LSU ACCT 3222 Auditing: A Practical
Approach with question and Answer Exam 1
Comprehensive Prep 2025/2026: Pass on Your
First Attempt
out acct policies, auditing procedures, or other
significant matters 3. Communications to those
charged with governance re: fraud and
noncompliance with laws or regulations by the entity
4. Communications to mgmt and those charged with
governance re: significant deficiencies and material
weaknesses to IC 5. Predecessor auditor's
understanding about the reasons for the change of
auditors Engagement letter - ANSWER//Sets out
the terms of the audit engagement, to avoid any
misunderstandings between the auditor and the
client Engagement letter should include -
ANSWER//Scope of the audit Timing of the
completion of various aspects of the audit Overview
of the client's responsibility for prep of F/S
Requirement that auditor have access to all info
required to perform the audit Independence
considerations and fees Objective of engagement -
ANSWER//Express opinion of F/S Auditor's
responsiblitites - ANSWER//Conduct audit in
accordance with stds (ASB/PCAOB) Mgmt's
responsibilities - ANSWER//FC, IC, following laws,
making records available to auditors, making
adjustments Limitations of audit -
ANSWER//reasonable assurance fees/timing other
matters Phases of an audit - ANSWER//Risk
Assessment Phase Risk Response Phase
Reporting Phase Risk Assessment Phase -
,ANSWER//Gaining an understanding of the client,
identifying risk factors, developing an audit strategy,
and setting planning materiality Audit Strategy -
ANSWER//the determination of the amount of time
spent testing the client's internal controls and
conducting detailed testing of transactions and
account balances Risk Response Phase -
ANSWER//performing tests of controls and detailed
substantive testing of transactions and accounts,
concentrating effort where the risk of material
misstatement is greatest Reporting Phase -
ANSWER//evaluation of the results of the detailed
testing in light of the auditor's understanding of the
client and forming an opinion on the fair
presentation of the client's financial statements
Audit Risk - ANSWER//The risk that the auditor
expresses an inappropriate audit opinion when the
financial statements are materially misstated. Based
on audit assessment auditors develop _______ to
be ____ & __________. - ANSWER//Audit strategy
to optimize efficiency and effectiveness. Effeciency
refers to - ANSWER//the amount of time spent
gathering audit evidence Effectiveness refers to -
ANSWER//minimizing audit risk Auditors will spend
more time on ______ and the goal is _______ -
ANSWER//More time on high risk areas. Goal:
minimize audit risk Something is material if it -
ANSWER//affects a decision made by an average
prudent investor (a reasonable person) Materiality
definition - ANSWER//The ability of information to
influence decisions that users make on the basis of
the financial information of a specific reporting entity
PCAOB AS 2105 on materiality includes -
,ANSWER//information is material if there is
substantial likelihood that the ... fact would have
been viewed by a reasonable investor as having
significantly altered the total mix of information
made available Overall or planning materiality
guides audit planning - ANSWER//and testing for
the F/S as a whole Qualitative materiality -
ANSWER//Information or misstatements that impact
a user's decision-making process for a reason other
than the magnitude - nature of misstatement (i.e.,
fraud) Quantitative Materiality -
ANSWER//Information or misstatements that
exceed the magnitude of an auditor's preliminary
materiality assessment, which is a percentage of an
appropriate benchmark - magnitude of
misstatement (i.e., car payment example) When
determining planning materiality, auditors will use -
ANSWER//professional judgment and are mindful of
the primary users of the financial statements (% of a
benchmark) Materiality benchmarks -
ANSWER//Auditors can choose an item from BS or
IS. BS usually total assets or equity. IS usually profit
before tax or total revenue. Auditing standards
mention benchmarks, but - ANSWER//the
standards do not recommend any specific
percentages. Auditors rely heavily on professional
judgment Most common materiality benchmark -
ANSWER//5% of income before taxes Performance
materiality - ANSWER//Amount or amounts set by
the auditors at less than the materiality level for
particular classes of transactions, account balances,
or disclosures - breakdown planning materiality for
each account The use of performance materiality
, should - ANSWER//reduce the probability that the
sum of immaterial and/or undetected misstatements
in the F/S is greater than materiality for the F/S as a
whole. Requires professional judgment not a simple
mechanical calculation Materiality level is a starting
point for auditors to: - ANSWER//1. Determine the
type and extent of risk assessment procedures to
be performed 2. ID and assess the risk of material
misstatements occurring in the F/S level and the
account balance level 3. Begin development of an
audit strategy Higher $ materiality = -
ANSWER//Less audit evidence (less work) Lower
$ materiality = - ANSWER//more audit evidence
(more work) AU-C 200.A22 states auditors should
be skeptical if the following arise: - ANSWER//-
Audit evidence recently gathered that is
contradictory to other evidence previously gathered
- New info that brings into question the reliability of
client documents or responses to auditor inquiries -
Conditions that may provide evidence of possible
fraud - Situations that indicate the need for
additional audit procedures beyond what is required
by GAAS Professional Skepticism means that
auditors should - ANSWER//gather reliable
evidence to support management's responses and
to support amounts and disclosures in the F/S.
