Auditing and Assurance Training Audit Planning and Procedures 1 — Questions and Answers
Question 1: Which of the following is determined first when planning an audit engagement?
- Sample sizes for substantive testing
- Overall materiality for the financial statements as a whole (Correct answer)
- The audit team staffing plan
- The timing of the final audit report
Correct answer: Overall materiality for the financial statements as a whole
Overall materiality is established early in planning because it drives decisions about which accounts are significant and how much risk the auditor can accept.
Question 2: The audit strategy document typically includes:
- Detailed audit procedures for each account balance
- The planned nature, timing, and extent of audit procedures (Correct answer)
- The complete list of adjusting journal entries
- The final signed management representation letter
Correct answer: The planned nature, timing, and extent of audit procedures
The overall audit strategy sets the scope and direction for the audit, specifying the planned approach but not the detailed procedural steps, which belong in the audit plan.
Question 3: Materiality established for planning purposes is known as:
- Tolerable misstatement
- Performance materiality (Correct answer)
- Trivial materiality
- Financial statement materiality
Correct answer: Performance materiality
Performance materiality is set below overall materiality and is used to determine the scope of substantive testing so that individually immaterial misstatements don't aggregate to a material amount.
Question 4: An auditor obtains an understanding of the entity and its environment primarily to:
- Satisfy client relationship requirements
- Identify and assess risks of material misstatement (Correct answer)
- Calculate audit fees accurately
- Determine the number of partners needed
Correct answer: Identify and assess risks of material misstatement
Understanding the entity, its industry, and its environment allows the auditor to identify where misstatements — whether due to error or fraud — are most likely to occur.
Question 5: Which professional standard governs the auditor's responsibility for planning under AICPA standards?
- AU-C Section 315
- AU-C Section 300 (Correct answer)
- AS 2101
- SAS No. 99
Correct answer: AU-C Section 300
AU-C Section 300 (Planning an Audit) establishes the auditor's responsibilities for planning a financial statement audit under AICPA standards.
Question 6: An engagement letter serves primarily to:
- Provide the auditor's final opinion on financial statements
- Document the agreed terms of the audit engagement including scope and responsibilities (Correct answer)
- Record all identified audit adjustments
- Replace the management representation letter
Correct answer: Document the agreed terms of the audit engagement including scope and responsibilities
The engagement letter confirms the audit's scope, objectives, management's and auditor's responsibilities, and fee arrangements before fieldwork begins.
Auditing and Assurance Training Audit Planning and Procedures 1
Which of the following is determined first when planning an audit engagement?