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CBCA practice questions

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Question 1Audit fundamentals, professional standards, and auditor roles

Which statement best describes the essential nature of an audit?

  1. An independent, documented evaluation of evidence against criteria. Correct answer.
  2. A training session explaining new regulatory requirements.
  3. A walkthrough of the process performed by its own process owners.
  4. A management review of operating results against the budget.

Explanation

An audit is a systematic, documented process carried out by someone independent of the activity, evaluating evidence against agreed criteria to reach a conclusion. Management reviews and owner-performed walkthroughs lack independence and structured evidence evaluation, and training does not evaluate evidence at all.

Question 2Audit fundamentals, professional standards, and auditor roles

An internal auditor is asked to audit the new procurement system whose control design she recommended last year. Which independence threat is most directly raised?

  1. A self-review threat arising from auditing her own prior work. Correct answer.
  2. A familiarity threat arising from a long-standing relationship.
  3. An intimidation threat arising from a dominant client executive.
  4. An advocacy threat arising from promoting the organisation's interests.

Explanation

A self-review threat arises when the auditor is asked to evaluate work, systems or advice she previously produced, because she is unlikely to challenge her own design. Independence safeguards therefore require removal from such engagements or review of the work by another party.

Question 3Audit fundamentals, professional standards, and auditor roles

Professional skepticism in an audit engagement is best described as:

  1. A questioning mind and critical assessment of audit evidence. Correct answer.
  2. A willingness to accept explanations that appear reasonable.
  3. A presumption that management's representations are unreliable.
  4. An obligation to investigate every transaction in the population.

Explanation

Professional skepticism is a questioning mind and a critical assessment of evidence, including alertness to conditions suggesting possible misstatement or fraud. It is neither a presumption of dishonesty nor a duty to examine every item.

Question 4Audit fundamentals, professional standards, and auditor roles

What is the primary purpose of an internal audit charter?

  1. It summarises the findings and ratings of completed engagements.
  2. It lists the qualifications required of audit staff.
  3. It defines the function's mandate, authority and reporting lines. Correct answer.
  4. It records the audit plan approved for the coming year.

Explanation

The internal audit charter is the formal document, approved by the board or audit committee, that establishes the function's purpose, authority, responsibility and position within the organisation. It is also the basis for the function's access to records, people and property.

Question 5Audit fundamentals, professional standards, and auditor roles

In the Three Lines Model, which group provides independent assurance over the effectiveness of risk management and internal control?

  1. The board's remuneration committee
  2. Risk and compliance functions
  3. Internal audit Correct answer.
  4. Operational management

Explanation

In the Three Lines Model, operational management owns and manages risk, risk and compliance functions monitor and advise, and internal audit provides independent assurance to the governing body. Independence from the day-to-day activity is what distinguishes the third line.

Question 6Audit fundamentals, professional standards, and auditor roles

A compliance audit primarily evaluates whether:

  1. Operations are conducted economically and efficiently.
  2. The entity complies with applicable laws and rules. Correct answer.
  3. Information systems are protected from external intrusion.
  4. The financial statements are free from material misstatement.

Explanation

A compliance audit evaluates whether the entity conforms to criteria set by a legislature, regulator, contract or internal policy. Financial statement audits, performance audits and information-systems audits apply different criteria and pursue different objectives.

Question 7Audit fundamentals, professional standards, and auditor roles

Which item of audit evidence generally provides the strongest support for a conclusion?

  1. An internal summary prepared by the operating unit.
  2. An oral assurance given by the process owner.
  3. A direct confirmation from an independent third party. Correct answer.
  4. A draft procedure document that awaits management approval.

Explanation

Evidence is more reliable when it is obtained directly by the auditor from an independent external source and is in documentary form. Oral assurances, internally prepared summaries and unapproved drafts are less persuasive and normally require corroboration.

Question 8Audit fundamentals, professional standards, and auditor roles

The primary responsibility of an external financial statement auditor is to:

  1. Issue an opinion on the fair presentation of the financial statements. Correct answer.
  2. Prepare the entity's annual financial statements before the audit begins.
  3. Advise management on how to improve the design of its internal controls.
  4. Detect and prevent all fraud and error that occur within the organisation.

