Establishing Overall Audit Strategy

PART 1
1. This involves establishing the overall audit strategy for the engagement and developing
an audit plan, in order to reduce audit risk to an acceptably low level.
A. Audit procedures
B. Audit planning
C. Audit program
D. Audit working papers

2. The audit plan sets the scope, timing and direction of the audit, and guides the
development of the more detailed audit strategy.
The Audit strategy is more detailed than the audit plan and includes the nature, timing and
extent of audit procedures to be performed by engagement team members in order to
obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.
A. True, True C. False, False
B. True, False D. False, True

3. The audit plan should

A. B. C. D.
Precede action Yes No Yes No
Be flexible Yes No Yes Yes
Be cost beneficial Yes Yes No Yes

4. Adequate audit planning helps ensure that:

A. B. C. D.
Appropriate attention is devoted to important
areas of the audit. Yes Yes Yes Yes
Potential problems can be promptly identified
and resolved. Yes Yes No No
Work is performed in an effective and efficient
manner. Yes Yes No Yes
An unqualified opinion is assured to be
expressed. Yes No No Yes

5. Which of the following is not one of the three reasons why the auditor should properly plan
engagements?
A. To enable the auditor to obtain sufficient appropriate evidence.
B. To avoid misunderstandings with the client.
C. To help keep audit costs reasonable.
D. To enable proper on-the-job training of employees.

6. Which of the following is not a component of audit planning?

A. Marking arrangements with the client concerning the timing of audit field work and
use of the client’s staff in completing certain phases of the examination.
B. Obtaining an understanding of the business.

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 C. Developing audit programs and strategy.
D. Observing the client’s annual physical inventory taking and making test counts of
selected items.

7. In planning an examination, the auditor would consider all of the following matters, except
A. Anticipated reliance on internal controls.
B. Preliminary judgment about materiality levels for audit purposes.
C. Financial statement items likely to require adjustment.
D. The kind of opinion (unqualified, qualified, disclaimer, or adverse), likely to be
given.

8. Which of the following procedures is not performed as a part of planning an audit

engagement?
A. Reviewing the working papers of the prior year.
B. Performing analytical procedures.
C. Confirmation of all major accounts.
D. Designing an audit program.

9. Which of the following procedures would an auditor most likely include in the initial
planning of a financial statement audit?
A. Obtaining a written representation letter from the client’s management.
B. Examining documents to detect illegal acts having a material effect on the financial
statements.
C. Considering whether the client’s accounting estimates are reasonable in the
circumstances.
D. Determining the extent of involvement of the experts and client’s internal auditors.

10. An initial audit requires more audit time to complete than a recurring audit. One of the
reasons for this is that
A. New auditors are usually assigned to an initial audit.
B. Predecessor auditors need to be consumed.
C. The client’s business, industry and internal control are unfamiliar to the auditor and
need to be carefully studied.
D. A larger proportion of customer accounts receivable need to be confirmed on an
initial audit.

11. The nature and extent of planning will vary according to the following, except
A. Size of the auditing firm
B. Nature and complexity of the entity
C. Auditor’s experience with the entity and knowledge of the business
D. Changes in circumstances that occur during the audit engagement

12. The overall audit strategy should be updated and changed as necessary during the course
of the audit.
The audit plans should not be updated and changed during the course of the audit, as
these are detailed plans and revising them would be impractical in most cases.
A. True, True, B. False, True

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 C. False, False D. True, False
13. Client strategy templates provide a means for an auditor to
A. Acquire, evaluate, and document evidence
B. Focus on transactions likely to affect audit risk
C. Compile the strategies and characteristics of an entity
D. Distinguish between engagement risk and audit risk

14. In developing an overall audit strategy, an auditor should consider:

A. Whether the allowance for sampling risks exceeds the achieved upper precision
limit
B. Findings from the substantive tests performed at interim dates.
C. Whether the inquiry of the client’s attorney identifies any litigation, claims, or
assessments not disclosed in the financial statements.
D. Preliminary evaluations of materials, audit risk, and internal control.

