Exam AUD topic 1 question 375 discussion

Actual exam question from AICPA's AUD

Question #: 375
Topic #: 1

[All AUD Questions]

To obtain an understanding of a continuing client's business in planning an audit, an auditor most likely would:

A. Perform tests of details of transactions and balances.
B. Review prior-year audit documentation and the permanent file for the client.
C. Read specialized industry journals.
D. Reevaluate the client's internal control environment.

Show Suggested Answer

Suggested Answer: B 🗳️
Choice "B" is correct. Knowledge of an entity's business is ordinarily obtained through experience with the entity or its industry and inquiry of personnel of the entity. Audit documentation from prior years may contain useful information about the nature of the business, its organizational structure, its operating characteristics, and transactions that may require special consideration.
Choice "A" is incorrect. Tests of details of transactions and balances are not performed during the planning stage of an audit.
Choice "C" is incorrect. Reading industry journals would provide information about the industry in which the entity operates, but reviewing prior-year audit documentation and the permanent file would provide a more thorough understanding of the specific client's business.
Choice "D" is incorrect. The client's internal control is not reevaluated during the planning stage of an audit.

by gemazyni at April 5, 2025, 4:33 p.m.

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