Explanation

The external auditor's objective is to obtain reasonable assurance and express an opinion on whether the financial statements are free from material misstatement. Management, not the auditor, prepares the statements, designs controls and remains responsible for fraud prevention.

Question 9Audit fundamentals, professional standards, and auditor roles

An auditor sets a lower materiality threshold than in prior years. What is the most likely effect on the audit?

  1. Documentation requirements are reduced when materiality is lowered.
  2. Sampling risk is eliminated because the threshold is more precise.
  3. The audit can be completed with fewer procedures than in prior years.
  4. More extensive testing is needed to reduce misstatement risk. Correct answer.

Explanation

Materiality is a matter of professional judgement and may be revised during the engagement; a lower threshold increases the precision required of the auditor. More and deeper testing is therefore needed to keep the risk of undetected misstatement at an acceptably low level.

Question 10Audit fundamentals, professional standards, and auditor roles

In a risk-based audit plan, which area should receive the greatest allocation of audit resources?

  1. The area where previous findings were easiest for management to resolve.
  2. The highest-risk area, where failure or non-compliance is most likely. Correct answer.
  3. The area most frequently requested by operational line managers.
  4. The area that has gone unaudited for the longest period of time.

Explanation

Risk-based planning directs resources to areas where the likelihood and impact of failure or non-compliance are highest, taking the maturity of controls into account. Elapsed time and stakeholder requests are inputs to the assessment but do not outweigh assessed risk.

Question 11Audit fundamentals, professional standards, and auditor roles

Which statement about audit working papers is correct?

  1. They must support conclusions reached and be retained per policy. Correct answer.
  2. They should record only findings that are adverse to the audited area.
  3. They are the property of the audited entity and must be surrendered on request.
  4. They may be discarded once a draft report has been issued to management.

Explanation

Working papers must be detailed enough for an experienced auditor with no prior connection to the engagement to understand the work performed, the evidence obtained and the conclusions reached, and they are kept for the period set by policy and legal requirements. They remain the property of the audit organisation and are confidential to it.

Question 12Audit fundamentals, professional standards, and auditor roles

An auditor's spouse is the manager of the department scheduled for audit. What is the most appropriate action?

  1. Proceed if the spouse does not take part in any audit interviews.
  2. Declare the conflict and request removal from the engagement. Correct answer.
  3. Proceed but disclose the relationship in the final audit report.
  4. Proceed and rely more heavily on evidence from other sources.

Explanation

Close personal relationships create familiarity and self-interest threats to objectivity that disclosure at the reporting stage does not cure. The auditor should declare the conflict and be removed from the engagement, with the area audited by someone independent.

Question 13Audit fundamentals, professional standards, and auditor roles

Due professional care requires the auditor to:

  1. Reuse the prior-year audit programme without modification.
  2. Guarantee that no material misstatement remains undetected.
  3. Apply the care and skill of a reasonably prudent auditor. Correct answer.
  4. Perform every possible procedure regardless of cost or time.

Explanation

Due professional care is the degree of care and skill that a reasonably prudent auditor would exercise in the same circumstances, applied throughout planning, fieldwork and reporting. It does not make the auditor a guarantor of the financial statements, nor does it require unlimited procedures.

Question 14Audit fundamentals, professional standards, and auditor roles

Which action best demonstrates effective supervision of audit staff during an engagement?

  1. Assigning the most complex areas to the newest team member.
  2. Reviewing working papers only after the audit report is issued.
  3. Reviewing working papers and coaching staff during fieldwork. Correct answer.
  4. Leaving all client communication to the least experienced staff.

Explanation

Supervision involves directing staff, tracking progress, reviewing working papers and providing coaching while the engagement is in progress. Reviewing only after reporting, or giving the hardest work to inexperienced staff without close oversight, defeats the purpose.

Question 15Audit fundamentals, professional standards, and auditor roles

To whom should the chief audit executive report functionally in order to preserve independence?