15. The following are the matters to be considered by the auditor in establishing the overall
audit strategy, except:
A. Defining the scope of the examination
B. Assess risk and materiality
C. Computation of audit fees
D. Ascertaining the reporting objectives of the engagement.

16. In developing the overall audit strategy for a new client, factor not considered is:
A. The terms of the engagement and any statutory responsibilities
B. The client’s business, including the structure of the organization and accounting
systems used
C. The specific procedures to be performed to gather audit evidences
D. The involvement of other auditors in the audit or components of the group

17. Which of the following is not considered by the auditor when preparing an overall audit
plan(strategy)?
A. The effect of information technology of the audit
B. The nature and timing of reports and other communication with the entity that are
expected under the engagement
C. The identification of complex accounting areas including those involving
accounting estimates
D. The content of the management representation letter

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18. Indicate whether the following functions would be performed by:
P- partner S- Senior
M- Manager AS – Audit Assistant
I. Supervises two or more concurrent audit engagement
II. Performs detailed audit procedures
III. Overall responsibility for audit
IV. Signs audit report
I II III IV
A. P AS S M
B. M AS M P
C. M AS P P
D. P AS S P

19. The senior auditor responsible for coordinating the field work usually schedules a pre-
audit conference with the audit team primarily to
A. Provide an opportunity to document staff disagreements regarding technical
issues
B. Establish the need for using the work of specialist and internal auditors
C. Discuss staff suggestions concerning the establishment and maintenance of time
budgets
D. Give guidance to staff regarding both technical and personal aspects of the audit

20. The in-charge auditor most likely would’ve a supervisory responsibility to explain to the
staff assistants
A. That immaterial fraud is not to be reported to the client’s audit committee
B. How the results of various auditing procedures performed by the assistants should
be evaluated
C. What benefits may be attained by the assistants’ adherence to established time
budgets
D. Why certain documents are being transferred from the current file to the permanent
file.

21. Who in a public accounting firm is most likely to schedule the audit staff to perform the
audit engagement?
A. Audit partner
B. Audit manager
C. Senior auditor or in-charge accountant
D. Junior auditor

22. Which of the following is an effective audit planning procedure that helps prevent
misunderstandings and inefficient use of audit personnel?
A. Arrange to make copies, for inclusion in the audit files, of those clients supporting
documents examined by the auditor
B. Arrange to provide the client with copies of the audit programs to be used during
the audit

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 C. Arrange a preliminary conference with the client to discuss audit objectives, fees,
timing and other information
D. Arrange to have the auditor prepare and post any necessary adjusting or
reclassification entries prior to final posing

23. The element of the audit planning process most likely to be agreed upon with the client
before implementation of the audit strategy is the determination of the
A. Methods of statistical sampling to be used in confirming accounts receivable
B. Pending legal matters to be included in the inquiry of the client’s attorney
C. Evidence to be gathered to provide sufficient basis for the auditor’s opinion
D. Schedule and analyses to be prepared by the client’s staff

24. The element of the audit planning process most likely to be agreed upon with the client
before implementation of the audit strategy is the determination of the
A. Timing of inventory observation procedures.
B. Evidence to be gathered to provide a sufficient and appropriate basis for the
auditor’s opinion.
C. Procedures to be undertaken in performing the audit.
D. Materiality and specific items to be tested.

25. Which of the following parties would normally attend a planning meeting held before the
beginning of an audit engagement to discuss relevant client information and the audit
approach to be taken in performing the engagement?
A. Engagement partner and the client’s chief financial officer
B. Engagement partner and audit manager
C. Engagement partner, audit manager, and senior auditor
D. Engagement partner, audit manager, senior auditor and junior audit staff members

PART 2
1. Which of the following statements is incorrect about audit planning documentation?
A. Although the precise form and content of the overall audit plan (overall audit
strategy) may vary, it should sufficiently be detailed to guide the development of
an audit program.
B. The audit plan and related audit program are not connected and should no longer
be changed once the audit has started.
C. The audit program should set out the nature, timing and extent of planned audit
procedures required to implement the overall audit plan.
D. In preparing audit program, the auditor should consider the specific assessments
of inherent and control risks and the required level of assurance to be provided by
substantive rests.

