FAC Auditing Principles & Procedures 4

Question 1

Which approach does an auditor use when control risk is assessed as low?

Accepted Answer

Reduce the extent of substantive testing

Answer

When control risk is low, auditors can reduce the extent of substantive testing because internal controls are deemed effective at preventing or detecting misstatements.

Question 2

What is the primary objective of 'analytical procedures' used as substantive tests?

Accepted Answer

To identify material misstatements through plausibility assessment

Answer

Substantive analytical procedures identify potential misstatements by evaluating whether recorded amounts are consistent with the auditor's expectations.

Question 3

Which concept explains why auditors cannot examine every transaction in a large population?

Accepted Answer

Materiality and practicality

Answer

Materiality and practicality mean that examining every item would be prohibitively costly and time-consuming without proportionate benefit, justifying sampling.

Question 4

What is 'working paper documentation' primarily intended to demonstrate?

Accepted Answer

That the audit was planned and performed in accordance with standards

Answer

Audit documentation demonstrates that the audit was properly planned, supervised, and performed in accordance with professional standards.

Question 5

Under PCAOB standards, what is the auditor's responsibility regarding illegal acts by clients?

Accepted Answer

Auditors must consider whether illegal acts have a material effect on the financial statements

Answer

Auditors must consider whether illegal acts have a material effect on the financial statements and communicate findings to appropriate levels of management and governance.

(FAC) Finance and Accounting Certification Practice Test

(FAC) Finance and Accounting Certification Practice Test

FAC Auditing Principles & Procedures 4