  1. The chief executive officer.
  2. The external auditor of the entity.
  3. The chief financial officer.
  4. The audit committee of the board. Correct answer.

Explanation

Functional reporting to the audit committee, covering the charter, the audit plan, the budget and the chief audit executive's appointment and performance, protects independence. Day-to-day administrative reporting to senior management is acceptable provided the functional line remains intact.

Question 16Audit fundamentals, professional standards, and auditor roles

Which statement best describes an auditor's responsibility relating to fraud?

  1. The auditor need not consider fraud when planning the engagement.
  2. The auditor must detect every fraudulent act, even immaterial ones.
  3. The auditor designs and operates the entity's anti-fraud controls.
  4. The auditor assesses fraud risk but cannot guarantee detection. Correct answer.

Explanation

The auditor considers the risk of material misstatement due to fraud, exercises skepticism, designs procedures responsive to that risk and communicates fraud matters identified. Detection is never guaranteed, and management retains responsibility for prevention and for the control environment.

Question 17Audit fundamentals, professional standards, and auditor roles

During a contract compliance audit, management refuses to let the auditor contact a key supplier. What should the auditor do?

  1. Document it and report the limitation to the audit committee. Correct answer.
  2. Treat the supplier's own invoices as equivalent substitute evidence.
  3. Accept the restriction quietly because management defines the audit scope.
  4. Withdraw the related finding and issue an unqualified conclusion.

Explanation

A restriction imposed by management on the auditor's access is a scope limitation. The auditor documents it, escalates it to the governing body and reflects it in the report or conclusion, because accepting it silently would mislead users about the assurance obtained.

Question 18Audit fundamentals, professional standards, and auditor roles

Sampling risk is the risk that:

  1. The auditor selects items that are difficult or costly to obtain.
  2. The population contains items that management has recorded incorrectly.
  3. The audit programme omits a control that should have been tested.
  4. A sample-based conclusion differs from testing the whole population. Correct answer.

Explanation

Sampling risk arises because the auditor draws a conclusion from a subset rather than from the entire population, so the conclusion may differ from what full testing would show. Errors in judgement, procedure design or data handling fall under non-sampling risk.

Question 19Audit fundamentals, professional standards, and auditor roles

An audit finding requires management to implement a new review control by a set date. What is the auditor's most appropriate next step?

  1. Re-raise the finding at the next annual audit cycle only.
  2. Refer the finding to the external auditor and take no action.
  3. Close the finding once management acknowledges the recommendation.
  4. Verify implementation at the agreed date and report the status. Correct answer.

Explanation

Follow-up verifies that the agreed actions were actually implemented and that the underlying risk has been addressed. Accepting acknowledgement as closure, or waiting for the next annual cycle, leaves the risk unmanaged in the interim.

Question 20Audit fundamentals, professional standards, and auditor roles

Why is continuing professional education required of auditors?

  1. To reduce the volume of documentation required for each file.
  2. To guarantee that all audit work performed is free from error.
  3. To keep the knowledge and skills needed to work competently. Correct answer.
  4. To meet the reporting timetable set by the audit committee.

Explanation

Continuing professional education keeps auditors current with standards, laws and techniques so that engagements are performed with competence. It supports, but does not guarantee, quality and does not replace documentation, supervision or review.

Question 21Audit fundamentals, professional standards, and auditor roles

An auditor has no financial interest in a client, yet a reasonably informed third party would doubt her objectivity because her brother is the client's finance director. Which concept best describes this situation?

  1. An unacceptably high level of audit risk.
  2. A failure to exercise due professional care.
  3. A breach of the duty of confidentiality.
  4. An impairment of independence in appearance. Correct answer.

Explanation

Independence has two dimensions: independence of mind, which concerns the auditor's actual state, and independence in appearance, which concerns how a reasonable informed third party would perceive it. Circumstances that create doubt in the eyes of others must be avoided or managed, even where the auditor believes she is objective.

