Podcast
Questions and Answers
What is the primary objective of performing analytical procedures during the planning phase of an audit?
What is the primary objective of performing analytical procedures during the planning phase of an audit?
- To understand the business and identify areas that may represent specific risks (correct)
- To identify misstatements in the financial statements
- To test the operating effectiveness of internal controls
- To evaluate the overall presentation and disclosure of financial statements
What is the purpose of benchmarking in analytical procedures?
What is the purpose of benchmarking in analytical procedures?
- To evaluate the reasonableness of management's estimates
- To assess the operating effectiveness of internal controls
- To identify unusual transactions and events
- To compare the company's financial performance with industry averages (correct)
What is the primary consideration in determining materiality thresholds?
What is the primary consideration in determining materiality thresholds?
- Materiality is solely based on quantitative factors
- Professional judgement and industry standards (correct)
- Company size and industry
- Audit risk and materiality level
What is the purpose of the audit plan?
What is the purpose of the audit plan?
What is the primary purpose of substantive testing?
What is the primary purpose of substantive testing?
What is the purpose of identifying and assessing risks of material misstatement?
What is the purpose of identifying and assessing risks of material misstatement?
What is the purpose of performing ratio analysis in analytical procedures?
What is the purpose of performing ratio analysis in analytical procedures?
At what stage of the audit process is materiality typically determined?
At what stage of the audit process is materiality typically determined?
What is the primary purpose of an engagement letter in an audit?
What is the primary purpose of an engagement letter in an audit?
What is the responsibility of management in relation to financial statements?
What is the responsibility of management in relation to financial statements?
Which of the following is NOT a preliminary engagement activity?
Which of the following is NOT a preliminary engagement activity?
What is the purpose of assessing client integrity in the preliminary engagement activities?
What is the purpose of assessing client integrity in the preliminary engagement activities?
Which of the following is a component of the audit strategy?
Which of the following is a component of the audit strategy?
What is the framework that guides the audit process?
What is the framework that guides the audit process?
What is the primary purpose of directional testing in an audit?
What is the primary purpose of directional testing in an audit?
What is the main difference between a positive and negative confirmation in an audit?
What is the main difference between a positive and negative confirmation in an audit?
Which of the following is a characteristic of a more reliable audit evidence?
Which of the following is a characteristic of a more reliable audit evidence?
What is the main objective of audit sampling?
What is the main objective of audit sampling?
Which of the following is a type of audit sampling approach?
Which of the following is a type of audit sampling approach?
What is the primary risk associated with audit sampling?
What is the primary risk associated with audit sampling?
What is the main difference between attributes and variables in audit sampling?
What is the main difference between attributes and variables in audit sampling?
What is the main purpose of audit procedures in the audit strategy?
What is the main purpose of audit procedures in the audit strategy?
Study Notes
Audit Planning
- Audit planning involves understanding internal controls, testing internal controls, substantive testing, and completing the audit.
- Preliminary engagement activities include:
- Acceptance and continuance of client relationships, assessing client integrity, and reasons for change.
- Evaluating compliance with ethical requirements, including independence.
- Establishing an understanding of the terms of the engagement.
Engagement Letter
- An engagement letter outlines the terms of the engagement between the audit team and the client.
- Purpose: to avoid misunderstandings.
- Content:
- Objective and scope: auditor expresses an opinion on the financial statements.
- Responsibilities: management is responsible for preparation of financial statements, implementation of internal control, adjusting financial statements to correct misstatements, and compliance with laws and regulations.
- Framework: PFRS/IFRS.
- Other requirements: e.g., BIR, SEC, BSP, CAAP.
- Fees.
Generalizations
- More reliable if:
- Obtained from an independent source outside the entity.
- Internal controls are effective.
- Obtained directly by the auditor.
- In documentary form (written) rather than obtained orally.
- Original documents rather than photocopies.
Directional Testing
- Tracing: testing completeness assertion, source documents, accounting records, and liabilities understatement.
- Vouching: testing existence assertion, accounting records, source documents, and assets overstatement.
Audit Sampling
- Applying audit procedures to less than 100% of the items in the population.
- Types: statistical and non-statistical approaches.
- Attributes: rate of deviation or occurrence, internal control.
- Variables: numerical quantity, substantive testing.
Sampling Risk
- Risk that the result from the sample is not equal to the population.
- Types: risk of incorrect acceptance, risk of incorrect rejection.
Analytical Procedures
- Analyzing using numbers/amounts.
- Types:
- Ratio analysis: GPM, NPM, Asset TO, ROA.
- Trend analysis: revenue.
- Regression analysis: revenue.
- Variance analysis: 2019, 2020, 2021, 2022.
- Benchmarking: comparison between competitors.
Materiality
- Guidelines and professional judgment.
- Materiality thresholds are often computed using:
- 0.5% to 1% of assets.
- 1% to 3% of revenues.
- 5% to 10% of net income.
- Materiality levels: 1.
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Description
This quiz covers the various stages of the auditing process, including planning, testing, and completing the audit. It also touches on preliminary engagement activities, such as acceptance and continuance of client relationships, ethical requirements, and establishing an understanding of the terms of the engagement.
