4-substantive testing and fsa
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Substantive Testing
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Plan and record
the audit planAscertain and evaluate
The internal Control
Ascertain and evaluate
The Accounting Sys.
Does the internal control
And accounting systems
Are reliable?
NoYes
Design and perform
reduced volumes of
Substantive Procedures
Design and perform
extensiveSubstantive Procedures
Analytically review the
Financial Statement
for going concern & Materiality
Audit Report
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Standard auditors report states that the
financial statements present fairly in
conformity with applicable standards: Existence or occurrence
Completeness
Rights and obligations
Valuation or allocation Presentation and disclosure
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Assets and liabilities exist, and
the recorded transactions haveoccurred.
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All accounts and transactions that should
be included are included.
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All assets are the rights of the
entity and that all liabilities areobligations.
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All assets, liabilities, equity,
revenues and expenses are fairly
valued and allocated to the proper
accounting period.
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The financial statements are properly
presented and disclosures are
adequate.
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Financial statements are the
responsibility of management
Auditors express opinion on financial
statements
Can obtain reasonable not absolute
assurance of material misstatementsMust exercise professional skepticism
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Ethics- system or code of conduct basedon moral duties and obligations thatindicates how we should behave.
AICPA Code of Professional Conduct 10 Generally Accepted Auditing Standards
Must follow the codes and standards to ensure that
the auditing services will not lose their value anddemand.
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Must have a broad basedbusiness knowledge tounderstand the risks, strategies,controls, business and industryof your client to understand ifthe financial statementassertions are valid.
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Materiality
Audit riskEvidence
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Is the magnitude of an omission or
misstatement of accounting information
that, in the light of surrounding
circumstances, makes it probable that the
judgment of a reasonable person relying
on the information would have been
changed or influenced by the omission ormisstatement.
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Is the risk that the auditor may
unknowingly fail to
appropriately modify his or heropinion on financial statements
that are materially misstated
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Auditors must obtain and evaluate
evidence
Then determine the relevance and
reliability Relevance- refers to whether the evidence relates
to the specific audit objective being tested.
Reliability- refers to whether the evidence can berelied upon to signal the true state of the assertion
of the auditor.
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Auditors use previous knowledge of
commonly misstated items and industry
knowledge to check certain transactions.
Obtain a sample representative of the
population of transactions.
The larger the sample the less audit risk
involved.
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