Question 22Audit fundamentals, professional standards, and auditor roles

An auditor has led the audit of the same division for eight years and regularly socialises with its director. Which threat to objectivity is most significant?

  1. Self-interest threat.
  2. Intimidation threat.
  3. Advocacy threat.
  4. Familiarity threat. Correct answer.

Explanation

The familiarity threat arises from long association and close personal relationships, which can make an auditor over-trusting and reluctant to challenge management. Rotation of engagement staff and independent quality review are typical safeguards.

Question 23Audit fundamentals, professional standards, and auditor roles

Which arrangement best provides independent assurance that an audit function's quality controls are effective?

  1. External quality assessment by an independent reviewer. Correct answer.
  2. Ongoing supervision by the chief audit executive.
  3. Post-engagement satisfaction surveys completed by audit clients.
  4. Annual self-assessment completed by each audit team leader.

Explanation

Ongoing supervision and periodic self-assessment are internal quality controls, but independent assurance requires an external quality assessment performed by qualified reviewers from outside the audit function. Client surveys measure satisfaction with the service, not conformance with professional standards.

Question 24Audit fundamentals, professional standards, and auditor roles

During fieldwork, an auditor finds that a manager's written representation conflicts with the results of the auditor's own test. Which course of action best reflects professional skepticism?

  1. Average the two results to arrive at a balanced conclusion.
  2. Accept the representation, since management owns the process.
  3. Report the conflict only if management declines to explain it.
  4. Extend testing and seek corroborating evidence to resolve it. Correct answer.

Explanation

When evidence conflicts, the auditor investigates rather than deferring to management, seeking corroboration and weighing the reliability of each source. Averaging results or accepting explanations without verification would undermine the assurance given.

Question 25Audit fundamentals, professional standards, and auditor roles

Internal audit has been asked to design and implement a new control framework for the finance department. What is the most appropriate response?

  1. Provide advice only, so that objectivity is preserved. Correct answer.
  2. Accept the role but leave the work undocumented in the files.
  3. Accept the role and plan to audit the framework next year.
  4. Accept the role because the audit team knows controls best.

Explanation

Designing and implementing controls is a management responsibility; if internal audit performs it, the function later reviews its own work and its objectivity is impaired. Internal audit may provide advisory or consulting input provided design decisions and implementation remain with management.

Question 26Audit fundamentals, professional standards, and auditor roles

In an audit engagement, the criteria are best described as:

  1. The person or group that commissions the audit
  2. The conclusion management expects the auditor to reach
  3. The benchmarks against which the subject matter is assessed Correct answer.
  4. The procedures the auditor performs to collect evidence

Explanation

Criteria are the standards, laws, policies, or other benchmarks used to evaluate the subject matter. They must be suitable and available to intended users for an audit conclusion to be meaningful. Procedures, commissioning parties, and management expectations are not criteria.

Question 27Audit fundamentals, professional standards, and auditor roles

Which engagement is an assurance engagement?

  1. Concluding on payroll compliance with approved rates Correct answer.
  2. Training staff on the requirements of a newly issued ethics policy
  3. Advising management on how to redesign the purchasing process
  4. Facilitating a workshop for managers to identify operational risks

Explanation

An assurance engagement involves an independent evaluation of subject matter against criteria and a conclusion intended to enhance confidence. Advice, training, and facilitation are consulting activities because they do not provide such a conclusion.

Question 28Audit fundamentals, professional standards, and auditor roles

The sufficiency of audit evidence refers to:

  1. The amount of evidence needed to support the conclusion Correct answer.
  2. Whether the evidence was obtained directly by the auditor
  3. The date on which the evidence was filed in the audit system
  4. How relevant and reliable the evidence is

Explanation

Sufficiency concerns the quantity of evidence, while appropriateness concerns relevance and reliability. The auditor gathers enough appropriate evidence to support the conclusion. Filing dates and directness affect reliability, not sufficiency by themselves.

