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AT Quizzer 7 - Planning and Risk Assessment 2SAY2122
AT Quizzer 7 - Planning and Risk Assessment 2SAY2122
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AT – Quizzer 7
“Planning”
a. I only
b. II only
c. Both I and II
d. Neither I nor II
2. Which of the following activities should be performed by the auditor at the beginning of the current
audit engagement?
I. Perform procedures regarding the continuance of the client relationship and the specific audit
engagement.
II. Evaluate compliance with the requirements of the Code of Ethics for Professional Accountants
in the Philippines, including independence.
III. Establish an understanding of the terms of the engagement.
a. I and II only
b. II and III only
c. I and III only
d. I, II, and III
5. In performing an audit of financial statements, the auditor should obtain a sufficient knowledge of a
client’s business and industry to
a. Develop an attitude of professional skepticism concerning management’s financial statement
assertions.
b. Make constructive suggestions concerning improvements to the client’s internal control.
c. Evaluate whether the aggregation of known misstatements causes the financial statements
taken as a whole to be materially misstated.
d. Understand the events and transactions that may have an effect on the client’s financial
statements.
6. Which of the following is the least likely procedure to be performed in planning a financial
statement audit?
a. Selecting a sample of sales invoices for comparison with shipping documents.
b. Coordinating the assistance of entity personnel in data preparation.
c. Reading the current year’s interim financial statements.
d. Discussing matters that may affect the audit with firm personnel responsible for non audit
services to the entity.
II. The nature, timing and extent of planned further audit procedures at the assertion level, as
determined under PSA 330 (The Auditor’s Responses to Assessed Risks)
a. I only
b. II only
c. Both I and II
d. Neither I nor II
9. Which of the following matters would an auditor least likely to consider when setting the direction
of the audit?
a. The selection of the engagement team and the assignment of audit work to the team
members.
b. The engagement budget which includes consideration of the appropriate amount of time to
allot for areas where there may be higher risks of material misstatement.
c. The availability of client personnel and data.
d. The manner in which the auditor emphasizes to engagement team members the need to
maintain a questioning mind and to exercise professional skepticism in the gathering and
evaluation of audit evidence.
10. Which of the following matters would an auditor most likely consider when establishing the scope
of the audit?
a. The expected audit coverage, including the number and locations of the entity’s components
to be included.
b. The entity’s timetable for reporting, such as at interim and final stages.
c. The discussion with the entity’s management concerning the expected communications on the
status of audit work throughout the engagement and the expected deliverables resulting from
the audit procedures.
d. Audit areas where there is a higher risk of material misstatement.
11. In the planning stage of an audit engagement, the auditor is required to perform audit procedures
to obtain an understanding of the entity and its environment, including its internal control. These
procedures are called
a. Risk assessment procedures
b. Substantive tests
c. Tests of controls
d. Dual-purpose tests
12. In planning the audit engagement, the auditor should consider each of the following except
a. The kind of opinion (unqualified, qualified, or adverse) that is likely to be expressed.
b. The entity’s accounting policies and procedures.
c. Matters relating to the entity’s business and the industry in which it operates.
d. Materiality level and audit risk.
13. Audit programs are modified to suit the circumstances of particular engagements. A complete
audit program usually should be developed
a. When the engagement letter is prepared.
b. After obtaining an understanding of the control environment and control activities components
of the entity’s internal control.
c. After the auditor has obtained an understanding of the entity and its environment, including its
internal control and assessed the risks of material misstatement.
d. Prior to beginning the actual audit work.
14. In designing written audit programs, an auditor should establish specific audit objectives that relate
primarily to the
AT Quizzer 7 ”Planning and Risk Assessment” 3
15. An audit program should be designed for each individual audit and should incorporate steps and
procedures to
a. Detect and eliminate fraud of any type.
b. Gather sufficient amount of management information available.
c. Provide assurances that the objectives of the audit are satisfied.
d. Insure that only material items are audited.
16. Which of the following is an aspect of scheduling and controlling the audit engagement?
a. Including in the engagement letter an estimate of the minimum and maximum audit fee.
b. Writing a conclusion in individual working papers indicating how the results of the audit will
affect the auditor’s report.
c. Performing audit work only after the entity’s books have been closed for the period under
audit.
d. Including in the audit program a column for budgeted and actual time.
17. In connection with the planning phase of an audit engagement, which of the following statements
is always correct?
a. Final staffing decisions must be made prior to completion of the planning stage.
b. Observation of inventory count should be performed at year-end.
c. A portion of the audit of a continuing audit client can be performed at interim dates.
d. An engagement should not be accepted after the client’s financial year-end.
