©2010 prentice hall business publishing, auditing 13/e, arens//elder/beasley 13 - 1 overall audit...
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©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
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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.
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Types of TestsTypes of Tests
Risk assessment procedures
Further audit procedures
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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
+ =
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Risk Assessment ProceduresRisk Assessment Procedures
A major part of these procedures aredone to obtain an understandingof internal control.
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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
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Learning Objective 2Learning Objective 2
Select the appropriate typesSelect the appropriate types
of audit tests.of audit tests.
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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
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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 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
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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
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Learning Objective 3Learning Objective 3
Understand how informationUnderstand how information
technology affects audit testing.technology affects audit testing.
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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.
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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
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Learning Objective 4Learning Objective 4
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.
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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
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Learning Objective 5Learning Objective 5
Design an audit program.Design an audit program.
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Audit ProgramAudit Program
Part 1:Tests of controls and substantivetests of transactions
Part 2:Analytical procedures
Part 3:Tests of details and balances
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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.
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Methodology for Designing Controls Methodology for Designing Controls and Substantive Testsand Substantive Tests
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Four-Step Approach to Designing Four-Step Approach to Designing Control and Substantive TestsControl and Substantive Tests
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Methodology for Designing Tests of Methodology for Designing Tests of Balances – Accounts ReceivableBalances – Accounts Receivable
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Learning Objective 6Learning Objective 6
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.
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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
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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
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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.
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Audit ObjectivesAudit Objectives
Transaction-related
Balance-related
Presentation and disclosure-related
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Types of TestsTypes of Tests
Risk assessment procedures
Tests of controls
Substantive tests of transactions
Analytical procedures
Tests of details of balances
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Evidence DecisionsEvidence Decisions
Sample size
Items to select
Timing
Audit procedures
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Types of EvidenceTypes of Evidence
Documentation Inquiries of the client Analytical procedures Observation Reperformance Recalculation Physical examination Confirmation
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Learning Objective 7Learning Objective 7
Integrate the four phasesIntegrate the four phases
of the audit process.of the audit process.
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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
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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
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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
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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?
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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
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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
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End of Chapter 13End of Chapter 13