Question 29Audit fundamentals, professional standards, and auditor roles

Professional skepticism requires an auditor to:

  1. Limit evidence gathering once the audit budget is exhausted
  2. Assume management's explanations are false until proven otherwise
  3. Question evidence and remain alert to possible misstatement or non-compliance Correct answer.
  4. Accept internally generated documents without further inquiry

Explanation

Professional skepticism is a questioning mind and a critical assessment of evidence. It is not cynicism, nor does it permit accepting evidence uncritically or letting budget pressure override evidence needs.

Question 30Audit fundamentals, professional standards, and auditor roles

During an audit, management refuses access to records the auditor considers necessary. The most appropriate action is to:

  1. Document the limitation and report its effect to governance Correct answer.
  2. Obtain the records from a personal contact without management's knowledge
  3. Accept management's assurance that the missing records contain no exceptions
  4. Issue an unmodified conclusion covering the entire audit scope

Explanation

A scope limitation must be documented, its effect assessed, and it must be communicated to appropriate management and those charged with governance. Depending on significance, it may prevent an unmodified conclusion. Management assurances do not replace necessary evidence.

Question 31Audit fundamentals, professional standards, and auditor roles

An audit client offers the auditor a valuable ticket to a sporting event shortly before fieldwork begins. The most appropriate response is to:

  1. Decline it because accepting could create a self-interest threat to objectivity Correct answer.
  2. Accept it but disclose the gift only if the audit finds exceptions
  3. Accept it because the client offers similar tickets to many business contacts
  4. Accept it and record it as audit evidence of the client's hospitality controls

Explanation

Gifts from a client can create self-interest or familiarity threats to objectivity. The auditor should decline or, if acceptance is unavoidable, apply safeguards such as disclosure and removal from the engagement. Disclosure conditioned on findings or treating the gift as evidence is inappropriate.

Question 32Audit fundamentals, professional standards, and auditor roles

If an auditor concludes that controls are operating effectively and assesses control risk as low, the auditor will generally:

  1. Increase substantive testing because control risk is low
  2. Rely on management's oral assurances instead of testing controls
  3. Eliminate all substantive procedures for the area
  4. Reduce substantive testing but still perform some substantive work Correct answer.

Explanation

A low assessed control risk allows the auditor to reduce the extent of substantive procedures, but some substantive work is still needed. Reliance on controls requires evidence that the controls operate effectively. Oral assurances alone are not sufficient.

Question 33Audit fundamentals, professional standards, and auditor roles

Which procedure is a test of controls?

  1. Recalculating the depreciation expense for a sample of assets
  2. Observing a supervisor review and initial exception reports Correct answer.
  3. Comparing a sample of recorded sales with signed customer orders
  4. Confirming a bank balance directly with the bank

Explanation

Tests of controls evaluate whether controls operate effectively; observing the supervisor's review directly tests that control. Comparing sales to orders, recalculating depreciation, and confirming a bank balance are substantive procedures that test balances or transactions.

Question 34Audit fundamentals, professional standards, and auditor roles

An auditor finds a small misstatement that is below materiality but appears to be intentional. The auditor should:

  1. Report it to the media before completing the audit
  2. Investigate further and consider fraud implications Correct answer.
  3. Offset it against an unrelated overstatement found in a different account
  4. Ignore it because it is below the materiality threshold

Explanation

Materiality does not excuse intentional misstatement; even a small amount can indicate fraud or control failure. The auditor should investigate, consider the effect on other audit areas, and communicate appropriately. Offsetting unrelated misstatements and external disclosure without following reporting channels are improper.

Question 35Audit fundamentals, professional standards, and auditor roles

An auditor identifies a significant deficiency in internal control. The auditor should communicate it:

  1. After the audit report is issued, to avoid disrupting operations
  2. To external regulators before informing management
  3. Timely to management and those charged with governance Correct answer.
  4. Only if management asks for a written report

Explanation

Significant deficiencies must be communicated in writing to those charged with governance on a timely basis. Management also needs to be informed so it can respond. Waiting for a request or for report issuance defeats the purpose of timely communication.

