4'LS er!s, 'uitor co!!unicates significant eficiencies in internal control +iff, >oerate Objective, LO 13-7 ''*S, /eflective thin$ing 1:) Subse9uent events represent events that occasionally occur after the balance sheet ate but before the issuance of the financial state!ents an the auitor0s report that have an effect on the financial state!ents. 'nswer, /@ er!s, Subse9uent events +iff, >oerate Objective, LO 13-7 ''*S, /eflective thin$ing 1<) Substantive tests of balances perfor!e before year-en provie significant assurance an
are nor!ally only one when internal controls are ineffective. 'nswer, 4'LS er!s, Substantive tests +iff, >oerate Objective, LO 13-7 ''*S, /eflective thin$ing
