Audit Planning and Analytical Procedures Quiz

To obtain sufficient appropriate evidence, keep audit costs reasonable, and avoid misunderstandings with the client.

Acceptable risk is the auditor's willingness to accept misstatement after an audit, while inherent risk measures the likelihood of material misstatements before considering internal control effectiveness.

It helps auditors assess risks associated with the audit more accurately.

<p>The concept is known as inherent risk.</p> Signup and view all the answers

<p>It means the auditor wants to be more certain that the financial statements are not materially misstated.</p> Signup and view all the answers

<p>Engagement risk influences the level of acceptable audit risk by affecting the auditor's willingness to issue an unqualified opinion.</p> Signup and view all the answers

<p>A major purpose is to facilitate high-quality work at a reasonable cost.</p> Signup and view all the answers

<p>It prevents misunderstandings with the client, fostering better communication and collaboration.</p> Signup and view all the answers

<p>An auditor should understand major sources of revenue, key customers and suppliers, sources of financing, information about related parties, and the industry and external environment.</p> Signup and view all the answers

<p>It is important to identify risks associated with specific industries, inherent risks common to certain industries, and unique accounting requirements.</p> Signup and view all the answers

<p>The preliminary audit strategy should consider material misstatement risk areas, the number of client locations, and the past effectiveness of controls.</p> Signup and view all the answers

<p>The purpose is to better understand the client’s business and assess client business risk by comparing client ratios to industry benchmarks.</p> Signup and view all the answers

<p>Auditors use analytical procedures to compare recorded amounts to expectations, identify possible misstatements, reduce detailed tests, and assess going-concern issues.</p> Signup and view all the answers

<p>Unusual changes in financial ratios compared to prior years or to industry averages can indicate poor client performance.</p> Signup and view all the answers

<p>To develop expectations about the client's performance and potentially identify misstatements.</p> Signup and view all the answers

<p>It should indicate a concern, particularly if such a decline was not anticipated.</p> Signup and view all the answers

<p>Past effectiveness of client controls informs the auditor about potential risks and helps tailor the audit strategy accordingly.</p> Signup and view all the answers

<p>It provides an indication of the company’s performance relative to its competitors and the industry.</p> Signup and view all the answers

<p>Industry data and similar prior-period data.</p> Signup and view all the answers

<p>The auditor may infer that the company is underperforming in managing inventory relative to its peers.</p> Signup and view all the answers

<p>They are based on the auditor's analysis and professional judgment regarding the client's financial performance.</p> Signup and view all the answers

<p>Because a stable turnover may suggest consistent sales and inventory management.</p> Signup and view all the answers

<p>It helps in forming expectations about financial results by correlating operational factors.</p> Signup and view all the answers

<p>Industry trends provide benchmarks for expected performance, prompting auditors to compare client results against these standards.</p> Signup and view all the answers

<p>Audit planning ensures that the audit is conducted efficiently, effectively, and in compliance with relevant regulations.</p> Signup and view all the answers

<p>The major purposes include identifying risks, developing an overall audit strategy, and ensuring client understanding.</p> Signup and view all the answers

<p>Client acceptance and continuance involve evaluating the client's integrity and the acceptable level of audit risk before proceeding.</p> Signup and view all the answers

<p>Understanding the client's business and industry helps auditors identify specific risks and areas that require more detailed examination.</p> Signup and view all the answers

<p>Preliminary analytical procedures involve evaluating financial information through comparisons to identify potential misstatements.</p> Signup and view all the answers

<p>The audit risk model quantifies the risk of material misstatement and guides auditors in developing their audit strategy.</p> Signup and view all the answers

<p>Factors include the nature of the client's business, the integrity of management, and the effectiveness of internal controls.</p> Signup and view all the answers

<p>Engagement risk affects acceptable audit risk as higher engagement risk necessitates a lower level of acceptable audit risk.</p> Signup and view all the answers

<p>Comparing client data with industry data helps identify unusual trends or ratios that may indicate potential issues.</p> Signup and view all the answers

<p>Measurement limitations can hinder the accuracy of risk assessment and impact the planned procedures.</p> Signup and view all the answers

<p>Material refers to the magnitude of an omission or misstatement of accounting information that influences the judgment of a reasonable person relying on the information.</p> Signup and view all the answers

<p>Auditors assess risk by understanding the client’s business, evaluating acceptable audit risk, inherent risk, and control risk.</p> Signup and view all the answers

<p>The auditor's primary responsibility is to determine whether financial statements are materially misstated.</p> Signup and view all the answers

<p>Audit risk is the risk that an auditor may mistakenly issue an unqualified opinion on financial statements that are materially misstated.</p> Signup and view all the answers

<p>Gross profit is calculated as net sales minus the cost of goods sold, which amounts to $36,350 in the first period and $39,845 in the second.</p> Signup and view all the answers

<p>The two main types of expenses listed are selling expenses and administrative expenses.</p> Signup and view all the answers

<p>Auditors should bring material misstatements to the client's attention for necessary corrections.</p> Signup and view all the answers

<p>Earnings before taxes indicate the profit a company generates before deducting income taxes, here noted as $4,659 and $5,681 for the two periods.</p> Signup and view all the answers

<p>The audit risk model helps identify the potential and likelihood of misstatements and guides auditors in deciding how much evidence to accumulate.</p> Signup and view all the answers

<p>The four components are planned detection risk, acceptable audit risk, inherent risk, and control risk.</p> Signup and view all the answers

<p>Engagement risk influences acceptable audit risk by prompting auditors to modify their risk assessments based on the client's business risk.</p> Signup and view all the answers

<p>Factors include the reliance of external users on the financial statements, the likelihood of client financial difficulties, and the auditor's evaluation of management's integrity.</p> Signup and view all the answers

<p>Inherent risk is the auditor's assessment of the likelihood of material misstatements before considering internal controls.</p> Signup and view all the answers

<p>Planned detection risk is the risk that audit evidence will fail to detect misstatements that exceed performance materiality; it is crucial for determining the extent of audit procedures needed.</p> Signup and view all the answers

<p>Control risk measures the likelihood that misstatements will not be prevented or detected by a client's internal controls.</p> Signup and view all the answers

<p>Auditors conduct inquiries, analytical procedures, observations, inspections, and discussions among team members and with predecessor auditors.</p> Signup and view all the answers