The purpose of an audit strategy is:
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The auditor should set an overall strategy for the audit which sets the scope, timing and direction of the audit and assists with the development of the more detailed audit plan. This will involve: •identifying the characteristics of the engagement that define its scope, i.e. what reporting requirements are there, what financial reporting framework is the client using, what group companies are covered; •ascertaining the reporting objectives of the engagement to plan the timing of the audit and the nature of the communications required; •considering the factors that, in the auditor’s professional judgment, are significant in directing the engagement team’s efforts; To subscribe to this content, simply call 0800 231 5199 We can create a package
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External auditors are responsible: a) for authenticating documents. b) for reporting immaterial frauds to a level of management at least one level above the people involved. c) for finding all intentional misstatements concealed by collusion. d) for reporting all frauds to outside agencies or parties. b Which of the following information that comes to an auditor's attention most likely would raise a question about the occurrence of illegal acts? a) The exchange of property for similar property in a nonmonetary transaction. b) The discovery of unexplained payments made to government employees. c) The presence of several difficult-to-audit transactions affecting expense accounts. d) The failure to develop adequate procedures that detect unauthorized purchases. b In auditing related party transactions, an auditor ordinarily places primary emphasis on: a) the probability that related party transactions will recur. b) confirming the existence of the related parties. c) verifying the valuation of the related party transactions. d) the adequacy of the disclosure of the related party transactions. d While performing an audit of the financial statements of a company for the year ended December 31, year 1, the auditor notes that the company's sales increased substantially in December, year 1, with a corresponding decrease in January, year 2. In assessing the risk of fraudulent financial reporting or misappropriation of assets, what should be the auditor's initial indication about the potential for fraud in sales revenue? a) There is a broad indication of misappropriation of assets. b) There is an indication of theft of the entity's assets. c) There is an indication of embezzling receipts. d) There is a broad indication of financial reporting fraud. d While performing interim audit procedures of accounts receivable, numerous unexpected errors are found resulting in a change of risk assessment. Which of the following audit responses would be most appropriate? a) Move detailed analytical procedures from year end to interim. b) Increase the dollar threshold of vouching customer invoices. c) Send negative accounts receivable confirmations instead of positive accounts receivable confirmations. d) Use more experienced audit team members to perform year-end testing. d According to auditing standards, external auditors' responsibilities for indirect noncompliance do not include: a) designing audit procedures to detect noncompliance in the absence of specific information brought to the auditors' attention. b) performing audit procedures when specific information indicates that possible noncompliance may have a material indirect effect on financial statements. c) considering the qualitative materiality of known and suspected noncompliance. d) obtaining written management representations concerning the absence of violations of laws and regulations. a Certain conditions and circumstances are often present when management fraud occurs. Which of the following is not such a condition or circumstance? a) Unfavorable industry conditions. b) Lack of working capital. c) High liquidity. d) Slow customer collections. c An auditor assesses the risk of material misstatement because it: a) is relevant to the auditor's understanding of the control environment. b) provides assurance that the auditor's overall materiality levels are appropriate. c) indicates to the auditor where inherent risk may be the greatest. d) affects the level of detection risk that the auditor may accept. d When fraud risk is significant, and management cooperation is unsatisfactory, the auditors will most likely: a) perform extended audit procedures. b) consult with fraud examiners. c) report directly to the Securities and Exchange Commission within one day. d) withdraw from the engagement. d Which of the following statements concerning noncompliance by clients is correct? a) An auditor's responsibility to detect noncompliance that has a direct and material effect on the financial statements is the same as that for errors and frauds. b) An audit in accordance with generally accepted auditing standards normally includes audit procedures specifically designed to detect noncompliance that has an indirect but material effect on the financial statements. c) An auditor considers noncompliance from the perspective of the reliability of management's representations rather than their relation to audit objectives derived from financial statement assertions. d) An auditor has no responsibility for noncompliance that has an indirect effect on the financial statements. a When determining the inherent risk related to an account balance, an auditor theoretically does not explicitly consider the: a) liquidity of the account. b) degree of management estimation involved in determining the proper account balance. c) related internal control policies and procedures. d) complexity of calculations involved. c Generally accepted auditing standards states that analytical procedures: a) should be applied in the planning and final review stages of the audit and as a substantive test during the audit. b) should be applied in the planning and final review stages of the audit and can be used as a substantive test during the audit. c) should be applied in the planning stage and can be applied as a substantive test and in the final review stage. d) should be applied in the final review stage, and can be applied as a substantive test and in the planning stage. b Assume that application of analytical procedures revealed significant unexplained differences between recorded amounts and the expectations (estimates) developed by the auditor. If management is unable to provide an acceptable explanation, the auditor should: a) consider the matter a scope limitation. b) perform additional audit procedures to investigate the matter further. c) intensify the audit with the expectation of detecting management fraud. d) withdraw from the engagement. b Which of the following would not likely be found in the minutes of the board of directors? a) Amount of dividends declared. b) Approval to pledge assets as security for debts. c) Authorization of officers' salaries. d) Approval of a new desktop computer for the controller. d The purpose of an audit strategy is: a) to provide a defense against litigation. b) to gain an understanding of the client. c) to comply with securities law. d) to set the scope, timing, and direction for auditing each relevant assertion. d Which of the following is a specific audit procedure that would be completed in response to a particular fraud risk in an account balance or class of transactions? a) Studying management's selection and application of accounting principles more carefully. b) Exercising more professional skepticism. c) Performing procedures such as inventory observation and cash counts on a surprise or unannounced basis. d) Carefully avoiding conducting interviews with people in areas that are most susceptible to fraud. c Under the Private Securities Litigation Reform Act, independent auditors are required to first: a) Resign from the audit engagement and report the instances of noncompliance with the Act to the SEC. b) Report to the SEC all instances of noncompliance with the Act they believe have a material effect on financial statements if the board of directors does not first report to the SEC. c) Report clearly inconsequential noncompliance with the Act to the audit committee of the client's board of directors. d) Report in writing all instances of noncompliance with the Act to the client's board of directors. b Once informed, the board of directors has the first responsibility to report to the SEC. If the board does not report these items to the SEC, the law then requires the auditors to do so. An audit committee is: a) Composed of internal auditors. b) A committee composed of persons not associating in any way with the client or the board of directors. c) Composed of members of the audit team. d) Composed of members of a company's board of directors who are not involved in the day-to-day operations of the company. d What is the overall audit strategy?Overall audit strategy sets the scope, timing and direction of the audit, and guides the development of the more detailed audit plan. The auditor shall establish an overall audit strategy that sets the scope, timing and direction of the audit, and that guides the development of the audit plan.
What is the purpose of an audit quizlet?The purpose of an audit is to provide financial statement users with an opinion by the auditor on whether the financial statements are presented fairly in all material respects in accordance with the applicable financial reporting framework.
What are the types of audit strategies?Essentially there are four different audit approaches: the substantive procedures approach the balance sheet approach the systems-based approach the risk-based approach. This is also referred to as the vouching approach or the direct verification approach.
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