Southland College – School of Business and Accountancy
Second Semester SY 2021-2022
Advanced Auditing
AUD-05 Pre-engagement and Planning Activities
Required Readings:
 PSA Glossary of Terms
 PSA 200 Overall Objectives of The Independent Auditor and The Conduct of an Audit in
Accordance with Philippine Standards on Auditing
 PSA 210 Agreeing the Terms of Audit Engagements
 PSA 300 Planning an Audit of Financial Statements
 PSA 315 Identifying and Assessing the Risks of Material Misstatement Through Understanding
The Entity and Its Environment
 PSA 320 Materiality in Planning and Performing an Audit
1.
Set the following phases in proper order:
I.
Pre-engagement
II.
Evidence-gathering
III.
Reporting
IV.
Planning
V.
Post-audit responsibilities
VI.
Internal controls
A.
B.
C.
D.
I, II, III, IV, V, VI
I, IV, II, III, VI, V
I, IV, VI, II, III, V
I, IV, II, V, III, VI
2.
According to PSQC 1, which of the following is not a consideration for acceptance and continuance
of client relationships?
A. The firm has considered the integrity of the management.
B. The firm is competent to perform the engagement.
C. The firm has considered the integrity of the predecessor auditor.
D. The firm can comply with relevant ethical requirements.
3.
The following are considered by a CPA firm in deciding whether to accept a new client, except:
A. The client’s financial ability.
B. The client’s relations with its previous CPA firm.
C. The client’s standing in the business community.
D. The client’s probability of achieving an unqualified opinion.
4.
Before accepting an audit engagement, a successor auditor should make specific inquiries of the
predecessor auditor regarding
A. The predecessor’s evaluation of matters of continuing accounting significance.
B. The predecessor’s assessments of inherent risk and judgments about materiality.
C. The degree of cooperation the predecessor received concerning the inquiry of the client’s legal
counsel.
D. Disagreements that the predecessor had with the client concerning auditing procedures and
accounting principles.
5.
If the prospective client refuses to permit the predecessor to respond or limits the predecessor’s
response, the successor should
A. Inquire as to the reasons and consider the implications in deciding whether to accept the
engagement.
B. Continue to ask the predecessor auditor questions on facts that might bear on the integrity of
management.
C. Issue a disclaimer of opinion because the limited response of the predecessor auditor constitutes a
significant scope limitation.
D. Accept the engagement but only after an equitable increase in the professional fee.
6.
Where the client is changing auditors, PSA requires communication between the predecessor and
successor auditor. The burden of initiating the communicating rests with
A. The Philippine SEC.
Prepared by: Nixsun Diaz Casuncad
Southland College – School of Business and Accountancy
Second Semester SY 2021-2022
Advanced Auditing
B. The client.
C. The predecessor auditor.
D. The successor auditor.
7.
(S1) Independence must be considered in deciding whether to accept a company as an audit client.
(S2) Only partners are required by the Code of Ethics to be independent from their assurance clients.
A. True, False
B. False, True
C. False, False
D. True, True
8.
To emphasize auditor independence from management, many corporations follow the practice of
A. Appointing a partner of the CPA firm conducting the audit to the corporation’s audit committee.
B. Having the independent auditor report to an audit committee of outside members of the BOD.
C. Requesting that a representative of the independent auditor be on hand at the annual
stockholders’ meeting.
D. Establishing a policy of discouraging social contract between employees of the corporation and
the staff of the independent auditor.
9.
After client acceptance, the terms of the engagement are agreed by the auditor with the client. The
objective and scope of the audit and the extent of the auditor’s responsibilities to the client are best
documented in
A. Audit engagement letter.
B. Audit program.
C. Client’s representation letter.
D. Independent auditor’s report.
10. The engagement letter will do one, some, or all of the following:
1.
2.
3.
4.
5.
6.
7.
State whether the CPA will perform audit, review or compilation
services.
State whether the CPA will perform tax or management advisory
service or other services.
State any restriction to be imposed on the CPA’s work.
Identify deadlines for completing the work.
State the amount and type of work to be done by client’s
personnel in generating auditor’s workpapers.
State the CPA’s fees for the engagement.
Inform the client that the CPA does not have responsibility for
detecting fraud.