Question 36Audit fundamentals, professional standards, and auditor roles

The fundamental ethical principle of objectivity requires an auditor to:

  1. Avoid bias or undue influence in professional judgments Correct answer.
  2. Possess the technical skills needed for the engagement
  3. Maintain confidentiality of all client information indefinitely
  4. Charge fees that are proportionate to the work performed

Explanation

Objectivity concerns the auditor's mental state and the obligation to avoid bias, conflict of interest, or undue influence. Confidentiality, competence, and fees are separate ethical or engagement matters. Objectivity is about judgment, not technical skill alone.

Question 37Audit fundamentals, professional standards, and auditor roles

The lead engagement partner has served a listed client for seven years, and firm policy requires rotation after five. What is the primary purpose of mandatory rotation?

  1. To reduce the cost of the audit by bringing in less experienced staff
  2. To ensure the auditor obtains a fresh understanding of the client's business
  3. To reduce familiarity and self-interest threats to objectivity Correct answer.
  4. To guarantee that all fraud will be detected

Explanation

Long association can create familiarity and self-interest threats to objectivity. Rotation is a safeguard that introduces a fresh perspective and reduces over-reliance on past judgments. It cannot guarantee fraud detection or reduce cost by design.

Question 38Audit fundamentals, professional standards, and auditor roles

An auditor is assigned to audit a department that was formerly managed by the auditor two years ago. Which action best addresses the threat to objectivity?

  1. Ask the current manager to sign a statement that the auditor is objective
  2. Disclose the prior role and apply safeguards or reassign Correct answer.
  3. Proceed without disclosure because two years have passed
  4. Audit only the areas the auditor managed to use prior knowledge

Explanation

Prior responsibility for the area creates self-review and familiarity threats even after time has passed. The auditor should disclose the relationship and apply safeguards such as independent review or reassignment. A management statement or auditing only former areas does not adequately address the threat.

Question 39Audit fundamentals, professional standards, and auditor roles

An auditor obtains two pieces of evidence that conflict. What is the most appropriate response?

  1. Average the two results and report the midpoint
  2. Discard both items and rely on the audit plan
  3. Investigate the conflict and seek corroboration Correct answer.
  4. Use the evidence that supports management's position

Explanation

Conflicting evidence requires the auditor to investigate, assess the reliability of each item, and perform additional procedures to resolve the inconsistency. Selecting the preferred result, averaging, or ignoring both items would not provide a sound basis for a conclusion.

Question 40Audit fundamentals, professional standards, and auditor roles

An audit programme primarily documents:

  1. The client's organizational chart and product list
  2. The planned nature, timing, and extent of audit procedures Correct answer.
  3. The auditor's conclusion on the financial statements
  4. The fee estimate and billing schedule for the engagement

Explanation

An audit programme sets out the procedures to be performed, including their nature, timing, and extent. It provides a basis for planning, supervision, and review of the work. It is not the audit conclusion, client background, or billing schedule.

Question 41Audit planning, scope, and risk-based audit program design

In the risk-based audit model, audit risk is the product of inherent risk, control risk and which other component?

  1. Sampling risk
  2. Engagement risk
  3. Business risk
  4. Detection risk Correct answer.

Explanation

Audit risk is modelled as inherent risk multiplied by control risk multiplied by detection risk, where detection risk is the risk that the auditor's procedures fail to detect a material misstatement. Detection risk is the component the auditor manages directly through the design and extent of further audit procedures.

Question 42Audit planning, scope, and risk-based audit program design

How does the overall audit strategy differ from the audit plan?

  1. The strategy sets scope and direction; the plan sets detailed procedures Correct answer.
  2. The strategy covers interim work; the plan covers year-end work
  3. The strategy is mandated by standards; the plan is an optional working paper
  4. The strategy is prepared by the client; the plan is prepared by the partner

Explanation

ISA 300 distinguishes the overall audit strategy, which establishes the scope, timing and direction of the engagement and guides the development of the more detailed audit plan. The plan then sets out the nature, timing and extent of the audit procedures to be performed.

