Exam 10: Audit Strategy and Audit Program

A planned approach to the conduct of audit testing, taking into account assessed risks, is called an

Tests of details are designed based upon planned results of analytical review and planned results of tests of controls. Should the planned results differ materially from the actual results of analytical review and tests of controls, then

An example of an audit procedure that relates to the auditor's understanding of internal control is to

Materiality is used to help decide the scope of testing, determine the sample size, and

Choosing the appropriate analytical procedures requires the auditor to use

A PA has designed an audit approach where she places maximum possible reliance on controls. This means that she will be

Analytical procedures are mandatory during which phases of the audit?

Discuss the purposes of tests of controls and tests of details of balances. Give an example of each.

A substantive procedure is used to

Greenvale Construction Limited was started by four brothers who lived in the Toronto area. Over time, the brothers moved to different parts of the country. They decided it was a good idea to keep the company and organize their work as separate divisions under the same company. There are now three divisions, one for each of the brothers who are actively involved in construction. The fourth brother, Ted, is responsible for accounting and record keeping. Ted went back to school and completed an accounting designation, and now has three employees in the accounting area. Each of the brothers has moved on to specialize in a different kind of construction work. In Toronto, it is mainly new home construction. In Edmonton, the work is primarily renovations of large homes and small commercial enterprises. In Halifax, the work is mid-sized to large commercial projects. All of the brothers prefer to subcontract their work rather than hiring full time construction employees, although some of the subcontract relationships have lasted over fifteen years now. Required: Explain what you would do to document your understanding of internal control for Greenvale. Identify potential risk areas where you would need to focus additional attention.

After finishing the procedures to obtain an understanding of internal control in an audit engagement, the auditor should perform tests of controls on

Which of the following is an example of a substantive test that could be used for the audit of the accuracy of sales prices?

In the context of an audit of financial statements, substantive tests are audit procedures that

CAS 240 requires which of the following to be considered a significant risk?

A) Describe the five types of audit tests used to determine whether financial statements are fairly stated. Identify which types are substantive tests and which are used to reduce assessed control risk. B) There are several types of audit procedures that relate to the auditor's understanding of internal control. One type of procedure is to update and evaluate the auditor's previous experience with the entity. Identify the four additional types of procedures related to understanding internal control.

After completing tests of key controls, the auditor should review the results and consider whether

The auditor would like to design a test of control to test that there is a separation of duties between billing, recording sales, and handling of cash receipts. Which of the following typical tests of controls would be suitable?

An example of an audit procedure that relates to the auditor's understanding of internal control is to

"This is really confusing! I've sat in on audit planning meetings for three different clients so far, and each one has gone differently. I've been responsible for the sales section each time. Sure the risks are all different, but in the first one I'm supposed to do flowcharts and detailed narrative for the sales systems, in the second one I'm supposed to use the firm's computerized system to answer detailed questions, and in the last one the partner only wants a brief description of the system in narrative form - no more than one page, he said." Required: Explain why it may be necessary to do different types of documentation to support an understanding of internal controls in the context of risks and evidence mix.

Restaurant Products Company (RPC) has been an audit client of your firm for many years. RPC has a March 31 fiscal year end. The company is a successful distributor of restaurant and food industry products such as trays, weigh scales, dishes, and cooking implements. The company sells to businesses only (not to end-consumers), with clients ranging from small restaurants to large food-service chains and hotels. The company has a perpetual inventory system but the current inventory system relies upon accurate data entry of receipts, shipments, and inventory adjustments from paper documents. RPC is looking to improve inventory management and maintain costs in the face of rising competition and growth. Accordingly, it is implementing RFID (radio frequency identification) technology for its inventory. RFID chips will be placed on warehouse shelf locations, boxes of products, and on high-cost individual products. At the same time, the company will implement a wireless mesh system throughout the warehouse, with wireless tracking of product movement. Effective January 31 of next year, a new inventory management system will be implemented to facilitate better decision making and access to online realtime inventory data. The new inventory management system will include a new database that will include internal records of inventory on hand, receipts and shipments of inventory, purchase order details, and payment details. Required: A) For each phase of the financial statement audit process, describe the phase, and explain how the audit process will be affected by the implementation of the new inventory management system. B) What is the impact of the implementation of RFID on the financial statement audit process? Note that these points must be different from those raised in Part A above.