A
B
C
D
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
Yes
Yes
No
Yes
No
Yes
Yes
Yes
No
Yes
No
Yes
Yes
No
Yes
Yes
No
Yes
Yes
Yes
11. The primary purpose of the engagement letter is to
A. Satisfy the requirements of the CPA’s liability insurance policy.
B. Provide a starting point for the auditor’s preparation of the preliminary audit program.
C. Remind management that the primary responsibility for the FS rests with management.
D. Provide a written record of the agreement with the client as to the services to be provided.
12. Which of the following least likely to be included in an audit engagement letter?
A. Basis on which fees are computed and any billing arrangements.
B. Description of any letters or reports that the auditor expects to submit to the client.
C. Identification of specific audit procedures that the auditor needs to undertake.
D. A reference to the inherent limitations of an audit that there is an unavoidable risk that some
material misstatements may remain undiscovered.
13. Which of the following factors need to be considered in deciding whether to send a separate
engagement letter to a competent in the case of group audits?
A. Who appoints the auditor of the component.
B. Legal requirements.
C. Whether a separate audit report is to be issued on the component.
D. All of the above.
Prepared by: Nixsun Diaz Casuncad
Southland College – School of Business and Accountancy
Second Semester SY 2021-2022
Advanced Auditing
14. In which of the following situations will there be no need to send a new letter for recurring
engagement?
A. Recent change of middle management and rank and file organizational structure
B. Indications of misunderstanding of the objective and scope of the audit
C. Significant change in nature or size of the client’s business
D. Revisions of special terms of the engagement
15. The following may lead the client to request for a change in engagement
A. Restrictions on the scope of the engagement.
B. Misunderstanding as to the nature of an audit or related service originally requested.
C. Change in circumstances affecting the need for the service.
D. All of the answers.
16. If a change in the type of engagement from higher to lower level of assurance is reasonably justified,
the report based on the revised engagement
A. Should always refer to any procedures that may have been performed in the original engagement.
B. Should refer to the original engagement in a separate paragraph preceding the opinion paragraph.
C. Should qualify the opinion due to a scope limitation.
D. Omits reference to the original engagement.
17. If a change in the type of engagement from higher to lower level of assurance is not justified, the
auditor should
A. Qualify the report on the original engagement.
B. Continue with the revised engagement, but make explicit reference about the original
engagement.
C. Refuse to agree to management’s request on the change of engagement and continue with the
original engagement.
D. Withdraw from the engagement.
18. Which of the following actions may be appropriate if the auditor is unable to agree to a change of the
engagement and is not permitted to continue the original engagement
I.
Issue a qualified opinion due to a significant scope limitation.
II.
Auditor should withdraw from the engagement.
III.
Consider whether there is any obligation to report to the BOD or shareholders the
circumstances necessitating withdrawal.
A. I only
B. II and III only
C. I and II
D. I, II, and III
19. The financial reporting framework adopted by management and, where appropriate, those charged
with governance in the preparation and presentation of the financial statements that is acceptable in
view of the nature of the entity and the objective of the financial statements, or that is required by law
or regulation.
A. Applicable financial reporting framework
B. Fair presentation framework
C. Compliance framework
D. Generally accepted auditing standards
20. A financial reporting framework that requires compliance with the requirements of the framework and
(i) Acknowledges explicitly or implicitly that, to achieve fair presentation of the financial statements,
it may be necessary for management to provide disclosures beyond those specifically required by the
framework or (ii) Acknowledges explicitly that it may be necessary for management to depart from a
requirement of the framework to achieve fair presentation of the financial statements. Such departures
are expected to be necessary only in extremely rare circumstances.
A. Applicable financial reporting framework
B. Fair presentation framework
C. Compliance framework
D. Generally accepted auditing standards
Prepared by: Nixsun Diaz Casuncad
Southland College – School of Business and Accountancy
Second Semester SY 2021-2022
Advanced Auditing
21. A financial reporting framework that requires compliance with the requirements of the framework,
but does not contain the acknowledgements in a fair presentation framework.
A. Applicable financial reporting framework
B. Fair presentation framework
C. Compliance framework
D. Generally accepted auditing standards
22. A function of the risks of material misstatement and detection risk.
A. Financial reporting risk
B. Business risk
C. Audit risk
D. Inherent risk
23. Information expressed in financial terms in relation to a particular entity, derived primarily from that
entity’s accounting system, about economic events occurring in past time periods or about economic
conditions or circumstances at points in time in the past.
A. Financial statements
B. Historical financial information
C. Budgets
D. Forecasts
24. Which is false?
A. The distinguishing feature of the professional judgment expected of an auditor is that it is exercised
by an auditor whose training, knowledge and experience have assisted in developing the necessary
competencies to achieve reasonable judgments.
