BAUDT-311 Enabling Assessment Module 3 (SET A)

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Questions and Answers

Which of the following procedures would an auditor least likely perform in planning a financial statement audit?

Discussing matters that may affect the audit with firm personnel responsible for non-audit services to the entity.

Coordinating the assistance of entity personnel in data preparation.

Reading the current year’s interim financial statement.

Selecting a sample of vendor’s invoices for comparison to receiving reports. (correct)

Based on the information provided about TWD Company, which of the following would most likely decrease audit risk?

The internal auditor reports to the controller and the controller reports to JR.

The accounting department experiences a high rate of turnover of key personnel.

TWD’s board of directors is controlled by JR, the majority stockholder, who also acts as the CEO.

This was the first year TWD operated at a profit since 2015 because the municipalities received increased funding for environmental purposes. (correct)

Which of the following would most likely increase audit risk for TWD Company?

TWD’s bank has a loan officer who regularly meets TWD’s CEO and controller to monitor TWD’s financial performance.

Roy has audited TWD for five years.

An initial public offering of TWD’s stock is planned for late 2023. (correct)

TWD’s employees are paid biweekly.

Which of the following is most correct concerning the understanding of internal control needed by auditors to plan the audit?

The auditors must understand the control environment, the accounting system and all control procedures. Signup and view all the answers

Which of the following would be of least interest to the auditors in considering internal control?

Procedures that are concerned with the decision processes leading to management’s authorization of transactions. Signup and view all the answers

Which of the following is not one of the three main reasons why the auditor should properly plan engagements?

To enable proper on-the-job training of employees. Signup and view all the answers

Which of the following is not a type of evidence that would be used for both obtaining an understanding of the control structure and testing of controls?

Reperformance. Signup and view all the answers

Which of the following most accurately summarizes what is meant by the term 'material misstatement'?

Material error, material fraud, and certain illegal acts. Signup and view all the answers

This type of evidence can be gathered with every type of audit test:

Inquiries of client personnel. Signup and view all the answers

Which of the following ultimately determines the specific audit procedures necessary to provide an independent auditor with a reasonable basis for the expression of an opinion?

The auditor’s judgment. Signup and view all the answers

Study Notes

Financial Statement Audit Planning

Auditors perform various procedures in planning an audit; reading interim financial statements and coordinating with entity personnel are common.
Selecting samples of vendor invoices for comparison to receiving reports is less likely to occur in planning stages.

Audit Risk Considerations

Audit risk is influenced by management control dynamics and the entity’s financial history.
High turnover in the accounting department can increase audit risk due to instability.
A profitable year due to municipal funding could decrease audit risk by suggesting operational stability.
Control by majority stockholders (CEO JR) increases inherent audit risk due to potential conflict of interest.

Internal Control Understanding

Auditors should understand the control environment and the accounting system, using judgment on control procedures.
Proper knowledge of control procedures is crucial for effective audit planning.

Interest in Internal Control Procedures

Auditors focus on procedures affecting transaction authorization, access restrictions to assets, and transaction recording.
Policies reconciling accounting records with assets are also considered important.

Proper Engagement Planning

Engagement planning lowers audit costs, mitigates misunderstandings, and ensures sufficient competent evidence.
Training of audit staff is not a primary reason for planning.

Material Misstatement

Material misstatement encompasses material errors, material fraud, and certain illegal acts.
Definitions exclude minor issues unlikely to influence audit outcomes.

Types of Evidence for Control Structure

Inquiries, inspection, observation, and reperformance are types of evidence for understanding and testing internal controls.
Regardless of audit type, inquiries of client personnel can provide necessary evidence throughout the audit process.

Determining Audit Procedures

Specific audit procedures are determined primarily by the auditor's judgment, influenced by the overall audit program.

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Description

This quiz is designed for students of BAUDT-311, focusing on the key concepts of financial statement audits. It includes multiple choice questions that assess understanding and application of auditing procedures. Make sure to shade your answers clearly on the provided answer sheet.