- Setting the audit objectives and criteria Audit Objectives are broad statements developed by auditors and define intended audit accomplishments. While planning the auditing it is necessary to set the audit objective first because after that
- Assessment of skill and knowledge required for the conduct of the performance audit (b) Define what an analytical procedure is and give at least three procedures that should be performed and their purpose. For example, comparison of last year’s Allowance for Doubtful Accounts to this year’s Allowance for Doubtful accounts – the amount has decreased by 25%, while sales have increased by 10% from last year. How might this affect how you look at Accounts Receivables and the related Allowance for Doubtful Accounts? Would you increase or decrease your audit procedures? (c) Why does an auditor need to understand the client’s business and their industry? Provide an industry and what risks may that industry pose to our client. Solution: The key to an effective and efficient audit is to obtain the understanding of the business of client because the understanding of the business of client will: - enable the auditor in conducting the audit in an informed manner - enable the auditor to appreciate which transactions and events will likely to have effect on the financial statements - maximize the efficiency of the auditor - assess the control and inherent risks in the key areas of audit significance - help the auditor in developing the audit strategy - help the auditor in identifying the areas of high risk. Question 3.3. (TCO H) Audit Risk consists of inherent risk, control risk, and detection risk. (a) Please completely define each of the above. (b) Indicate whether each of the statements below is true or false and explain your position:
(1) The risk that material misstatement will not be prevented or detected on a timely basis by internal controls can be reduced to zero by having effective controls in place. (2) Detection Risk is a function of the efficiency of an auditing procedure. (3) Cash is more susceptible to theft than an inventory of coal because it has greater inherent risk? (4) The Inherent risk of the theft of an inventory of cellphones at a mall store is greater than the misappropriation of cash at a COSTCO Store? Answer 3.3b) 1) The statement is false.
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- Spring '11