B. Professional judgment needs to be exercised throughout the audit.
C. Professional judgment is not to be used as the justification for decisions that are not otherwise
supported by the facts and circumstances of the engagement or sufficient appropriate audit
evidence.
D. None of the choices.
25. The use by management of an acceptable financial reporting framework in the preparation of the
financial statements and the agreement of management and, where appropriate, those charged with
governance to the premise on which an audit is conducted.
A. Management representations
B. Preconditions for an audit
C. Scope of audit
D. Objective of audit
26. Factors that may make it appropriate to revise the terms of the audit engagement exclude:
A. Any indication that the entity misunderstands the objective and scope of the audit.
B. Any revised or special terms of the audit engagement.
C. A significant change in nature or size of the entity’s business.
D. A significant change in ownership.
E. None of the choices.
Prepared by: Nixsun Diaz Casuncad
Southland College – School of Business and Accountancy
Second Semester SY 2021-2022
Advanced Auditing
EXAMPLE OF AN AUDIT ENGAGEMENT LETTER
The following is an example of an audit engagement letter for an audit of general purpose financial statements
prepared in accordance with Philippine Financial Reporting Standards. This letter is not authoritative but is
intended only to be a guide that may be used in conjunction with the considerations outlined in this PSA. It
will need to be varied according to individual requirements and circumstances. It is drafted to refer to the audit
of financial statements for a single reporting period and would require adaptation if intended or expected to
apply to recurring audits. It may be appropriate to seek legal advice that any proposed letter is suitable.
*** To the appropriate representative of management or those charged with governance of ABC Company:
[The objective and scope of the audit]
You have requested that we audit the financial statements of ABC Company, which comprise the balance
sheet as at December 31, 20X1, and the income statement, statement of changes in equity and cash flow
statement for the year then ended, and a summary of significant accounting policies and other explanatory
information. We are pleased to confirm our acceptance and our understanding of this audit engagement by
means of this letter. Our audit will be conducted with the objective of our expressing an opinion on the
financial statements.
[The responsibilities of the auditor]
We will conduct our audit in accordance with Philippine Standards on Auditing (PSAs). Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material misstatement. An audit involves
performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.
The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the financial statements.
Because of the inherent limitations of an audit, together with the inherent limitations of internal control, there
is an unavoidable risk that some material misstatements may not be detected, even though the audit is properly
planned and performed in accordance with PSAs. In making our risk assessments, we consider internal control
relevant to the entity’s preparation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. However, we will communicate to you in writing concerning any significant
deficiencies in internal control relevant to the audit of the financial statements that we have identified during
the audit.
[The responsibilities of management and identification of the applicable financial reporting framework (for
purposes of this example it is assumed that the auditor has not determined that the law or regulation prescribes
those responsibilities in appropriate terms; the descriptions in paragraph 6(b) of PSA 210 are therefore used).]
Our audit will be conducted on the basis that [management and, where appropriate, those charged with
governance] acknowledge and understand that they have responsibility:
a.
b.
c.
For the preparation and fair presentation of the financial statements in accordance with Philippine
Financial Reporting Standards;
For such internal control as [management] determines is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error; and
To provide us with:
i.
Access to all information of which [management] is aware that is relevant to the preparation
of the financial statements such as records, documentation and other matters;
ii.
Additional information that we may request from [management] for the purpose of the audit;
and
iii.
Unrestricted access to persons within the entity from whom we determine it necessary to
obtain audit evidence.
As part of our audit process, we will request from [management and, where appropriate, those charged with
governance], written confirmation concerning representations made to us in connection with the audit.
We look forward to full cooperation from your staff during our audit.
Prepared by: Nixsun Diaz Casuncad
Southland College – School of Business and Accountancy
Second Semester SY 2021-2022
Advanced Auditing
[Other relevant information]
[Insert other information, such as fee arrangements, billings and other specific terms, as appropriate.]
[Reporting]
[Insert appropriate reference to the expected form and content of the auditor’s report.]
The form and content of our report may need to be amended in the light of our audit findings.
Please sign and return the attached copy of this letter to indicate your acknowledgement of, and agreement
with, the arrangements for our audit of the financial statements including our respective responsibilities.
XYZ & Co.
Acknowledged and agreed on behalf of ABC Company by
(signed)
......................
Name and Title
Date
27. Which of the following statements is true:
I.