What questions should auditors keep in mind
throughout all phases of the audit? - ANSWER//Is
this information reliable? Do we need to perform
more audit procedures? Inherent Risk -
ANSWER//The susceptibility of an assertion to a
misstatement that could be material, either
individually or when aggregated with other
Approach with question and Answer Exam 1
Comprehensive Prep 2025/2026: Pass on Your
First Attempt
out acct policies, auditing procedures, or other
significant matters 3. Communications to those
charged with governance re: fraud and
noncompliance with laws or regulations by the entity
4. Communications to mgmt and those charged with
governance re: significant deficiencies and material
weaknesses to IC 5. Predecessor auditor's
understanding about the reasons for the change of
auditors Engagement letter - ANSWER//Sets out
the terms of the audit engagement, to avoid any
misunderstandings between the auditor and the
client Engagement letter should include -
ANSWER//Scope of the audit Timing of the
completion of various aspects of the audit Overview
of the client's responsibility for prep of F/S
Requirement that auditor have access to all info
required to perform the audit Independence
considerations and fees Objective of engagement -
ANSWER//Express opinion of F/S Auditor's
responsiblitites - ANSWER//Conduct audit in
accordance with stds (ASB/PCAOB) Mgmt's
responsibilities - ANSWER//FC, IC, following laws,
making records available to auditors, making
adjustments Limitations of audit -
ANSWER//reasonable assurance fees/timing other
matters Phases of an audit - ANSWER//Risk
Assessment Phase Risk Response Phase
Reporting Phase Risk Assessment Phase -
,ANSWER//Gaining an understanding of the client,
identifying risk factors, developing an audit strategy,
and setting planning materiality Audit Strategy -
ANSWER//the determination of the amount of time
spent testing the client's internal controls and
conducting detailed testing of transactions and
account balances Risk Response Phase -
ANSWER//performing tests of controls and detailed
substantive testing of transactions and accounts,
concentrating effort where the risk of material
misstatement is greatest Reporting Phase -
ANSWER//evaluation of the results of the detailed
testing in light of the auditor's understanding of the
client and forming an opinion on the fair
presentation of the client's financial statements
Audit Risk - ANSWER//The risk that the auditor
expresses an inappropriate audit opinion when the
financial statements are materially misstated. Based
on audit assessment auditors develop _______ to
be ____ & __________. - ANSWER//Audit strategy
to optimize efficiency and effectiveness. Effeciency
refers to - ANSWER//the amount of time spent
gathering audit evidence Effectiveness refers to -
ANSWER//minimizing audit risk Auditors will spend
more time on ______ and the goal is _______ -
ANSWER//More time on high risk areas. Goal:
minimize audit risk Something is material if it -
ANSWER//affects a decision made by an average
prudent investor (a reasonable person) Materiality
definition - ANSWER//The ability of information to
influence decisions that users make on the basis of
the financial information of a specific reporting entity
PCAOB AS 2105 on materiality includes -
,ANSWER//information is material if there is
substantial likelihood that the ... fact would have
been viewed by a reasonable investor as having
significantly altered the total mix of information
made available Overall or planning materiality
guides audit planning - ANSWER//and testing for
the F/S as a whole Qualitative materiality -
ANSWER//Information or misstatements that impact
a user's decision-making process for a reason other
than the magnitude - nature of misstatement (i.e.,
fraud) Quantitative Materiality -
ANSWER//Information or misstatements that
exceed the magnitude of an auditor's preliminary
materiality assessment, which is a percentage of an
appropriate benchmark - magnitude of
misstatement (i.e., car payment example) When
determining planning materiality, auditors will use -
ANSWER//professional judgment and are mindful of
the primary users of the financial statements (% of a
benchmark) Materiality benchmarks -
ANSWER//Auditors can choose an item from BS or
IS. BS usually total assets or equity. IS usually profit
before tax or total revenue. Auditing standards
mention benchmarks, but - ANSWER//the
standards do not recommend any specific
percentages. Auditors rely heavily on professional
judgment Most common materiality benchmark -
ANSWER//5% of income before taxes Performance
materiality - ANSWER//Amount or amounts set by
the auditors at less than the materiality level for
particular classes of transactions, account balances,
or disclosures - breakdown planning materiality for
each account The use of performance materiality
, should - ANSWER//reduce the probability that the
sum of immaterial and/or undetected misstatements
in the F/S is greater than materiality for the F/S as a
whole. Requires professional judgment not a simple
mechanical calculation Materiality level is a starting
point for auditors to: - ANSWER//1. Determine the
type and extent of risk assessment procedures to
be performed 2. ID and assess the risk of material
misstatements occurring in the F/S level and the
account balance level 3. Begin development of an
audit strategy Higher $ materiality = -
ANSWER//Less audit evidence (less work) Lower
$ materiality = - ANSWER//more audit evidence
(more work) AU-C 200.A22 states auditors should
be skeptical if the following arise: - ANSWER//-
Audit evidence recently gathered that is
contradictory to other evidence previously gathered
- New info that brings into question the reliability of
client documents or responses to auditor inquiries -
Conditions that may provide evidence of possible
fraud - Situations that indicate the need for
additional audit procedures beyond what is required
by GAAS Professional Skepticism means that
auditors should - ANSWER//gather reliable
evidence to support management's responses and
to support amounts and disclosures in the F/S.
What questions should auditors keep in mind
throughout all phases of the audit? - ANSWER//Is
this information reliable? Do we need to perform
more audit procedures? Inherent Risk -
ANSWER//The susceptibility of an assertion to a
misstatement that could be material, either
individually or when aggregated with other
