Exam 5: Preliminary Audit Planning: Understanding the Auditees Business

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 ________.

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.

What are auditors referring to when they talk about the nature,timing,and extent of audit procedures?

Contrast horizontal and vertical analysis.Give an example of each.

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

What is meant by materiality?

Which of the following is likely to be found in the minutes of the board of directors?

Generally accepted auditing standards require that analytical procedures should be applied ________.

The audit objective specifying that "all recorded assets,liabilities,and transactions represent real assets,liabilities,revenues,and expenses" is related most closely to which assertion(s)?

Relationships on the financial statements that do not make sense may indicate problem areas in the accounts.

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

How should auditors use the concept of materiality?

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

Give some examples of cut off errors and explain what management assertions are affected by such errors.

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

Materiality levels determined at the planning stage are used to decide how much work to do on each financial statement account.

This question tests your ability to perceive the place(s)where potential problems may exist and the type of problem (overstatement or understatement)that may exist. Required: For each of the items below,identify the account(s)that need(s)to be audited carefully and the reason;for example,"potential overstatement or understatement of _______." A)Current year accounts receivable is larger than last year but the allowance for doubtful accounts is the same. B)Current year inventory is larger than last year but the current year gross margin (profit)is larger. C)Current year long-term liabilities are larger than last year but the interest expense is the same. D)Current-year fixed assets total is larger than last year but current amortization expense is the same as last year.

Materiality is primarily a quantitative calculation.

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 ________.