Question 43Audit planning, scope, and risk-based audit program design

Materiality for the financial statements as a whole is best described as:

  1. The value of misstatements that must always be reported to the regulator
  2. The largest account balance the auditor intends to test in detail
  3. The total transaction value the audit team expects to examine
  4. An amount above which misstatements could influence users' economic decisions Correct answer.

Explanation

ISA 320 defines materiality by reference to users' information needs: misstatements are material if they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. It is a matter of professional judgement rather than a mechanical testing threshold.

Question 44Audit planning, scope, and risk-based audit program design

What is the primary purpose of an audit engagement letter?

  1. To record the agreed terms of the engagement and the respective responsibilities Correct answer.
  2. To satisfy the regulator that the client has been audited previously
  3. To fix the audit fee and the payment schedule for the engagement
  4. To guarantee that all material misstatements will be detected

Explanation

ISA 210 requires the agreed terms of the engagement to be recorded in an engagement letter before work begins, so as to reduce the risk that either party misunderstands the other's responsibilities. Fee matters may be mentioned but are not the letter's primary purpose.

Question 45Audit planning, scope, and risk-based audit program design

ISA 230 requires the audit plan to be documented so that it can be understood by:

  1. An experienced auditor with no prior connection to the audit Correct answer.
  2. The client's finance team replicating the procedures next year
  3. The regulator pre-approving the report before signing
  4. The engagement partner supporting the billing of hours

Explanation

ISA 230 sets the experienced auditor benchmark: the file must let an auditor with no previous connection to the engagement understand the planned work, the procedures performed and the conclusions reached. The file is the auditor's record and is not prepared for the client's reuse.

Question 46Audit planning, scope, and risk-based audit program design

Testing whether recorded sales relate to goods actually shipped in the period addresses which assertion?

  1. Completeness
  2. Classification
  3. Valuation and allocation
  4. Occurrence Correct answer.

Explanation

Occurrence addresses whether recorded transactions and events exist and pertain to the entity, that is, whether the recorded sale actually happened in the period. Completeness addresses the opposite direction: whether transactions that should have been recorded have been omitted.

Question 47Audit planning, scope, and risk-based audit program design

Which statement best describes the nature of audit planning?

  1. An optional step that is only needed on smaller engagements
  2. A discrete phase that is completed before fieldwork begins
  3. A continuous process that runs throughout the engagement Correct answer.
  4. A step required only for public interest entity clients

Explanation

Planning is not a one-off phase: it is iterative and continuous, beginning at engagement acceptance and continuing as the audit progresses and new information emerges. The detailed plan is updated as conditions change.

Question 48Audit planning, scope, and risk-based audit program design

When the assessed risk of material misstatement at the assertion level increases, the auditor's planned further procedures should generally be:

  1. Reduced in size so as to keep within the agreed time budget
  2. Moved to the interim date to spread the workload
  3. Increased in extent or changed in nature or timing Correct answer.
  4. Replaced by written representations from management

Explanation

ISA 330 requires further audit procedures to be responsive to the assessed risk; as risk increases the auditor must obtain more persuasive evidence, which typically means more extensive work, more reliable procedures, or testing closer to period end.

Question 49Audit planning, scope, and risk-based audit program design

If the auditor decides to accept a lower level of detection risk, substantive procedures will be:

  1. More extensive and more persuasive Correct answer.
  2. Unchanged, since detection risk is set by the client
  3. Fewer but performed earlier in the year
  4. Replaced by tests of the client's internal controls

Explanation

Detection risk and the persuasive power of substantive procedures move in opposite directions: accepting less detection risk means the auditor must design more effective and more extensive procedures to reduce the risk of failing to detect a material misstatement.

Question 50Audit planning, scope, and risk-based audit program design

A risk of material misstatement that the auditor judges to be close to the upper limit of the audit risk model, and which requires special audit consideration, is known as:

  1. A significant risk Correct answer.
  2. A business risk
  3. An engagement risk
  4. A control deficiency

Explanation

ISA 315 describes significant risks as identified risks of material misstatement that are close to the upper limit of the audit risk model and are therefore subject to special audit consideration. They commonly arise from non-routine, judgemental or fraud-related transactions.