5 Types of Audit Tests
Tests of Details of Balances
focus on the ending general ledger balances for both balance sheet and income statement accounts; emphasis is mostly on the balance sheet; help establish the monetary correctness of the accounts they relate to and therefore are substantive test; the extent of these tests depends on the results of tests of controls, substantive tests of transactions, and substantive analytical procedures
Analytical Procedures
comparisons of recorded amounts to expectations developed by the auditor; must be done during planning and completing the audit; two most important purposes of analytical procedures in the audit of account balances are to indicate possible misstatements and provide substantive evidence.
Two types of Evidence for Analytical Procedures
1.) Calculating the gross margin in the completing and planning phases 2.) Predicting the ending balance and comparing the recorded balance to the prediction
Two Types of Evidence for Tests of Details of Balances
1.) Confirmation of customer balances for accounts receivable 2.) Physical examination of inventory
Two Types of Evidence for Tests of Controls
1.) Inquiries of appropriate client personnel 2.) Examining documents, records, and reports
Five Types of Audit Tests
1.) Risk Assessment Procedures 2.) Test of Controls 3.) Substantive Tests of Transactions 4.) Analytical Procedures 5.) Tests of Details of Balances
Two types of Evidence for Substantive Tests of Transactions
1.) Verifying the recording and summarizing of sales and cash receipts transactions 2.) making sure recorded sales transactions exist and existing sales are recorded
Risk Assessment Procedures
Collectively, procedures performed to obtain an understanding of the entity and its environment, including internal controls, represent the auditor's risk assessment procedures; Performed to assess the risk of material misstatement in the financial statements; A major part of the auditor's risk assessment procedures are done to obtain an understanding of internal control
Substantive Tests of Transactions
Substantive Tests are procedures designed to test for dollar misstatements that directly affect the correctness of financial statement balances; Substantive tests of transactions are used to determine whether all six transaction related audit objectives have been satisfied for each class of transactions
Tests of Controls
The auditor's understanding of internal controls is used to assess control risk for each transaction-related audit objective;