Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
44. Which of the following is not an audit procedure that is commonly used in performing
tests of controls?
45. Tolerable misstatement is
46. Which of the following would an auditor most likely use in determining the auditor’s
planning materiality?
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
47. Which of the following is not a qualitative factor that may affect an auditor’s
establishment of materiality?
48. Which of the following is not a concern as to whether a misstatement is qualitatively
material?
49. In assessing the competence of an internal auditor, an independent CPA most likely would
obtain information about the
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
50. Which of the following procedures would an auditor most likely include in the initial
planning of a financial statement audit?
51. The in-charge auditor most likely would have a supervisory responsibility to explain to the
staff assistants
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
52. Which of the following audit procedures would be least likely to disclose the existence of
related party transactions of a client during the period under audit?
53. A dual-purpose test
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
54. The element of the audit planning process most likely to be agreed upon with the client
before implementation of the audit strategy is the determination of the
55. The audit client’s board of directors and audit committee refused to take any action with
respect to an immaterial illegal act which was brought to their attention by the auditor.
Because of their failure to act, the auditor withdrew from the engagement. The auditor’s
decision to withdraw was primarily due to doubts concerning
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
56. Which of the following procedures would an auditor most likely include in the initial
planning of an examination of financial statements?
57. An entity’s financial statements were misstated over a period of years due to large
amounts of revenue being recorded in journal entries that involved debits and credits to an
illogical combination of accounts. The auditor could most likely have been alerted to this
fraud by
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
58. Under the Sarbanes-Oxley Act, the audit committee of a public company has the
following requirement(s):
59. Which of the following is a general audit test?
60. Which of the following arranges the general types of audit tests in the order they are
normally performed in an audit?
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
61. Which of the following relatively small misstatements most likely would have a material
effect on an entity’s financial statements?
62. Which of the following is the most important qualitative factor that auditors should
consider when making materiality judgments?
63. Which element(s) is/are pervasive to the application of generally accepted auditing
standards, particularly the standards of fieldwork and reporting?
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
64. Which of the following statements is not correct about materiality?
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
65. Cart and Blanche, a regional accounting firm is determining whether it wants to accept a
new client, Ivy Photos. Ivy Photos is currently a privately held photography studio operating
24 studios in several states, but the company’s management is planning an Initial Public
Offering in the near future. This is the company’s first audit. What steps should Cart and
Blanche take in evaluating this new client?
66. Define the engagement letter and discuss its importance.
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
67. BDK Accounting is auditing a new client, A La Carte Catering. BDK could save audit
time by using work from A La Carte’s internal audit staff. The staff consists of three
accountants with public accounting experience and certification. A La Carte requires every
member of its accounting department to spend two out of every five years on the internal
audit staff. Then, the employee is rotated back into the accounting department for a couple of
years. What factors should BDK consider when determining whether or not it can use work of
the internal audit staff? In this case, what should BDK decide?
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
68. Name three Sarbanes-Oxley Act requirements of the members and duties of the audit
committee of a public company.
Students must provide three of the following:
69. How would an auditor identify related parties and what is the importance of doing so?
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
70. In the planning stages of an audit, what information does an auditor gain through
analytical procedures?
71. Discuss the purposes for planning the audit and identify the steps that are performed
during this phase of the engagement.
1. Assess a preliminary level for control risk by account and assertion.
2. Assess the possibility of illegal acts.
3. Identify related parties.
4. Conduct preliminary analytical procedures.
5. Develop an overall audit strategy and prepare audit programs.
6. Consider additional value-added services.
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
72. Name and describe three supervisory activities that should be performed by the
engagement partner and other engagement team members performing supervisory activities.
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
73. Name the three types of analytical procedures and provide a definition and example for
each.
The three types of analytical procedures are trend analysis, ratio analysis, and reasonableness
analysis.
Chapter 03 – Audit Planning, Types of Audit Tests, and Materiality
74. Often in an audit, total combined tolerable misstatement is greater than overall materiality.
Why is this the case?