Audit Planning Fundamentals and Procedures

Who holds the primary responsibility for planning the audit engagement and supervising its performance?

The engagement partner

If the engagement partner seeks assistance from other team members during planning, how does their responsibility change?

The engagement partner retains primary responsibility for the engagement.

Audit planning involves establishing the overall strategy and developing a(n) ____.

audit plan

Why is audit planning described as a continual and iterative process rather than a discrete phase?

It evolves in response to changes in circumstances and information discovered during the audit.

At what point in the audit cycle might the planning process for the current audit begin?

Shortly after or in connection with the completion of the previous audit.

How long does the audit planning process typically continue?

Until the completion of the current audit.

What specific procedures must the audit plan include regarding identified risks of material misstatement?

Planned responses to the risks

With which body must the auditor establish an understanding of the terms of the audit engagement during preliminary activities?

The audit committee

When should the auditor reevaluate the determination of compliance with independence and ethics requirements?

Whenever changes in circumstances occur during the audit.

In auditing standards, how are 'Other Auditors' defined in relation to the lead auditor?

Separate firms whose work the lead auditor actively supervises and takes responsibility for.

In auditing standards, how are 'Referred-to Auditors' defined?

Separate firms that audit specific business units and issue their own separate audit reports.

How does the lead auditor handle responsibility when using referred-to auditors?

Responsibility is divided, and the lead auditor explicitly refers to the other firm's report.

Who is responsible for determining if the firm's participation is sufficient to act as the lead auditor?

The engagement partner

Name one of the three elements the engagement partner must justify to serve as the lead auditor in a multi-firm audit.

Relative risk of material misstatement

What is the secondary element an engagement partner must justify to act as lead auditor?

Extent of supervision

What is the third element an engagement partner must justify to act as lead auditor?

Location and business unit importance

The percentage of total assets audited directly by the lead firm is considered what type of factor for unit importance?

Quantitative

What type of factor is being assessed when an auditor considers the strategic importance of a business unit?

Qualitative

A firm is ordinarily not the lead auditor if referred-to auditors, in aggregate, audit more than what percentage of assets or revenues?

$50 \% $

Which firm is the only one permitted to serve as the lead auditor for internal control over financial reporting?

The lead auditor of the financial statements

What must the lead auditor obtain from other auditors regarding SEC and PCAOB independence compliance?

A written affirmation

What action should a lead auditor take if they find information that contradicts an other auditor's independence affirmation?

Investigate the circumstances and consider the reliability of the affirmation.

Under what condition may a lead auditor use the work of an other auditor who plays a 'substantial role' in the audit?

The other auditor must be registered with the PCAOB.

To understand other auditors' capabilities, the lead auditor should assess the other team's industry experience and knowledge of ____.

PCAOB standards

The lead auditor must confirm they can communicate with other auditors and access their ____.

audit documentation

Identify one factor that dictates the nature and extent of necessary audit planning activities.

Size and complexity of the company

How do 'fewer business lines' affect the assessment of a company's operational complexity?

They indicate less complex operations.

What is the primary function of the overall audit strategy?

To set the scope, timing, and direction of the audit.

The audit plan must document risk assessment procedures, tests of controls, and ____.

substantive procedures

In multi-location audits, how should audit attention be correlated with specific business units?

Attention should correlate with the degree of risk of material misstatement at each location.

What factor is relevant to assessing the risk of material misstatement at a specific location in a multi-location audit?

The nature and amount of assets and transactions at the location.

When should an auditor modify the overall audit strategy and the audit plan?

If the assessment of the risks of material misstatement is revised during the audit.

What level of knowledge must an auditor have regarding a specialist's subject matter?

Sufficient knowledge to communicate objectives and evaluate if procedures meet those objectives.

Which specific activity is required before starting an initial audit engagement that is not required for a recurring one?

Communication with the predecessor auditor

In an initial audit, planning must specifically address obtaining evidence regarding what start-of-period items?

Opening balances

When establishing the audit strategy, the auditor considers the nature, timing, and ____ of resources.

extent

How should an auditor utilize previously communicated control deficiencies during the planning phase?

Evaluate their importance to the financial statements and their effect on current procedures.

The lead auditor's level of supervision over other auditors at specific locations should be commensurate with ____.

the risks of material misstatement at those locations

How do the purpose and objective of planning for an initial audit compare to a recurring audit?

They are the same.

What is Step 1 of the audit process sequence?

Perform Preliminary Engagement Activities

What is Step 2 of the audit process sequence?

Information Gathering Evaluation

What is Step 3 of the audit process sequence?

Establish the Overall Audit Strategy

What is Step 4 of the audit process sequence?

Develop and Document the Detailed Audit Plan

What is Step 5 of the audit process sequence?

Plan for Specialized Auditing Needs

What is Step 6 of the audit process sequence?

Continually Monitor and Adjust the Plan

In which audit process step does the auditor establish formal audit terms?

Step 1: Preliminary Engagement Activities

In which audit process step does the auditor assess industry rules and initial materiality?

Step 2: Information Gathering Evaluation

In which audit process step are resource needs, such as valuation experts, determined?

Step 3: Establish the Overall Audit Strategy

In which audit process step is the exact nature, timing, and extent of testing responses documented?

Step 4: Develop and Document the Detailed Audit Plan

In which audit process step are locations selected for testing based on risk?

Step 5: Plan for Specialized Auditing Needs

If new risks are found during testing, which step requires the auditor to update the strategy?

Step 6: Continually Monitor and Adjust the Plan

The lead auditor must obtain a written affirmation that the other auditor's team has the knowledge, skill, and ____ to perform tasks.

ability

What is the primary indicator of Location and Business Unit Importance in a quantitative assessment?

Percentage of total assets or revenues

Why must the lead auditor have access to an other auditor's documentation?

To fulfill supervision and review responsibilities

Concept: Substantive Procedures

Definition: Audit steps designed to detect material misstatements at the assertion level.

Concept: Tests of Controls

Definition: Procedures used to evaluate the operating effectiveness of controls.

The auditor should perform procedures regarding the continuance of the client relationship at the ____ of the audit.

beginning

When should the auditor determine compliance with ethics requirements?

At the beginning of the audit and throughout as circumstances change.

Who can be included in an 'appropriate engagement team' besides members of the partner's firm?

Members outside of the engagement partner's firm

Audit planning includes both the overall strategy and the ____.

audit plan

How should an auditor adjust audit attention in multi-location engagements?

Correlate it with the risk of material misstatement at each unit.

Which auditor category requires the lead firm to divide responsibility rather than supervise work?

Referred-to Auditors

Initial materiality is determined during which step of information gathering?

Step 2