18. In planning an audit of an new client, an auditor most likely would consider the methods used to
process accounting information because such methods
a. Influence the design of internal control
b. Affect the auditor’s preliminary judgment about materiality level
c. Assist in evaluating the planned audit objectives
d. Determine the auditor’s acceptance level of audit risk
20. The following statements relate to business risk. Select the incorrect statement:
a. Business risk is broader than the risk of material misstatement
b. Most business risks do not have financial consequences, though they may have an effect on
the financial statements of an entity
c. Usually, management identifies business risks and develops approaches to address them
d. Smaller entities often do not set their objectives and strategies, or manage the related
business risks, through formal plans or processes
21. Which of the following procedures is not performed as part of planning an audit engagement?
a. Reviewing the working papers of the prior year.
b. Performing analytical procedures.
c. Tests of control.
d. Designing an audit program.
22. Which of the following procedures would an auditor least likely perform in planning a financial
statement audit?
AT Quizzer 7 ”Planning and Risk Assessment” 4
23. Which of the following is an effective audit planning and control procedure that helps prevent
misunderstanding and inefficient use of audit personnel?
a. Make copies, for inclusion in the working papers, of those client supporting documents
examined by the auditor.
b. Arrange to provide the client with copies of the audit programs to be used during the audit.
c. Arrange 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.
24. Which of the following is the correct order of steps in the audit process?
a. Perform tests of control
b. Develop an overall strategy for the expected conduct and scope of the audit.
c. Obtain client’s written representation.
d. Prepare engagement letter.
e. Perform substantive tests.
f. Review and make preliminary evaluation of internal control.
a. D,F,A,B,E,C
b. D,B,C,F,A,E
c. D,B,F,A,E,C
d. D,F,B,C,A,E
25. External auditors should develop and record a plan for each engagement. The planning process
should include all the following except
a. Establishing engagement objectives and scope of work
b. Obtaining background information about he activities to be reviewed
c. Identifying sufficient information to achieve engagement objectives
d. Determining how, when and to whom the engagement results will be communicated
26. An outside consultant is developing methods for the management of a city’s capital facilities. An
appropriate scope of an engagement to evaluate the consultant’s product is to
a. Review the consultant’s contract to determine its propriety
b. Establish the parameters of the value of the items being managed and controlled
c. Determine the adequacy of the risk management and control systems for the management of
capital facilities
d. Review the handling of idle equipment
27. Documentation required to plan an internal auditing engagement should include information that
a. Resources needed to complete the engagement were considered
b. Planned engagement work will be completed on a timely basis
c. Intended engagement observations have been clearly identified
d. Internal audit activity resources are efficiently and effectively employed
28. Which of the following is least likely to be placed on the agenda for discussion at a pre-
engagement meeting?
a. Purpose and scope of the engagement
b. Records and client personnel needed
c. Sampling plan and key criteria
d. Expected starting an completion dates
31. Which of the following is not considered among the benefits of audit planning?
a. Audit planning helps coordinate the work to be done by auditors of components and other
parties such as experts, specialists, etc.
b. Audit planning helps ensure that the audit is properly organized, managed and performed in
an effective and efficient manner
c. Audit planning aids in ensuring the examination of financial statements can be performed
without problems and difficulties
d. Audit planning helps ensure that appropriate attention is devoted to important areas of the
audit
32. Which of the following procedures is not undertaken by the auditor at the beginning of the current
audit engagement?
a. Determines whether ethical requirements including independence are complied with
b. Establishes an understanding of the terms of engagement
c. Determines whether relationship with client can be continued or not
d. Determines the types of opinion that should be expressed on the financial statements
33. Which of the following is not considered by the auditor when establishing the scope of the audit
engagement?
a. The financial reporting framework on which the financial information to be audited has been
prepared
b. Industry-specific reporting requirements
c. Expected audit coverage including the number and locations of components to be included
d. Expected nature and timing of communications among engagement team members including
the nature and timing of team meetings and timing of the review of work performed
34. Which of the following should be considered by the auditor when ascertaining the reporting
objectives of the engagement, the timing of the audit and the nature of communications required?
a. Availability of client personnel and data
b. Effect of information technology on the audit procedures
c. Audit areas where there is a higher risk of material misstatement
d. The entity’s timetable of reporting such as at interim and final stages
35. The auditor should plan the nature, timing and extent of direction and supervision of engagement
team members and review of their work. Which of the following factors need not be considered by
the auditor in preparing this plan?
