Chapter 13

Relative costs

Least Expensive -Analytical Procedures -Risk Assessment Procedures -Test of Controls -Substantive test of transactions Test of details of Balances Most expensive

Design Audit Program

Part 1 -Test of controls and substantive test of transactions Part 2 -Analytical Procedures Part 3 -Test of details of balances

Substantive Tests

Substantive tests are procedures designed to test for dollar misstatements that directly affect the correctness of F/S balances -Substantive test of transactions -Substantive Analytical procedures -Test of details of balances

Part 1: substantive test of transactions

-Apply the transaction-related audit objectives to the class of transactions being tested -Identify controls that should reduce control risk for each audit objective -Develop appropriate test of controls -Design substantive test of transactions

Test of Details of Balances

-Focus on the ending ledger balances for both B/S and I/S accounts -the emphasis in most tests is on the balance sheet -Tests of ending balances are essential because the evidence is usually obtained from independent sources

Analytical Procedures

-Involve comparisons of recorded amounts to expectations developed by the auditor -2 most important purposes -Indicate possible misstatements in F/S -Provide substantive evidence -analytical procedures are a type of substantive tests when performed to provide evidence about an account balance

Types of evidence

-Make inquiries or appropriate client personnel -Examine documents, records, and reports -Observe control-related activities -Re-perform client procedures

Types of tests

-Risk assessment Procedures (IR+CR) -Test of controls (TOC) -Substantive tests of transactions (STOT) -Analytical Procedures -Tests of details of balances (TDB)

Analytical Procedures

-analytical procedures performed during substantive testing are more typically focused and more extensive than that done as part of planning

Test of Controls

-auditors understanding of internal control is used to assess control risk for each transaction-related audit -To obtain sufficient evidence to support the assessment, the auditor perform test of controls

Factors affecting the Choice of Test

1. Availability of types of evidence 2. the relative costs of each type of test 3.Effectiveness of internal control 4.Inherent risks

Evidence Decision

1. audit Procedures 2.Sample Size 3.Items to Select 4.Timing of Performance

TODB must satisfy

1.Existence 2.Completeness 3.Accuracy 4.Classification 5.Cut-off 6.Detail Tie-In 7.Realizable value 8.Rights and obligations

Types of Evidence

1.Physical examination 2.Confirmation 3.Documentation 4.Analytical Procedures 5.Observations 6.Inquiry of Client 7.Reperformance

Phases of Audit Process

1.Plan and design an audit approach 2.Perform tests of controls and substantive test of transactions 3.Perform analytical procedures and test of detail of balances 4.Complete the audit and issue an audit report

Substantive test of Transactions

Are used to determine whether all 6 transactions-related audit objectives have been satisfied for each class of transactions 1.existence 2.Completeness 3.Accuracy 4.Classification 5.Timing 6.Posting and Summarization