Auditing Process & Methodologies Flashcards

Under AICPA standards, which phase of the audit is primarily concerned with obtaining an understanding of the entity and its environment to identify risks of material misstatement?

Answer: Risk assessment

Risk assessment procedures (AU-C 315) are performed to understand the entity and identify and assess risks of material misstatement.

An auditor uses audit data analytics to compare monthly revenue by product line against prior-year amounts to identify unusual fluctuations during planning. This is best described as:

Answer: A preliminary analytical procedure

Analytical procedures are required at planning to help identify unusual transactions and areas of risk.

Which statement best describes the relationship between assessed risk of material misstatement and detection risk?

Answer: They are inversely related

For a given acceptable audit risk, a higher assessed risk of material misstatement requires lower detection risk.

When an ADA identifies a population of 1,200 journal entries posted on weekends, what should the auditor generally do next?

Answer: Investigate the items further, possibly by grouping and evaluating them for risk

Items flagged by ADAs are exceptions requiring further evaluation, not automatic misstatements.

Which assertion is most directly addressed by tracing shipping documents to recorded sales invoices?

Answer: Completeness

Tracing from source documents to the records tests whether all transactions were recorded, which is completeness.

Performance materiality is set below overall materiality primarily to:

Answer: Lower to an appropriately low level the probability that aggregate uncorrected and undetected misstatements exceed materiality

Performance materiality allows for aggregation of smaller misstatements that could together become material.

Before relying on client-provided data for an ADA, the auditor should primarily evaluate the data's:

Answer: Relevance and reliability, including completeness and accuracy

Audit evidence standards require the auditor to evaluate whether information used is sufficiently reliable, including completeness and accuracy.