a. Size and complexity of the entity
b. The reporting currency to be used, including any need for currency translation for the financial
information audited
c. The capabilities and competence of personnel performing the audit work
d. The risks of material misstatement
36. For initial audits, additional matters the auditor may consider in the overall audit strategy and audit
plan include the following except
a. Confirmation of material accounts receivable balance at the end of the year
b. Planned audit procedure to obtain sufficient appropriate audit evidence regarding opening
balances
c. Assignment of firm personnel with appropriate levels of capabilities and competence to
respond to anticipated significant risks
d. Major issues including the application of accounting principles or any auditing and reporting
standards
37. In determining the number of people who will be assigned to an engagement, an auditor normally
considers the following except
a. Audit size and complexity
b. The availability of the work of internal auditors and the extent of the auditor’s potential reliance
on such work
c. Availability and experience of personnel
d. The necessity for special expertise
38. In considering the work to be performed by other auditors, the following should be taken into
account except
AT Quizzer 7 ”Planning and Risk Assessment” 6
39. A time budget is an estimate of the total hours an audit is expected to take. The following are
among the factors to be considered in developing the budget, except
a. Location of client facilities
b. Client’s size as indicated by its gross assets, sales, number of employees
c. The competence and experience of available staff
d. Whether the audit is performed during the interim or at year-end
41. With respect to the auditor’s planning of a year-end examination, which of the following statements
is always true?
a. An engagement should not be accepted after the fiscal year-end
b. An inventory count must be observed at the balance sheet date
c. The client’s audit committee should not be told of any specific audit procedures which will be
performed
d. It is an acceptable practice to carry out parts of the examination at interim dates
42. Franz requested permission to communicate with the predecessor auditor and review certain
portions of the predecessor auditor’s working papers. The prospective client’s refusal to permit this
will bear directly on Solis’ decision concerning the:
a. Adequacy of the preplanned audit program
b. Ability to establish consistency in application of accounting principles between years
c. Apparent scope limitation
d. Integrity of management
43. The auditor faces a risk that the examination will not detect material misstatements in the financial
statements. In regard to minimizing this risk, the auditor primarily relies on:
a. Substantive tests
b. Tests of controls
c. Internal control
d. Statistical analysis
44. An abnormal fluctuation in gross profit that might suggest the need for extended audit procedures
for sales and inventories would most likely be identified in the planning phase of the audit by the
use of:
a. Tests of transactions and balances
b. An assessment of internal control
c. Specialized audit programs
d. Analytical procedures
45. As the acceptable level of detection risk decreases, the assurance directly provided from
a. substantive tests should increase
b. substantive tests should decrease
c. tests of controls should increase
d. tests of controls should decrease
46. As the acceptable level of detection risk decreases, an auditor may change
a. timing of substantive tests by performing them at an interim date rather than at year-end
b. nature of substantive tests from a less effective to a more effective procedure
c. timing of tests of controls by performing them at several dates rather than at one time
d. assessed level of inherent risk to a higher amount
47. Which of the following elements underlies the application of generally accepted auditing
standards, particularly the standards of fieldwork and reporting?
AT Quizzer 7 ”Planning and Risk Assessment” 7
a. Internal control
b. Corroborating evidence
c. Quality control
d. Materiality and relative risk
48. One of the first things that the auditor will do after accepting a new client is
a. tour client’s facilities
b. contact client’s attorney to discover legal obligations
c. study client’s internal control structure
d. communicate with predecessor auditor
49. Which of the following is not a document or record that should be examined early in the
engagement?
a. Corporate charter and bylaws
b. Management letter
c. Minutes of board of directors’ and stockholders’ meetings
d. Contracts
50. Client acceptance and retention policies and procedures do not include
a. Evaluating firm’s independence with potential client
b. Obtaining and reviewing information about company
c. Permission of the predecessor auditor
d. Considering whether engagement requires special skills
51. Which of the following is not considered among the benefits of audit planning?
a. Audit planning helps coordinate the work to be done by auditors of components and other
parties such as experts, specialists, etc.
b. Audit planning helps ensure that the audit is properly organized, managed and performed in
an effective and efficient manner
c. Audit planning aids in ensuring the examination of financial statements can be performed
without problems and difficulties
d. Audit planning helps ensure that appropriate attention is devoted to important areas of the
audit
52. Which of the following procedures is not undertaken by the auditor at the beginning of the current
audit engagement?
a. Determines whether ethical requirements including independence are complied with
b. Establishes an understanding of the terms of engagement
c. Determines whether relationship with client can be continued or not
d. Determines the types of opinion that should be expressed on the financial statements
53. Which of the following should be considered by the auditor when ascertaining the reporting
objectives of the engagement, the timing of the audit and the nature of communications required?