2. Which of the following tasks is most likely to be performed by an audit partner?

A. Analyzing a client’s key financial ratios
B. Assessing the quality of the client’s internal controls
C. Performing substantive tests of key balance sheet accounts
D. Reviewing the working papers

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3. Which of the following tasks is least likely to be performed by an audit manager assigned
to an engagement?
A. Reviewing working papers prepared by audit staff members
B. Confirming bank balances
C. Estimating the required allowance for obsolescence of inventories
D. Drafting a management letter at the conclusion of an engagement

4. Which of the following tasks is most likely to be performed by a firm partner on an audit
team engaged in the examination of the consolidated financial statements of a large
corporate client?
A. Estimating the required allowance for bad debt expense
B. Reviewing the work of junior staff accountants
C. Preparing the client’s consolidated income tax return
D. Advising the client on the choice of accounting policies to be used

5. Which of the following activities would usually be performed by the manager in a public
practice firm?
A. Deciding on the appropriate audit opinion
B. Liaising with the client with respect to the timing of audit work
C. Performing detailed tests of transactions and balances
D. Meeting with clients and potential clients to discuss the firm’s services

6. How can the audit strategy and audit program best be described at the beginning of the
audit process?
A. Tentative C. Comprehensive
B. Conclusive D. Optional

7. Which of the following is not one of the benefits why the auditor should properly plan
engagements?
A. Assist in the proper selection of engagement team members and the assignment
of work to them
B. Facilitate the direction and supervision of engagement team members and the
review of their work.
C. Assist in coordination of work done by auditors of components and experts.
D. Ensure gathering of sufficient appropriate audit evidence.

8. Which of the following procedures would an auditor least likely perform in planning a
financial statement audit?
A. Selecting a sample of vendor’s invoices for comparison to receiving reports.
B. Reading the current year’s interim financial statements.
C. Coordinating the assistance of the entity personnel in data preparation.
D. Discussing matters that may affect the audit with firm personnel responsible for
non-audit services to the entity.

9. Which of the following procedures would an auditor most likely include in the planning
phase of a financial statement audit?

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 A. Obtain an understanding of the entity’s risk assessment process.
B. Identify specific internal control activities designed to prevent fraud.
C. Evaluate the reasonableness of the entity’s accounting estimates.
D. Perform cutoff tests of the entity’s sales and purchases.

10. Which of the following factors would a CPA ordinarily consider in the planning stage of an
audit engagement?
I. Financial statement accounts likely to contain a misstatement.
II. Conditions that require extension of audit tests/
A. I only.
B. II only.
C. Both I and II.
D. Neither I nor II.

11. Which of the following is not typically included in initial audit planning?
A. Client acceptance/continuation decisions, including use of engagement letter.
B. Determination of the purpose of the audit.
C. Obtain an understanding with the client.
D. Perform analytical procedures as substantive tests.

12. Initial audit planning involves four matters. Which of the following is not one of these?
A. Develop an overall audit strategy.
B. Request that bank balances be confirmed
C. Schedule engagement staff and audit specialists
D. Identify the client’s reason for the audit.

13. Early appointment of the independent auditor will enable.

A. A more thorough examination to be performed.
B. A proper study and evaluation of internal control to be performed.
C. Sufficient competent evidential matter to be obtained.
D. A more efficient examination to be planned.

14. Which of the following statement is true with respect to planning meetings held at the
beginning of an audit engagement and debriefing meetings held at its conclusion?
A. Planning meetings are required by generally accepted auditing standards;
debriefing meetings are not so required.
B. Debriefing meetings are required by generally accepted auditing standards;
planning meetings are not so required.
C. Both planning meetings and debriefing meetings are required by generally
accepted auditing standards.
D. Neither planning meetings nor debriefing meetings are required by generally
accepted auditing standards.

15. Avoiding misunderstanding with the client is important for:

Good client Facilitating high-quality work
relations at a reasonable cost
A. Yes Yes

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B. No No
C. Yes No
D. No Yes

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