modern auditing ch12.ppt

8/12/2019 modern auditing ch12.ppt

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Modern Auditing:Assurance Services and the Integrity

of Financial Reporting, 8thEdition

William C. BoyntonCalifornia Polytechnic State

University at San Luis Obispo

Raymond N. JohnsonPortland State University

Chapter 12 Audit Procedures in Response to Assessed

Risks: Substantive Tests


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Chapter Overview


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Determining Detection Risk

Detection Risk Model

If, AR = IR x CR x DR, and

DR = AP x TD so,

DR = AR / (IR x CR)


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Preliminary Audit Strategy, Planned

Detection Risk, and Planned Emphasis on

Audit Tests


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Study Break

1. Which of the following is the

correct representation of

detection risk?

A. DR = AP x CR

B. DR = AP x IR

C. DR = TD x AP

D. DR = TD x AR

C. DR = TD x AP


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Study Break

2. Which of the following is not a step forassessing the risk of a materialmisstatement?

A. Evaluate the magnitude of potential

misstatementB. Evaluate the likelihood of potential

misstatement

C. Evaluate who identified the potentialmisstatement

D. Evaluate the type of potential misstatement

C. Evaluate who identified the potentialmisstatement


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Tests of Controls and

Substantive Tests


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Using IT to Support Substantive

Tests

Generalized Audit Software

Reconcile Detail Audit Data with the GeneralLedger

Selecting and Printing Audit Samples

Testing Calculations and Making Computations

Testing the Entire Population

Summarizing Data and Performing Analyses


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Audit Choices in the Design of

Substantive Tests

Nature

Timing

Extent

Staffing


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Nature of Substantive Tests


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Timing of Substantive Tests

Prior to Balance Sheet Date

Interim Date Risks

Importance of Internal Controls

At the Balance Sheet Date

Comparison of Account Balances

Investigate Unusual Amounts

Other Analytical Procedures


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Extent of Substantive Tests


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Summary of Relationships


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Special Considerations

Balance Sheet and Income

Statement Accounts

Related Party Transactions


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General Framework for Developing an

Audit Program for Substantive Tests

Nature of Procedures to be

Performed

Outline of the work to be done

Basis for coordinating, supervising,

and controlling the audit

A record of the work performed

Addressing All Assertions


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Audit Objectives Example


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Study Break

3. This type of test determines the

fairness of significant financial

statement assertions.

A. Tests of Controls

B. Substantive Tests

C. Inherent Tests

D. None of the above

B. Substantive Tests


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Study Break

4. This type of substantive testinvolves comparing plausiblerelationships among both financial

and nonfinancial data.A. Initial Procedures

B. Substantive Analytical Procedures

C. Tests of Details of Transactions

D. Tests of Details of Balances

B. Substantive Analytical Procedures


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Study Break

5. This choice in designing a substantive

test specifically identifies the size of a

sample that is needed to meet the

acceptable level of detection risk.A. Nature

B. Timing

C. Extent

D. Staffing

C. Extent

modern auditing ch12.ppt

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