Auditing and Assurance Training Audit Planning and Procedures 2 — Questions and Answers
Question 1: Tests of controls are performed when the auditor plans to:
- Issue a disclaimer of opinion
- Rely on the operating effectiveness of controls to reduce substantive testing (Correct answer)
- Perform a 100% examination of all transactions
- Withdraw from the engagement
Correct answer: Rely on the operating effectiveness of controls to reduce substantive testing
If the auditor intends to rely on controls to reduce the extent of substantive procedures, they must test whether those controls operated effectively during the period.
Question 2: Dual-purpose tests serve what function in an audit?
- They test both the external auditor's and the internal auditor's work
- They simultaneously test a control's operating effectiveness and provide substantive evidence (Correct answer)
- They are used only for fraud investigations
- They replace both tests of controls and analytical procedures
Correct answer: They simultaneously test a control's operating effectiveness and provide substantive evidence
Dual-purpose tests are designed to achieve two objectives at once — testing whether a control functioned and gathering substantive evidence about a transaction or balance.
Question 3: When assessing fraud risk, AU-C Section 240 requires the audit team to specifically consider the risk of:
- Employee theft of petty cash only
- Management override of controls (Correct answer)
- Payroll system errors
- IT access control weaknesses only
Correct answer: Management override of controls
AU-C 240 mandates that auditors always assess management override of controls as a significant fraud risk because management can bypass even well-designed controls.
Question 4: The 'fraud risk triangle' consists of which three elements?
- Materiality, risk, and evidence
- Incentive/pressure, opportunity, and rationalization (Correct answer)
- Planning, fieldwork, and reporting
- Inherent risk, control risk, and detection risk
Correct answer: Incentive/pressure, opportunity, and rationalization
The fraud triangle describes the three conditions — pressure (motivation), opportunity (ability to commit fraud), and rationalization (justification) — that typically accompany fraudulent acts.
Question 5: Interim testing refers to audit procedures performed:
- Only in the final week before year-end
- During the period before the balance sheet date, with a roll-forward to year-end (Correct answer)
- Solely on the prior year financial statements
- After the audit report is issued
Correct answer: During the period before the balance sheet date, with a roll-forward to year-end
Interim testing occurs before year-end to spread audit work, and the auditor then performs roll-forward procedures to bring the evidence up to the balance sheet date.
Question 6: A predecessor auditor communication is typically required when:
- The same firm audits the client for a second year
- A new auditor is considering accepting a first-year engagement (Correct answer)
- Management requests a change in accounting policy
- The auditor issues a going concern opinion
Correct answer: A new auditor is considering accepting a first-year engagement
Under AICPA standards, a prospective successor auditor should communicate with the predecessor to obtain information about any disagreements or issues before accepting the engagement.
Auditing and Assurance Training Audit Planning and Procedures 2
Tests of controls are performed when the auditor plans to: