Chapter 8 Audit Planning and Analytical Procedures

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Auditing and Assurance Services, 14e (Arens)
Chapter 8 Audit Planning and Analytical Procedures

Learning Objective 8-1

1)A measure of how willing the auditor is to accept that the financial statements may
be materially misstated after the audit is completed and an unqualified opinion has
been issued is the:
A) inherent risk.
B) acceptable audit
risk. C) statistical
risk.
D) financial
risk. Answer:
B
Terms: Measure of how willing auditor is to accept that the financial statements may be materially
mis stated after audit is completed
Diff: Easy
Objective: LO 8-1
AACSB: Reflective thinking skills

2)A measure of the auditor's assessment of the likelihood that there are material
misstatements in an account before considering the effectiveness of the client's
internal control is called:
A) control risk.
B) acceptable audit
risk. C) statistical
risk.
D) inherent
risk. Answer:
D
Terms: A measure of auditor's assessment of likelihood that there are material misstatements in
an account before considering internal control
Diff: Easy
Objective: LO 8-1
AACSB: Reflective thinking skills




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3)When inherent risk is high, there will
need to be: A)
More evidence accumulated by the
A lower assessment of audit risk auditor
Yes Yes

B)
More evidence accumulated by the
A lower assessment of audit risk auditor
No No

C)
More evidence accumulated by the
A lower assessment of audit risk auditor
Yes No

D)
More evidence accumulated by the
A lower assessment of audit risk auditor
No Yes

Answer: D
Terms: Inherent risk is high
Diff: Easy
Objective: LO 8-1
AACSB: Reflective thinking skills

4) In what order should the following steps occur?
A. assess client business risk
B. understand the client's business and industry
C. perform preliminary analytical procedures
D. assess acceptable audit risk
A) D, B, C, A
B) B, A, D, C
C)B, D, A, C
D) D, C, B,
A Answer:
B
Terms: Steps in planning an audit
Diff: Moderate
Objective: LO 8-1
AACSB: Reflective thinking skills

5)The auditor uses knowledge gained from the understanding of the client's business
and industry to assess:
A) client business
risk. B) control
risk.
C) inherent
risk. D) audit
risk. Answer:
A
Terms: First standard of fieldwork; Proper planning
Diff: Challenging
Objective: LO 8-1
AACSB: Analytic skills

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6)There are three main reasons why an auditor should properly plan audit engagements.
Discuss each of these reasons.
Answer: Three reasons why an auditor should properly plan audit engagements are:
• To enable the auditor to obtain sufficient competent evidence for the circumstances.
This is essential for minimizing legal liability and maintaining a good profession
reputation.
• To help keep audit costs reasonable. Given the competitive auditing environment,
keeping costs reasonable helps the firm obtain and retain clients.
• To avoid misunderstandings with the client. This is important for good client relations.
Terms: Reasons auditor should properly plan audit engagement
Diff: Moderate
Objective: LO 8-1
AACSB: Reflective thinking skills

7)When an auditor decides there is higher inherent risk for an account, one potential
effect is that more audit evidence will be required for that account.
A) True
B) False
Answer:
A
Terms: Inherent risk
Diff: Easy
Objective: LO 8-1
AACSB: Reflective thinking skills

8)As acceptable audit risk is decreased, the likely cost of conducting an audit increases.
A) True
B) Fa
lse
Answer:
A
Terms: Acceptable audit risk
Diff: Easy
Objective: LO 8-1
AACSB: Reflective thinking skills

9)Acceptable audit risk is a measure of the auditor's willingness to accept that the financial
statements do not contain material misstatements after the audit is completed and a
qualified audit report has been issued.
A) True
B) False
Answer:
B
Terms: Acceptable audit risk
Diff: Moderate
Objective: LO 8-1
AACSB: Reflective thinking skills




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