Overall Audit PlanOverall Audit Planand Audit Programand Audit Program

Chapter 13Chapter 13

Types of Audit TestsTypes of Audit Tests

Procedures to obtain an understandingProcedures to obtain an understandingof internal control of internal control (Ch 10)(Ch 10)

Focused on understanding the design and Focused on understanding the design and operation of aspects of I/C necessary to plan operation of aspects of I/C necessary to plan the rest of the auditthe rest of the audit

Tests of control Tests of control (Ch 10)(Ch 10)

Procedures used to obtain evidenceProcedures used to obtain evidenceneeded to assess control risk.needed to assess control risk.

Types of Audit TestsTypes of Audit Tests

Analytical procedures Analytical procedures (Ch 8)(Ch 8)

• To indicate possible misstatementsTo indicate possible misstatements• To reduce tests of details of balancesTo reduce tests of details of balances

Tests of details of balancesTests of details of balancesFocus on ending G/L balancesFocus on ending G/L balances

Substantive tests of transactionsSubstantive tests of transactionsProcedures designed to test for dollarProcedures designed to test for dollar

misstatements of financial statementmisstatements of financial statementbalances.balances.

Types of Audit Tests and the Types of Audit Tests and the Audit Risk ModelAudit Risk Model

Audit riskAudit riskmodelmodel

Types ofTypes ofauditauditteststests

ProceduresProceduresto obtain anto obtain an

understandingunderstandingof internal controlof internal control

Tests ofTests ofcontrolscontrols(TOC)(TOC)

SubstantiveSubstantivetests oftests of

transactionstransactions(STOC)(STOC)

+ +

AARAARIR × CRIR × CR = PDR= PDR

Types of Audit Tests andTypes of Audit Tests andthe Audit Risk Modelthe Audit Risk Model

Audit riskAudit riskmodelmodel

Types ofTypes ofauditauditteststests

AnalyticalAnalyticalproceduresprocedures

(AP)(AP)

Tests ofTests ofdetails ofdetails ofbalancesbalances

(TDP)(TDP)

SufficientSufficientcompetentcompetentevidenceevidenceper GASSper GASS

+ =

AARAARIR × CRIR × CR = PDR= PDR

Relationship Between Types of Relationship Between Types of Tests and Evidence Tests and Evidence (Table 13-2)(Table 13-2)

Type of TestType of Test

Procedures for I/CProcedures for I/C

Tests of controlsTests of controls

Substantive T.O.T.Substantive T.O.T.

Analytical proceduresAnalytical procedures

Tests of detailsTests of details

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Audit Assurance at Different Levels of Audit Assurance at Different Levels of Internal Control Effectiveness Internal Control Effectiveness (Figure 13-3)(Figure 13-3)

AcceptableAcceptableassuranceassurance

NoNoassuranceassurance

INTERNAL CONTROL EFFECTIVENESSINTERNAL CONTROL EFFECTIVENESSWeak controlWeak control Strong controlStrong control

Reliance on controls: CReliance on controls: C33 – None, C – None, C22 – Some, C – Some, C11 – Maximum – Maximum

Audit assuranceAudit assurancefrom control riskfrom control riskassessment andassessment andtests of controltests of control

Audit assuranceAudit assurancefrom substantivefrom substantiveteststests

AA CC BB

CC33

CC22

CC11

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Impact of Information Technology onImpact of Information Technology onAudit TestingAudit Testing

SAS 80 (AU 326) and SAS 94 (AU 319)SAS 80 (AU 326) and SAS 94 (AU 319)provide guidance for auditors of entitiesprovide guidance for auditors of entitiesthat transmit, process, maintain, or accessthat transmit, process, maintain, or accesssignificant information electronically.significant information electronically.

Impact of Information Technology on Impact of Information Technology on Audit TestingAudit Testing

Computer assisted audit techniques (CAATS)Computer assisted audit techniques (CAATS)may be used to test automated controls or data.may be used to test automated controls or data.

Reports produced by IT may be used to testReports produced by IT may be used to testthe effectiveness of IT general controls.the effectiveness of IT general controls.

Program change controlsProgram change controls Access controlsAccess controls

Variations in Evidence MixVariations in Evidence Mix

Designing the Audit ProgramDesigning the Audit Program

It is convenient to think of the audit program as It is convenient to think of the audit program as consisting of the three major classes of tests:consisting of the three major classes of tests:

1.1. Tests of controlsTests of controls2.2. Substantive tests of transactionsSubstantive tests of transactions3.3. Analytical proceduresAnalytical procedures

Auditing standards require auditors to use a Auditing standards require auditors to use a Written audit program.Written audit program.

Remainder of Chapter to be Remainder of Chapter to be Covered Next MondayCovered Next Monday