©2010 prentice hall business publishing, auditing 13/e, arens//elder/beasley 13 - 1 overall audit...

©2010 Prentice Hall Business Publishing, ©2010 Prentice Hall Business Publishing, Auditing 13/e,Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 13 - 1

Overall Audit PlanOverall Audit Planand Audit Programand Audit Program

Chapter 13Chapter 13

©2010 Prentice Hall Business Publishing, ©2010 Prentice Hall Business Publishing, Auditing 13/e,Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 13 - 13 - 22

Learning Objective 1Learning Objective 1

Use the five types of audit testsUse the five types of audit tests

to determine whether financialto determine whether financial

statements are fairly stated.statements are fairly stated.


Types of TestsTypes of Tests

Risk assessment procedures

Further audit procedures


Further Audit ProceduresFurther Audit Proceduresand the Audit Risk Modeland the Audit Risk Model

Audit riskmodel

Further audit procedures

Tests ofcontrols

Substantivetests of

transactions+

AARIR × CR

= PDR

+ Analyticalprocedures

Tests ofdetails ofbalances

Sufficientappropriate

evidenceper GASS

+ =


Risk Assessment ProceduresRisk Assessment Procedures

A major part of these procedures aredone to obtain an understandingof internal control.


Role of All Audit Tests in the Role of All Audit Tests in the Sales and Collection CycleSales and Collection Cycle

SalesAccounts

ReceivableCash in

BankSales

transactionsCash receiptstransactions

Endingbalance

Endingbalance

TOC + STOT + AP + TDB= Sufficient appropriate evidence per GAAS

Audited byTOC, STOT, and AP

Audited by AP and TDB

Audited byTOC, STOT, and AP



Select the appropriate typesSelect the appropriate types

of audit tests.of audit tests.


Relationship Between Further Audit Relationship Between Further Audit Procedures and EvidenceProcedures and Evidence

Further Audit Procedures

Tests of controls

Substantive tests of transactions

Analytical procedures

Tests of details of balancesP

hys

ical

exam

inat

ion

Co

nfi

rmat

ion

Do

cum

enta

tio

n

Ob

serv

atio

n

Type of Evidence


Relationship Between Further Audit Relationship Between Further Audit Procedures and EvidenceProcedures and Evidence

Further Audit Procedures

Tests of controls



Tests of details of balancesIn

qu

irie

s o

fth

e C

lien

t

Rep

erfo

rman

ce

An

alyt

ical

Pro

ced

ure

s

Rec

alcu

lati

on

Type of Evidence


Audit Assurance at Different Levels Audit Assurance at Different Levels of Internal Control Effectivenessof Internal Control Effectiveness

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

AU

DIT

AS

SU

RA

NC

E



Understand how informationUnderstand how information

technology affects audit testing.technology affects audit testing.


Impact of Information Impact of Information Technology on Audit TestingTechnology on Audit Testing

SAS 80 (AU 326) and SAS 109 (AU 319)provide guidance for auditors of entitiesthat transmit, process, maintain, or accesssignificant information electronically.


Impact of Information Impact of Information Technology on Audit TestingTechnology on Audit Testing

Computer assisted audit techniques may beused to test automated controls or data.

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

Program change controls Access controls



Understand the concept ofUnderstand the concept of

evidence mix and how itevidence mix and how it

should be varied inshould be varied in

different circumstances.different circumstances.


Variations in Evidence MixVariations in Evidence Mix

Audit 1

Audit 2

Audit 3

Audit 4

E

M

N

M

S

M

E

E

E

E

M

E

S

M

E

E

Testsof

Controls

SubstantiveTests of

TransactionsAnalytical

Procedures

Tests ofDetails ofBalances

Amount of testing: Extensive, Medium, Small, None



Design an audit program.Design an audit program.


