chapter 08.doc - Auditing and Assurance Services 16 e...

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Auditing and Assurance Services, 16 e Chapter 8 Audit Planning and Analytical Procedures 8.1 Learning Objective 8-1 1) A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued is the A) inherent risk. B) acceptable audit risk. C) statistical risk. D) financial risk. 2) The first phase in planning an audit and designing an audit approach is to 3) _______ is the risk that the financial statements contain a material misstatement due to fraud or error prior to the audit. 4) In what order should the following steps occur? A) D, B, C, A B) B, A, C, D C) B, D, A, C D) D, C, B, A 5) The auditor uses knowledge gained from the understanding of the client's business and industry to assess A) client business risk. B) control risk. C) inherent risk. D) audit risk.
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6) There are three main reasons why an auditor should properly plan audit engagements. Discuss each of these reasons. 7) When an auditor sets a low acceptable audit risk, it means that he wants to be more certain that the financial statements are not materially misstated. 8) As acceptable audit risk is decreased, the likely cost of conducting an audit increases. 9) Assessing acceptable audit risk, client business risk, and risk of material misstatement helps determine the audit procedures that will be needed. 10) A 100 % audit risk is complete certainty. 8.2 Learning Objective 8-2 1) One of the purposes of an engagement letter is to avoid misunderstandings with the client. This is important for Engagement objectives Engagement limitations Yes Yes Engagement objectives Engagement limitations No No Engagement objectives Engagement limitations Yes No Engagement objectives Engagement limitations No Yes
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