a. Availability of client personnel and data
b. Effect of information technology on the audit procedures
c. Audit areas where there is a higher risk of material misstatement
d. The entity’s timetable of reporting such as at interim and final stages
54. The auditor should plan the nature, timing and extent of direction and supervision of engagement
team members and review of their work. Which of the following factors need not be considered by
the auditor in preparing this plan?
a. Size and complexity of the entity
b. The reporting currency to be used, including any need for currency translation for the financial
information audited
c. The capabilities and competence of personnel performing the audit work
d. The risks of material misstatement
55. For initial audits, additional matters the auditor may consider in the overall audit strategy and audit
plan include the following except
a. Confirmation of material accounts receivable balance at the end of the year
b. Planned audit procedure to obtain sufficient appropriate audit evidence regarding opening
balances
c. Assignment of firm personnel with appropriate levels of capabilities and competence to
respond to anticipated significant risks
d. Major issues including the application of accounting principles or any auditing and reporting
standards
56. In determining the number of people who will be assigned to an engagement, an auditor normally
considers the following except
AT Quizzer 7 ”Planning and Risk Assessment” 8
57. In considering the work to be performed by other auditors, the following should be taken into account
except
a. The involvement of experts
b. The number of locations
c. The involvement of other auditors in the audit of components such as subsidiaries, branches
and divisions
d. The expected use of audit evidence obtained in prior audits
58. The auditors will not ordinarily initiate discussion with the audit committee concerning the:
a. Extent to which the work of internal auditors will influence the scope of the examination
b. Extent to which change in the company’s organization will influence the scope of the examination
c. Details of potential problems with the auditors believe might cause a qualified opinion
d. Details of the procedures which the auditors intend to apply
60. One of the first things that the auditor will do after accepting a new client is
a. tour client’s facilities
b. contact client’s attorney to discover legal obligations
c. study client’s internal control structure
d. communicate with predecessor auditor
61. Which of the following is not a document or record that should be examined early in the
engagement?
a. Corporate charter and bylaws
b. Management letter
c. Minutes of board of directors’ and stockholders’ meetings
d. Contracts
62. Which of the following would not be found in the corporate charter?
a. The date of incorporation
b. The kinds and amount of capital stock authorized
c. The rules and procedures adopted by the stockholders
d. The types of business activity that the corporation is allowed to conduct
63. During the planning phase when the auditor is examining the contracts of client, the primary
attention should focus on
a. large peso value items
b. any aspect of the agreement affecting financial disclosure
c. tracing the information to verify correct journal entries
d. the discovery of related party transactions
64. A CPA is conducting the first examination of a non-public company’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 client and the predecessor auditor agree to it
b. acceptable if the CPA refers in the audit report to reliance upon the predecessor auditor’s work
c. required if the CPA is to render an unqualified opinion
d. unacceptable because the CPA should bring an independent viewpoint to a new engagement
65. The auditor should carefully consider the competence of the auditee’s employees because their
competence deals directly and importantly upon the
AT Quizzer 7 ”Planning and Risk Assessment” 9
67. A benefit obtained from comparing client’s data with industry average is that it provides
a. an indication of the likelihood of financial failure
b. an indication where errors exist in the statements
c. a benchmark to be used in evaluating client’s budgets
d. a comparison of “what is” with “what should be”
68. The most common statistical technique used with analytical procedures is
a. Disaggregated data
b. Regression analysis
c. A decision rule table
d. Comparison of current-year with prior-year data looking for large peso or large percentage
changes
69. Where an unusual fluctuation is indicated by analytical procedures and management is unable to
provide a satisfactory explanation, the auditor must assume that there is a high probability that an
error or irregularity exists. In this case, the auditor must
a. Issue either a qualified or an adverse opinion
b. Issue a disclaimer
c. Issue either a qualified opinion or a disclaimer
d. Design other appropriate audit procedures to determine if such errors do exist
70. In connection with the examination of financial statements by an independent auditor, the client
suggests the members of the internal audit staff be utilized to minimize audit costs. Which of the
following tasks could most appropriately be delegated to the internal audit staff?
a. Selection of accounts receivable for confirmation, based upon the internal auditor’s judgment
as to how many accounts and which accounts will provide sufficient coverage
b. Preparation of schedules for negative accounts receivable responses
c. Evaluation of the internal control of accounts receivable and sales
d. Determination of the adequacy of the allowance for doubtful accounts
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