Audit ProgramAudit Program

Part 1:Tests of controls and substantivetests of transactions

Part 2:Analytical procedures

Part 3:Tests of details and balances


Tests of Controls and Substantive Tests of Controls and Substantive Tests of TransactionsTests of Transactions

1. Apply the transaction-related audit objectivesto the class of transactions being tested.

2. Identify key controls that should reducecontrol risk for each audit objective.

3. Develop appropriate tests of controls.

4. Design substantive tests of transactions.


Methodology for Designing Controls Methodology for Designing Controls and Substantive Testsand Substantive Tests


Four-Step Approach to Designing Four-Step Approach to Designing Control and Substantive TestsControl and Substantive Tests


Methodology for Designing Tests of Methodology for Designing Tests of Balances – Accounts ReceivableBalances – Accounts Receivable



Compare and contrast trasnsaction-related Compare and contrast trasnsaction-related audit objectives with balance-related and audit objectives with balance-related and presentation and disclosure-related audit presentation and disclosure-related audit objectives.objectives.


Relationship of Transaction-related Relationship of Transaction-related Audit Objectives to Balance-related Audit Objectives to Balance-related

Audit ObjectivesAudit ObjectivesTransaction-relatedAuditObjective

Balance-relatedAuditObjective

Nature ofRelationship

ExistenceCompletenessAccuracyPosting and summarizationClassificationTiming

Existence or completenessCompleteness or existenceAccuracyDetail tie-in

ClassificationCutoffRealizable valueRights and obligation

DirectDirectDirectDirect

DirectDirectNoneNone


Relationship Among Five Key Relationship Among Five Key Evidence-related TermsEvidence-related Terms Phases of the audit process

Audit objectives

Types of tests

Evidence decisions

Types of evidence


Phases of the Audit ProcessPhases of the Audit Process

I. Plan and design an audit approach.

II. Perform tests of controls andsubstantive tests of transactions.

III. Perform analytical procedures andtests of details of balances.

IV. Complete the audit and issue anaudit report.


Audit ObjectivesAudit Objectives

Transaction-related

Balance-related

Presentation and disclosure-related


Types of TestsTypes of Tests

Risk assessment procedures

Tests of controls



Tests of details of balances


Evidence DecisionsEvidence Decisions

Sample size

Items to select

Timing

Audit procedures


Types of EvidenceTypes of Evidence

Documentation Inquiries of the client Analytical procedures Observation Reperformance Recalculation Physical examination Confirmation



Integrate the four phasesIntegrate the four phases

of the audit process.of the audit process.


Summary of the Audit ProcessSummary of the Audit Process

Phase IPlan and design

an audit approach

Phase II

Perform tests ofcontrols and

substantive testsof transactions

Phase III

Perform analyticalprocedures andtests of details

of balances

Phase IVComplete the

audit and issuean audit report


Summary of the Audit Process: Summary of the Audit Process: Phase IPhase I

Accept client and perform initial planning

Understand the client’s business and industry

Assess client’s business risk

Perform preliminary analytical procedures


Summary of the Audit Process: Summary of the Audit Process: Phase IPhase I

Set materiality and assess acceptableaudit risk and inherent risk

Understand internal control and assess control risk

Gather information to assess fraud risks

Develop overall audit plan and audit program


Summary of the Audit Process: Summary of the Audit Process: Phase IIPhase II

Perform substantive tests of transactions

No

YesPerform tests of controls

Assess likelihood of misstatements infinancial statements

Plan to reduce assessedlevel of control risk?


Summary of the Audit Process: Summary of the Audit Process: Phase IIIPhase III

Perform analytical procedures

Perform tests of key items

Perform additional testsof details of balances

Low MediumHigh or

unknown


Summary of the Audit Process: Summary of the Audit Process: Phase IVPhase IV

Perform additional tests forpresentation and disclosure

Accumulate final evidence

Evaluate results

Issue audit report

Communicate with auditcommittee and management

©2010 Prentice Hall Business Publishing, ©2010 Prentice Hall Business Publishing, Auditing 13/e,Auditing 13/e, Arens//Elder/Beasley Arens//Elder/Beasley 13 - 37

End of Chapter 13End of Chapter 13

©2010 prentice hall business publishing, auditing 13/e, arens//elder/beasley 13 - 1 overall audit...

Documents

audit procedures slide

audit techniques

appropriate tests of

maximum audit assurance

audit testing sas

audit testing computer

audit program chapter

ap slide