Audit planning refers to the development of a general strategy and a detailed approach for the
expected nature, timing and extent of audit.
II.
A purpose of audit planning is to identify the potential problems in the audit.
A.
B.
C.
D.
I only
II only
I and II
Neither I nor II
28. Evaluate the following statements
I.
During audit planning, the auditor determines important areas of the audit to which attention
(audit effort) must be devoted.
II.
One of the purposes of audit planning is to ensure that audit work is performed efficiently and
expeditiously.
III.
During an audit planning, the auditor determines whether an unqualified opinion may be
expressed
A.
B.
C.
D.
True, True, True
True, True, False
True, False, False
False, False, False
29. Which of the following pertains to the audit strategy?
A. Sets out the direction, scope and focus of the audit team’s efforts.
B. Contains the nature, extent, and timing of risk assessment procedures and planned further audit
procedures at the assertion level.
C. Tailored as needed to reflect the particular engagement circumstances; aligns audit procedures,
audit objectives, and audit assertions.
D. All of the answers.
30. An audit plan contains the nature, extent, and timing of procedures for evidence gathering. Regarding
audit procedures, which of the following best describes risk assessment procedures?
A. This category of procedures is used to obtain an understanding of the entity and its
environment, including its internal control, to assess the risks of material misstatement at the
financial statement and assertion levels.
B. This category of procedures is used to test the operating effectiveness of controls in preventing, or
detecting and correcting, material misstatements at the assertion level.
C. This category of procedures is used to detect material misstatements at the assertion level.
D. All of these statements describe risk assessment procedures.
Prepared by: Nixsun Diaz Casuncad
Southland College – School of Business and Accountancy
Second Semester SY 2021-2022
Advanced Auditing
31. The extent of planning will vary according to the following:
A. Size of the audit client.
B. Auditor’s experience with the entity and knowledge of the business.
C. The nature and complexity of the audit engagement.
D. All of these affect the extent of planning.
32. PSA 315 requires
A. Obtaining an understanding of the entity and its environment.
B. Discussion among engagement team members about the risk of material misstatement in the FS.
C. Identifying and assessing the risks of material misstatement.
D. All of the answers.
33. The auditor’s understanding of the entity and its environment consists an understanding of the
following aspects
A. Industry, regulatory and other external factors, including the applicable financial reporting
framework.
B. Nature of the entity, including the entity’s selection and application of accounting policies
C. Objectives and strategies and the related business risks that may result in a material misstatement
of the financial statements
D. All of these
34. The auditor’s understanding of the entity and its environment consists an understanding of the
following aspects except
A. Industry, regulatory and other external factors, including the applicable financial reporting
framework.
B. Nature of the entity, including the entity’s selection and application of accounting policies
C. Objectives and strategies and the related business risks that may result in a material misstatement
of the financial statements
D. None of these
35. An auditor obtains an understanding of the entity and its environment in order to
A. Make constructive suggestions concerning improvements to the client’s internal control.
B. Develop an attitude of professional skepticism concerning management’s FS assertions.
C. Understand the events and transactions that may have an effect on the client’s FS.
D. Evaluate whether the aggregation of known misstatements causes the FS taken as a whole to be
materially misstated.
36. A person or firm possessing special skill, knowledge and experience in a particular field excluding
accounting and auditing.
A. Expert
B. Quality control reviewer
C. Multiskilled personnel
D. Auditor
37. In which of the following situations would an expert be least likely contracted by a CPA?
A. Application of accounting methods in computing inventory balances.
B. Determination of fair values using specialized statistical techniques.
C. Legal opinions concerning interpretations of engagements, statutes and regulations.
D. Valuations of certain types of assets like land and buildings.
38. In considering materiality for planning purposes, an auditor believes that misstatements aggregating
P10,000 would have material affect on an entity’s profit and loss, but that misstatements would have
to aggregate P20,000 to materially affect the statement of financial position. Ordinarily, it would
aggregate to design auditing procedures that would be expected to detect misstatements that
aggregate:
A. P10,000
B. P15,000
C. P20,000
D. P30,000
Prepared by: Nixsun Diaz Casuncad
Southland College – School of Business and Accountancy
Second Semester SY 2021-2022
Advanced Auditing
39. When the auditors allocate the preliminary judgment about materiality to account balances, the
materiality allocated to any given account balance is referred to as
A. The error range.
B. The materiality range.
C. Tolerable misstatement.
D. Tolerable materiality.
40. Regardless of how the allocation of the preliminary judgment about materiality was done, when the
audit is complete, the auditor must be confident that the combined errors in all accounts are
A. Less than the preliminary judgment.
B. Equal to the preliminary judgment.
C. More than the preliminary judgment.
D. Less than or equal to the preliminary judgment.
41. The relationship between materiality and audit risk is
A. Direct.
B. Inverse.
C. Indeterminable.
D. None of these.
42. When setting a preliminary judgment about materiality
A. More evidence is required for a low peso amount than for a high peso amount.
B. Less evidence is required for a low peso amount than for a high peso amount.
C. The same amount of evidence is required for either low or high peso amount.
D. There is no relationship between it and the peso amount of evidence needed.
43. These are events or conditions that provide an opportunity, a motive or a means to commit fraud, or
indicate that fraud may already have occurred.
A. Audit risk
B. Fraud risk factors – rationalization, opportunity, and pressure/incentives
C. Risk of material misstatements
D. Fraud indication
44. Which of the following characteristics most likely would heighten an auditor’s concern about the risk
of intentional manipulation of FS?
A. Turnover of senior accounting personnel is low.
B. The rate of change in the entity’s industry is slow.
C. Insiders recently purchased additional shares of the entity’s stock.
D. Management places substantial emphasis on meeting earnings projections.
45. This refers to acts of omission or commission by the entity being audited which are contrary to
prevailing laws or regulations.
A. Fraud
B. Error
C. Non-compliance
D. Misstatements
46. With respect to errors and irregularities, the auditor should plan to
A. Search for errors that would have a material effect and for irregularities that would have either
material or immaterial effect on the FS.
B. Search for irregularities that would have a material effect and for errors that would have either
material or immaterial effect on the FS.
C. Search for errors or irregularities that would have a material effect and for errors that would
have either material or immaterial effect on the FS.
D. Discover errors or irregularities that have either material or immaterial effect on the FS.
47. The auditor should remain alert for evidence of events or conditions which may significant doubt on
the entity’s ability to continue as a going concern
A. During planning and consideration of internal controls.
B. During interim work.
C. During year-end audit work.
D. All of the answers.
Prepared by: Nixsun Diaz Casuncad
Southland College – School of Business and Accountancy
Second Semester SY 2021-2022
Advanced Auditing
48. Which of the following is not a good indicator of potential financial failure?
A. Client is constantly short of cash and working capital.
B. Client’s retained earnings were reduced by half as a result of a large dividend payout.
C. Client relies heavily on debt financing, especially by financing permanent assets with short-term
loans.
D. Client has had increasing net losses for several years.
49. Analytical procedures are not required
A. As a risk assessment procedure performed during planning.
B. As a substantive test procedure during evidence gathering.
C. As an overall review at audit completion.
D. None of the choices.
50. Analytical procedures used in planning should focus on
A. Evaluating the adequacy of evidence gathering concerning unusual balances.
B. Testing individual account balances that depend on accounting estimates.
C. Enhancing the auditor’s understanding of the client’s business.
D. Identifying material weaknesses in the control structure.
51. The objective of performing analytical procedures in planning an audit engagement is to identify the
existence of
A. Unusual transactions and events.
B. Illegal acts that went undetected because of internal control weakness.
C. Related party transactions.
D. Recorded transactions that were not properly authorized.
52. The establishment of the overall audit strategy involves
A. Determining the characteristics of the engagement that defines its scope.
B. Ascertaining the reporting objectives of the engagement to plan the timing of the audit and the
nature of the communications required.
C. Considering the important factors that will determine the focus of the engagement team’s efforts.
D. All of the answers.
53. This guides the development of the audit plan.
A. Risk assessment
B. Overall audit strategy
C. Test of controls
D. Pre-engagement
54. With respect to audit planning, which is always true?
A. It is acceptable to perform a portion of the audit of a continuing client at interim dates.
B. An engagement should not be accepted after the client’s year-end.
C. An inventory count must be observed at year-end.
D. Final staffing decisions must be made prior to completion of the planning stage.
55. Which of the following is not typically included in the initial audit planning?
A. Client acceptance and continuation decisions
B. Determination of the purpose of the audit
C. Obtain an understanding with the client
D. Perform analytical procedures as substantive tests
56. Which of the following is not considered by the CPA when he makes an overall audit plan?
A. Identification of complex accounting areas including those involving accounting estimates.
B. The effect of information technology on the audit.
C. The content of the representation letters.
D. The nature and timing of reports and other communication with the entity that are expected
under the engagement.
