AUDITING AND ASSURANCE SERVICES CHAPTER 8 - AUDIT
PLANNING AND ANALYTICAL PROCEDURES QUESTIONS
WITH ANSWERS
Three main reasons for audit planning - CORRECT ANSWER✅✅✅1. Enable auditor to
obtain sufficient appropriate evidence
2. Help keep audit costs reasonable
3. Avoid misunderstandings with the client
Eight major parts of audit planning: - CORRECT ANSWER✅✅✅1. Accept client and
perform initial audit planning
2. Understand the client's business and industry
3. Perform preliminary analytical procedures
4. Set materiality and assess acceptable audit risk and inherent risk
5. Identify significant risks due to fraud and error
6. Assess Inherent risk
7. Understand internal control and assess risk
8. Develop overall audit strategy and audit program
Client Business Risk - CORRECT ANSWER✅✅✅the risk that the client will fail to achieve
its objectives or execute its strategy
Acceptable Audit Risk - CORRECT ANSWER✅✅✅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.
(lower risk = more certainty)
Inherent Risk - CORRECT ANSWER✅✅✅a measure of the likelihood of material
misstatement BEFORE considering internal control
, Audit risk and inherent risk influence - CORRECT ANSWER✅✅✅the amount of evidence
that will need to be collected and the experience level of staff assigned to the engagement
risk of material misstatement - CORRECT ANSWER✅✅✅the risk that the financial
statements con tain a material misstatement due to fraud or error prior to the audit
Initial audit planning involves - CORRECT ANSWER✅✅✅1. Auditor decides whether to
accept or continue client
2. Auditor identifies why the client wants and needs an audit
3. To avoid misunderstandings the auditor obtains an understanding with the client about the
terms of the engagement
4. Develop overall strategy for the audit
Auditor decides whether to accept or continue client (New client investigation) - CORRECT
ANSWER✅✅✅-Successor auditor is required to communicate with predecessor
-Successor initiates
-Predecessor required to respond
-Predecessor must obtain permission of client before responding (Rule 301)....What if this is not
given?
audit strategy - CORRECT ANSWER✅✅✅sets the scope, timing, and direction of the audit
and that guides the development of the audit plan
risk assessment procedures - CORRECT ANSWER✅✅✅obtain an understanding of the
client's business and its environment to assess the risk of material misstatements in the financial
statements, including inquiries of man- agement and analytical procedures
Understand the Client's Business and Industry - CORRECT ANSWER✅✅✅- Industry and
External Environment
-Business Operations and Procedures
-Management and Governance
PLANNING AND ANALYTICAL PROCEDURES QUESTIONS
WITH ANSWERS
Three main reasons for audit planning - CORRECT ANSWER✅✅✅1. Enable auditor to
obtain sufficient appropriate evidence
2. Help keep audit costs reasonable
3. Avoid misunderstandings with the client
Eight major parts of audit planning: - CORRECT ANSWER✅✅✅1. Accept client and
perform initial audit planning
2. Understand the client's business and industry
3. Perform preliminary analytical procedures
4. Set materiality and assess acceptable audit risk and inherent risk
5. Identify significant risks due to fraud and error
6. Assess Inherent risk
7. Understand internal control and assess risk
8. Develop overall audit strategy and audit program
Client Business Risk - CORRECT ANSWER✅✅✅the risk that the client will fail to achieve
its objectives or execute its strategy
Acceptable Audit Risk - CORRECT ANSWER✅✅✅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.
(lower risk = more certainty)
Inherent Risk - CORRECT ANSWER✅✅✅a measure of the likelihood of material
misstatement BEFORE considering internal control
, Audit risk and inherent risk influence - CORRECT ANSWER✅✅✅the amount of evidence
that will need to be collected and the experience level of staff assigned to the engagement
risk of material misstatement - CORRECT ANSWER✅✅✅the risk that the financial
statements con tain a material misstatement due to fraud or error prior to the audit
Initial audit planning involves - CORRECT ANSWER✅✅✅1. Auditor decides whether to
accept or continue client
2. Auditor identifies why the client wants and needs an audit
3. To avoid misunderstandings the auditor obtains an understanding with the client about the
terms of the engagement
4. Develop overall strategy for the audit
Auditor decides whether to accept or continue client (New client investigation) - CORRECT
ANSWER✅✅✅-Successor auditor is required to communicate with predecessor
-Successor initiates
-Predecessor required to respond
-Predecessor must obtain permission of client before responding (Rule 301)....What if this is not
given?
audit strategy - CORRECT ANSWER✅✅✅sets the scope, timing, and direction of the audit
and that guides the development of the audit plan
risk assessment procedures - CORRECT ANSWER✅✅✅obtain an understanding of the
client's business and its environment to assess the risk of material misstatements in the financial
statements, including inquiries of man- agement and analytical procedures
Understand the Client's Business and Industry - CORRECT ANSWER✅✅✅- Industry and
External Environment
-Business Operations and Procedures
-Management and Governance
