1.

Planning the assignment

Hand note:

Year Q Question Mark Practice

No s (Yes/ No)
June 2 Discuss in brief ‘Audit Strategy’ and ‘Audit Plan’.
2010
May 3b Distinguish between Audit Strategy and Audit Plan.
2014
Year Q Question Mark Practice
No s (Yes/ No)
June 2 Which three of the following would normally be contained in the overall
2010 audit strategy?
• The contract between the audit firm and the client
• The result of audit risk assessment
• Calculation of preliminary materiality
• Detailed plan of audit procedures to be carried out
• List of staff to be involved with the audit
Year Q Question Mark Practice
No s (Yes/ No)
2010 1a Which of the following procedures might an auditor use in gaining an
understanding of the entity?
(i) Inquiry
(ii) Recalculation
(iii) Analytical procedures
(iv) Reperformance of a control
(v) Observation and inspection.
2010 1b The audit team is required to discuss susceptibility of the financial statements to
material statements
Setting Materiality
Year Q Question Mark Practice
No s (Yes/ No)
Dec 3b Define ‘Materiality’ in assurance work
2010
Dec 1c Define materiality
2012
Dec 4a Explain materiality in the context of an audit, from the point of view of an
2014 Auditor
Dec 4b How should auditor determine materiality during a financial audit? Is
2014 there any golden rule to quantify materiality level?
Dec 4c How does materiality assessment and fixation help to control an audit?
2014
Dec 4a Explain materiality in the context of an audit, from the point of view of an
2015 auditor
Dec 4b How should auditor determine materiality during an audit? Is there any
2015 golden rule to quantify materiality level?
Dec 4c How does materiality assessment and fixation help to control an audit?
2015
Dec 4a Explain materiality in the context of an audit, from the point of view of an
2017 auditor
Dec 4b How does materiality assessment and fixation help to control an audit?
2017
Audit risk: The risk that the auditors give an inappropriate opinion on the financial statements.

Audit risk has two elements, the risk that the financial statements contain a material misstatement and the
risk that the auditors will fail to detect any material misstatements.

AUDIT RISK = RISK OF MATERIAL MISSTATEMENT + DETECTION RISK

Risk of material misstatement in the financial statements has two elements, inherent and control risk.

Inherent risk: The susceptibility of an account balance or class of transactions to misstatement that could be
material individually or when aggregated with misstatements in other balances or classes, assuming there were
no related internal controls.

Control risk: The risk that a material misstatement would not be prevented, detected or corrected by the
accounting and internal control systems

Detection risk: The risk that the auditors' procedures will not detect a misstatement that exists in an account
balance or class of transactions that could be material, either individually or when aggregated with
misstatements in other balances or classes.
Self Test:

Past Questions:
Year Q Question Mark Practice
No s (Yes/ No)
June 6a What is Audit Risk? What are the different types of Audit Risk? For each of the
2010 following examples, indicate the type of risk illustrated:
i. Vendors’ payments are processed, booked and reconciled in the system by the
same person in the Accounts Department.
ii. The organization is highly connected with the building trade.
iii. The assurance firm may do insufficient work to detect material errors.
iv. The financial statements contain a number of estimates.
June 6a If control and internal risk are assessed as sufficiently low, substantive procedures
2010 can be abandoned completely

Dec 3 What is Audit Risk? What are the different types of Audit Risk? For each of the
2011 following examples, indicate the type of risk:
a) Vendor’s payments are processed, booked and reconciled in the system by the
same person in the
Accounts Department.
b) The assurance firm may do insufficient work to defect material errors.
c) The financial statements contain a number of estimates.
Dec 1c Describe the relationship between materiality and audit risk and how audit risk can
2012 be reduced to an acceptable level?
Year Q Question Mark Practice
No s (Yes/ No)
Dec 3b Which factors indicate a risk might be a significant risk?
2010