6.

Which of the following is the least likely procedure to be performed in planning a financial
statement audit?
1. Selecting a sample of sales invoices for comparison with shipping documents.
2. Coordinating the assistance of entity personnel in data preparation.
3. Reading the current year’s interim financial statements.
4. Discussing matters that may affect the audit with firm personnel responsible for non audit

services to the entity.

7. The establishment of an overall audit strategy or plan involves

1. Determining the characteristics of the engagement that define its scope.

2. Ascertaining the reporting objectives of the engagement to plan the timing of the audit
and the

nature of the communications required.

3. Considering the important factors that will determine the focus of the engagement team’s
efforts.

1. I and II only
2. II and III only
3. I and III only
4. I, II and III
7. Which of the following should be included in the audit plan?

1. The nature, timing and extent of planned risk assessment procedures, as determined
under PSA

315 (Identifying and Assessing the Risks of Material Misstatement through

Understanding the

Entity and its Environment)

2. 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)

1. I only
2. II only
3. Both I and II
4. Neither I nor II
7. Which of the following matters would an auditor least likely to consider when setting the direction
of the audit?
1. The selection of the engagement team and the assignment of audit work to the team
members.
2. 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.

3. The availability of client personnel and data.

 4. 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.
8. Which of the following matters would an auditor most likely consider when establishing the scope
of the audit?
1. The expected audit coverage, including the number and locations of the entity’s
components to be included.
2. The entity’s timetable for reporting, such as at interim and final stages.
3. 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.

4. Audit areas where there is a higher risk of material misstatement.

11. In
obtain an understanding of the entity and its environment, including its internal control. These procedures
are called

1. Risk assessment procedures

2. Substantive tests
3. Tests of controls
4. Dual-purpose tests

12. In

planning the audit engagement, the auditor should consider each of the following except

the planning stage of an audit engagement, the auditor is required to perform audit procedures to

1. The kind of opinion (unqualified, qualified, or adverse) that is likely to be expressed.

2. The entity’s accounting policies and procedures.
3. Matters relating to the entity’s business and the industry in which it operates.
4. 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

1. When the engagement letter is prepared.

2. After obtaining an understanding of the control environment and control activities components of

the entity’s internal control.

3. After the auditor has obtained an understanding of the entity and its environment, including its
internal control and assessed the risks of material misstatement.
4. Prior to beginning the actual audit work.

14. In
primarily to the
designing written audit programs, an auditor should establish specific audit objectives that relate

1. Selected audit techniques

2. Cost-benefit or gathering audit evidence
3. Timing of audit procedures
4. Financial statement assertions

15. An audit program should be designed for each individual audit and should incorporate steps and
procedures to
1. Detect and eliminate fraud of any type.
2. Gather sufficient amount of management information available.
3. Provide assurances that the objectives of the audit are satisfied.
4. Insure that only material items are audited.
16. Which of the following is an aspect of scheduling and controlling the audit engagement?
1. Including in the engagement letter an estimate of the minimum and maximum audit fee.
2. Writing a conclusion in individual working papers indicating how the results of the audit
will affect

the auditor’s report.

3. Performing audit work only after the entity’s books have been closed for the period under
audit.
4. 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?
1. Final staffing decisions must be made prior to completion of the planning stage.
2. Observation of inventory count should be performed at year-end.
3. A portion of the audit of a continuing audit client can be performed at interim dates.
4. An engagement should not be accepted after the client’s financial year-end.

18. In
process accounting information because such methods
1. Influence the design of internal control
2. Affect the auditor’s preliminary judgment about materiality level
3. Assist in evaluating the planned audit objectives
4. Determine the auditor’s acceptance level of audit risk
19. Which of the following statements is incorrect?
1. The auditor should obtain an understanding of the entity and its environment, including its
internal

control , sufficient to identify and assess the risk of material misstatement of the financial
statements, whether due to fraud or error, and sufficient to design and perform further
audit procedures.

2. The auditor uses professional judgment to determine the extent of the understanding
required of the entity and its environment, including its internal control
3. The depth of the overall understanding that is required by the auditor in performing the
audit is more than that possessed by management in managing the entity
4. The performance of risk assessment procedures is a continuous dynamic process of
gathering, updating, and analyzing information throughout the audit
20. The following statements relate to business risk. Select the incorrect statement:
1. Business risk is broader than the risk of material misstatement
2. Most business risks do not have financial consequences, though they may have an effect
on the
 financial statements of an entity

3. Usually, management identifies business risks and develops approaches to address

them
4. Smaller entities often do not set their objectives and strategies, or manage the related
business

risks, through formal plans or processes

planning an audit of an new client, an auditor most likely would consider the methods used to

21. Which of the following procedures is not performed as part of planning an audit engagement?
1. Reviewing the working papers of the prior year.
2. Performing analytical procedures.
3. Tests of control.
4. Designing an audit program.
22. Which of the following procedures would an auditor least likely perform in planning a financial
statement audit?
1. Coordinating the assistance of entity personnel in data preparation.
2. Discussing matters that may affect the audit with firm personnel responsible for non-audit

services to the entity.

3. Selecting a sample of vendors’ invoices for comparison to receiving reports.

4. Reading the current year’s interim financial statements.
23. Which of the following is an effective audit planning and control procedure that helps prevent
misunderstanding and inefficient use of audit personnel?
1. Make copies, for inclusion in the working papers, of those client supporting documents
examined

by the auditor.

2. Arrange to provide the client with copies of the audit programs to be used during the
audit.
3. Arrange preliminary conference with the client to discuss audit objectives, fees, timing
and other

information.

4. 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?
1. Perform tests of control
2. Develop an overall strategy for the expected conduct and scope of the audit.
3. Obtain client’s written representation.
4. Prepare engagement letter.
5. Perform substantive tests.
6. Review and make preliminary evaluation of internal control.
7. D, F, A, B, E, C
8. D, B, C, F, A, E
9. D, B, F, A, E, C
10. 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. b. c. d.

Establishing engagement objectives and scope of work

Obtaining background information about he activities to be reviewed
Identifying sufficient information to achieve engagement objectives
Determining how, when and to whom the engagement results will be communicated

26. An
appropriate scope of an engagement to evaluate the consultant’s product is to
1. Review the consultant’s contract to determine its propriety
2. Establish the parameters of the value of the items being managed and controlled
3. Determine the adequacy of the risk management and control systems for the
management of

capital facilities

4. Review the handling of idle equipment

27. Documentation required to plan an internal auditing engagement should include information that
1. Resources needed to complete the engagement were considered
2. Planned engagement work will be completed on a timely basis
3. Intended engagement observations have been clearly identified
4. 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?
1. Purpose and scope of the engagement
2. Records and client personnel needed
3. Sampling plan and key criteria
4. Expected starting an completion dates