AUDITING THEORY

AT.05-Audit Planning-An Overview

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 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
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 appropriate attention is devoted:
a. b. c. d.
To important areas of the audit Yes Yes Yes Yes
So that potential problems are promptly identified and resolved

Yes Yes No No
So that the work is performed in an effective and efficient
manner
No Yes No Yes
7. Which of the following is not one of the three main reasons why the auditor should properly plan engagements?
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.
8. Overall audit plan should
a b c d
Precede action Yes No Yes No
Be flexible Yes No Yes Yes
Be cost beneficial Yes Yes No Yes
Overall Audit Strategy
9. The following are the matters to be considered by the auditor in establishing the overall audit strategy, except
a. Defining the scope of the examination
b. Assess risk and materiality
c. Computation of audit fees
d. Ascertaining the reporting objectives of the 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
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.
d. Estimated time required to perform each task.
14. Those procedures specifically outlined in an audit program are primarily designed to
a. Gather evidence.
b. Detect errors or irregularities.
c. Test internal systems.
d. Protect the auditor in the event of litigation
15. An audit should design the written audit program so 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 structure has been completed.
b. engagement letter has been signed by the auditor 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.
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 than a recurring audit. One of the reasons for this is that
a. new auditors are usually assigned to an initial audit.
b. predecessor auditors need to be consumed.
c. the client's business, industry and internal control are unfamiliar to the auditor and need to be carefully studied.
d. a larger proportion of customer accounts receivable need to be confirmed on an initial audit.
Other Planning Considerations
Entity Assistance to the Auditor
23. Which of the following is an effective audit planning procedure that helps prevent misunderstandings and inefficient
use of audit personnel?
 a. Arrange to make copies, for inclusion in the audit files, of those client supporting documents examined by the
auditor.
b. Arrange to 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.
Work of Internal Auditor
24. Which of the following is most correct regarding external auditors use of internal auditors directly on the audit
engagement?
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, classify
and report such information and specific inquiry into individual items including detailed testing of transactions and
recommending improvements thereto.
d. Establishment of adequate accounting and internal control systems.
26. The independent auditor should acquire an understanding of a client’s internal audit function to determine whether
the work of internal auditors will be a factor in determining the nature, timing and extent of the independent auditor’s
procedures. The work performed by internal auditors might be such a factor when the internal auditor’s work
includes
a. Verification of the mathematical accuracy of invoices
b. Review of administrative practices to improve efficiency and achieve management objectives
c. Study and evaluation of internal accounting control
d. Preparation of internal financial reports for management purposes/
27. The work of internal auditors may affect the independent’s auditor’s
I. Procedures performed in obtaining an understanding of internal control
II. Procedures performed in assessing the risk of material misstatement
III. Substantive procedures performed in gathering direct evidence
a. I and III only
b. I and II only
c. II and III only
d. I, II and III
28. Which of the following statements in relation to the preliminary assessment of internal auditing is false?
a. During the course of planning the audit, the external auditor should perform a preliminary assessment of the
internal audit function when it appears that internal auditing is relevant to the external audit of the financial
statements in specific audit areas.
b. The external auditor should obtain a sufficient understanding of internal audit activities to assist in planning the
audit and developing an effective audit approach.
c. Effective internal auditing will often allow a modification in the nature, timing, reduction in the extent and even
eliminate in its entire some procedures performed by the external auditor.
d. In some cases, after having considered the activities of internal auditing, the external auditor may decide that
internal auditing will have no effect on external audit procedures.
29. To assess the objectivity of the internal auditors, an 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
a. The entity
b. The audit committee of the board of directors
c. The employer-employee relationship which exists for other employees
d. The line functions of the organization
32. Which of the following in relation to the relationship between internal auditing and the external auditor is false?
a. All judgments relating to the audit of the financial statements are those of the external auditor.
b. Internal auditors should exercise the same degree of independence as required of the external auditor.
c. The role of internal auditing is determined by management and its objectives differ from those of the external
auditor who is appointed to report independently on the financial statements.
 d. The external auditor has the sole responsibility for the audit opinion expressed and that responsibility is not
reduced by any use mane of internal auditing.
33. For which of the following judgments may an independent auditor share responsibility with an entity’s internal auditor
who is assessed to be both competent and objective?
a. b. c. d.
Materiality of misstatements
Yes No No Yes
Evaluation of accounting estimates
No Yes No Yes
Work of Expert
34. Which statement is incorrect regarding the auditor’s use of the work of an expert?
a. When using the work performed by an expert, the auditor should obtain sufficient appropriate audit evidence that
such work is adequate for the purposes of the audit.
b. “Expert” means a person or firm possessing special skill, knowledge and experience in a particular field other
than accounting and auditing.
c. The auditor's education and experience enable the auditor to be knowledgeable about business matters in
general, but the auditor is not expected to have the expertise of a person trained for or qualified to engage in the
practice of another profession or occupation.
d. When the auditor uses the work of an expert employed by the auditor, that work is used in the employee's
capacity as an assistant on the audit.
35. When planning to use the work of an expert, the auditor should assess the objectivity of the expert. This will involve
considering the expert's:
I. Professional certification or licensing by, or membership in, an appropriate professional body.
II. Experience and reputation in the field in which the auditor is seeking audit evidence.
III. Relationship to the entity.
a. I, II, III c. I and III
b. I and II d. III only
36. The risk that an expert’s objectivity will be impaired increases when the expert is related in some other manner to
the entity (e.g., by being financially dependent upon or having an investment in the entity) and the expert is
a. Engaged by the entity
b. Employed by the entity
c. Engaged by the auditor
d. Employed by the auditor
37. Each of the following procedures requires the assistance of an expert, except
a. Determining the physical condition or quantity of underground mineral.
b. Determining the value of works of art.
c. Determining the adequacy of disclosure in the notes to the financial statements.
d. Interpreting major contracts.
38. During an audit, the auditor may need the assistance of an expert in obtaining sufficient appropriate evidence. A
common example is
a. Determining the sufficiency and appropriateness of evidential matter obtained.
b. Evaluating the potential financial statements effect of an employee fraud.
c. Evaluating the integrity of management.
d. Determination of amounts using actuarial computations.
39. When determining the need to use the work of an expert, the auditor would consider the following, except
a. The professional certification or licensing by, or membership in, an appropriate professional body.
b. The quantity and quality of other audit evidence available.
c. The materiality of the financial statement item being considered.
d. The risk of misstatement based on the nature and complexity of the matter being considered.
Work of Component Auditors
40. An auditor who, at the request of the group engagement team, performs work on financial information related to a
component for the group audit is a
a. Group Auditor
b. Component Auditor
c. Group Engagement Team
d. Component Engagement Team