Exam 5: Preliminary Audit Planning: Understanding the Auditees Business

Audit planning is an ongoing process where information gained as the audit is performed may result in changes to the plan.

The CASs provide the overall objective of a financial statement auditor and set out the requirements that must be met to meet that objective.

For audits of financial statements made in accordance with generally accepted auditing standards, the use of analytical procedures is required to some extent ________.

Since auditing is a public profession, auditors are obligated to continue auditing a client once they start.

What is meant by materiality?

Audit risk can be offset by ________.

What is the best description of the engagement letter?

If an auditor were to use 5% of income before taxes as a basis for materiality, it would be an example of judgment based on ________.

If fictitious sales were recorded and the fictitious accounts receivable were written off as bad debt expense, ________.

Analytical procedures consist of evaluating financial information by studying financial and nonfinancial data and looking for plausible or implausible relationships. The procedures can range from making simple comparisons to using complex models involving many relationships and elements of data. They can involve time-series comparisons of recorded amounts and ratios developed from recorded amounts, and they always include comparison to expectations developed by the auditors. Required: A) Describe the broad purposes of analytical procedures. B) Identify the sources of information from which an auditor develops expectations.

During the preliminary analytical review, the auditor discovered that the auditee forecast sales of 10,000 units but only 5,000 were sold. The auditors should consider performing a careful lower-of-cost-or-market valuation of the year-end inventory.

An "accountable party" can be all of the following at the same time except ________.

The concept of materiality refers to ________.

Analytical procedures are required at both the beginning and the end of an audit.

The detailed audit plan guides development of the overall audit strategy.

An auditor should assess a client's business risks ________.

Assume that application of analytical procedures revealed significant unexplained differences between recorded amounts and the auditor's expectations. If management is unable to provide an acceptable explanation, the auditor should ________.

A bank with a large loan would most likely be interested in materiality based on ________.

When there is a change in auditors, the Rules of Professional Conduct do not permit the predecessor auditor to give information to the successor auditor without explicit approval by the client.

This question is about the auditor's concept of materiality considered in the planning stage of the audit. Required: A) Define or describe the independent auditor's concept of "planning materiality." B) Name (but do not describe or explain) three common relationships or considerations used by the auditor quantifying materiality.