Prepared by: Nixsun Diaz Casuncad
Southland College – School of Business and Accountancy
Second Semester SY 2021-2022
Advanced Auditing
57. This is a listing of all the things which the auditor will use to gather sufficient appropriate audit
evidence
A. Audit procedures
B. Audit plan
C. Audit program
D. Audit risk model
58. The auditor should design the written audit program so that
A. All material transactions will be selected for substantive testing.
B. Substantive tests prior to the balance sheet date will be minimized.
C. The audit procedures selected will achieve specific audit objectives.
D. Each account balance will be tested under either tests of controls or tests of transactions.
59. In designing audit programs, an auditor should establish specific audit objectives that related primarily
to the
A. Timing of audit procedures.
B. Cost-benefit of gathering evidence.
C. Selected audit techniques.
D. FS assertions.
60. Cost-benefit considerations are part of the audit planning. In relation to this, which of the following
audit procedures is usually the least costly to perform?
A. Test of balances
B. Substantive tests of transactions
C. Analytical procedures
D. Tests of controls
61. The audit program usually cannot be finalized until the
A. Consideration of the entity’s internal control has been completed.
B. Engagement letter has been signed by the auditor and the client.
C. Reportable conditions have been communicated to the audit committee.
D. Search for unrecorded liabilities has been performed and documented.
62. The senior auditor responsible for coordinating the fieldwork usually schedules a pre-audit conference
with the audit team primarily to
A. Establish the need for using the work of specialists and internal auditors.
B. Provide an opportunity to document staff disagreements regarding technical issues.
C. Give guidance to the staff regarding both technical and personnel aspects of the audit.
D. Discuss staff suggestions concerning the establishment and maintenance of time budgets.
63. Which of the following procedures is least likely performed in planning an FS audit?
A. Reading the current year’s interim FS
B. Coordinating the assistance of entity personnel in data preparation.
C. Selecting a sample of vendor’s invoices for comparison to receiving reports.
D. Discussing matters that may affect the audit with firm personnel responsible for non-audit services
to the entity.
64. This is not a discrete phase of an audit, but rather a continual and iterative process that often begins
shortly after (or in connection with) the completion of the previous audit and continues until the
completion of the current audit engagement.
A. Test of control
B. Risk assessment
C. Planning
D. Pre-engagement activity
65. (S1) The overall audit strategy is more detailed than the audit plan in that it includes the nature,
timing and extent of audit procedures to be performed by engagement team members. (S2) The
purpose and objective of planning the audit are the same whether the audit is an initial or recurring
engagement.
A. True, True
B. False, False
C. True, False
Prepared by: Nixsun Diaz Casuncad
Southland College – School of Business and Accountancy
Second Semester SY 2021-2022
Advanced Auditing
D. False, True
Overall audit strategy  audit plan  audit program  audit procedures
66. Representations by management, explicit or otherwise, that are embodied in the financial statements,
as used by the auditor to consider the different types of potential misstatements that may occur.
A. Assertions
B. Elements
C. Disclosures
D. Accounts
67. A risk resulting from significant conditions, events, circumstances, actions or inactions that could
adversely affect an entity’s ability to achieve its objectives and execute its strategies, or from the setting
of inappropriate objectives and strategies.
A. Default risk
B. Business risk
C. Financial risk
D. Financial reporting risk
68. An identified and assessed risk of material misstatement that, in the auditor’s judgment, requires
special audit consideration.
A. Material risk
B. Significant risk
C. Audit risk
D. Control risk
69. Risk assessment procedures should include
A. Inquiries of management, and of others within the entity who in the auditor’s judgment may have
information that is likely to assist in identifying risks of material misstatement due to fraud or
error.
B. Analytical procedures.
C. Observation and inspection.
D. All of the choices.
70. This means the amount or amounts set by the auditor at less than materiality for the financial
statements as a whole to reduce to an appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole.
A. Overall materiality
B. Performance materiality
C. FS level materiality
D. Assertion level materiality
71. A system that traces the detailed transactions relating to an item in the accounting record.
A. Internal control system
B. Walkthrough test
C. Audit trail
D. Test of controls
72. This traces a transaction step-by-step through the accounting system from its inception to the final
disposition.
A. Internal control system
B. Walkthrough test
C. Audit trail
D. Test of controls
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Prepared by: Nixsun Diaz Casuncad