chapter 13 auditing and assurance services
TRANSCRIPT
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Overall Audit Plan
and Audit Program
Chapter 13
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Midterm topic guide will be ready andposted to the website by sometime
Saturday (2/25)
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Types of Audit Tests
Procedures to obtain an understanding
of internal control (Ch 10)Focused on understanding the design and
operation of aspects of I/C necessary to planthe rest of the audit
Tests of control (Ch 10)Procedures used to obtain evidenceneeded to assess control risk.
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Types of Audit Tests
Analytical procedures (Ch 8)
To indicate possible misstatements
To reduce tests of details of balances
Tests of details of balances
Focus on ending G/L balances
Substantive tests of transactions
Procedures designed to test for dollar
misstatements of financial statement
balances.
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Types of Audit Tests and the
Audit Risk Model
Audit riskmodel
Types ofaudittests
Proceduresto obtain anunderstanding
of internal control
Tests ofcontrols(TOC)
Substantivetests oftransactions
(STOC)
+ +
AAR
IR CR= PDR
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Types of Audit Tests and
the Audit Risk Model
Audit riskmodel
Types ofaudittests
Analyticalprocedures
(AP)
Tests ofdetails ofbalances
(TDP)
Sufficientcompetentevidenceper GASS
+ =
AAR
IR CR= PDR
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Relationship Between Types of
Tests and Evidence (Table 13-2)
Type of Test
Procedures for I/C
Tests of controls
Substantive T.O.T.
Analytical procedures
Tests of details
Physical
examina
tion
Confirmation
Docume
ntation
Observation
Type of Evidence
Inquiries
of
theclien
t
Reperfo
rmance
Analytic
al
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Audit Assurance at Different Levels of
Internal Control Effectiveness (Figure 13-3)
Acceptableassurance
Noassurance
INTERNAL CONTROL EFFECTIVENESSWeak control Strong control
Reliance on controls: C3 None, C2 Some, C1 Maximum
Audit assurancefrom control riskassessment andtests of control
Audit assurancefrom substantivetests
A C B
C3
C2
C1
AUDITASS
URANCE
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Impact of Information Technology on
Audit Testing
SAS 80 (AU 326) and SAS 94 (AU 319)
provide guidance for auditors of entities
that transmit, process, maintain, or accesssignificant information electronically.
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Impact of Information Technology on
Audit Testing
Computer assisted audit techniques (CAATS)
may be used to test automated controls or data.
Reports produced by IT may be used to test
the effectiveness of IT general controls.
Program change controls Access controls
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Variations in Evidence Mix
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Chapter 13 starts putting thepieces of the audit together.
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Audit Program
Tests of controls andsubstantive tests of transactions
Analytical procedures
Tests of details and balances
It is convenient to think of the audit program as
consisting of the three major classes of tests:
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Role of Audit Tests: Sales & Collection
Cycle Example(Fig 13-2)
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Designing Controls and Substantive Tests
of Transactions (Figure 13-4)
Perform procedures to
understand internal
control.
Audit procedures
Sample size
Items to select
Timing
Assess control risk.
Determine extent of
testing controls.
Design tests of controls
and substantive tests
of transactions to meet
transaction-relatedaudit objectives.
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Approach to Designing
Tests of Details of
Balances (Figure 13-6)
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Partial View of Table 13-4
Tests of Details of Balances Audit Program
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Phases of the Audit Process
1. Plan and design an audit approach.
2. Perform tests of controls and substantive
tests of transactions.
3. Perform analytical procedures and tests
of details of balances.
4. Complete the audit and issue an audit report.
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Audit Objectives (Ch. 6)
Transaction-related1. Existence
2. Completeness
3. Accuracy
4. Classification
5. Timing
6. Posting and
summarization
Balance-related1. Existence
2. Completeness
3. Accuracy
4. Classification
5. Cutoff
6. Detail tie-in
7. Realizable value8. Rights and obligations
9. Presentation and
disclosure
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Types of Evidence (Ch. 7)
1. Physical examination
2. Confirmation
3. Documentation4. Analytical procedures
5. Observation
6. Inquiry of the client7. Reperformance
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Summary of the Audit Process
Phase IPlan and designan audit approach.
Phase II
Perform tests of
controls andsubstantive testsof transactions.
Phase III
Perform analyticalprocedures andtests of detailsof balances.
Phase IV
Complete the
audit and issuean audit report.
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Summary of the Audit Process:
Phase I
Accept client and perform initial planning.
Understand the clients business and industry.
Assess clients business risk.
Perform preliminary analytical procedures.
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Summary of the Audit Process:
Phase I
Set materiality and assess acceptable
audit risk and inherent risk.
Understand internal control and assess control risk.
Gather information to assess fraud risks.
Develop overall audit plan and audit program.
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Summary of the Audit Process:
Phase II
Perform substantive tests of transactions.
No
Yes
Perform tests of controls.
Assess likelihood of misstatements infinancial statements.
Plan to reduceassessed levelof control risk?
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Summary of the Audit Process:
Phase III
Perform analytical procedures.
Perform tests of key items.Perform additional tests of detailsof balances.
Low MediumHigh or
unknown
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Summary of the Audit Process:
Phase IVReview for contingent liabilities.
Review for subsequent events.
Accumulate final evidence.
Evaluate results.
Issue audit report.
Communicate with auditcommittee and management.