Professional Documents
Culture Documents
Chapter - 13 Audit Planning & Program
Chapter - 13 Audit Planning & Program
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Presentation Outline
I. Application of Audit Testing
II. Selecting Tests to Perform
III. Design of the Audit Program
IV. A Summary of the Audit Process
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A. Tests of Controls
B. Testing for Monetary Misstatement
C. Reduction of Risk
D. Audit Assurance at Different Levels of
Internal Control Effectiveness
E. Simultaneous Testing of Controls and
Substantive Testing of Transactions
F. Timing of Audit Testing
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A. Tests of Controls
Tests of Details of
Balances
Testing for monetary
misstatements to determine if the
following 9 balance-related audit
objectives have been met:
Existence
Completeness
Accuracy
Classification
Cutoff
Detail tie-in
Realizable value
Rights and obligations
Presentation and disclosure
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C. Reduction of Risk
Control Risk
Procedures to gain an
understanding of internal
control
Tests of controls
Once the auditor obtains an
initial understanding of
controls, tests of controls must
be performed to obtain
evidence regarding the
effectiveness of controls.
Stronger controls will allow
the auditor to assess control
risk below the maximum.
Detection Risk
Substantive tests of
transactions
Analytical procedures
Tests of details of
balances
The more evidence an
auditor collects from the
above procedures, the
lower the detection risk.
Detection risk must be
lower when control risk
is higher.
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Acceptable
assurance
No
assurance
AUDIT ASSURANCE
Audit
assurance
from
substantive
tests
C2
C1
Audit assurance
from control risk
assessment and
tests of control
A
C
B
INTERNAL CONTROL EFFECTIVENESS
Weak control
Strong control
Reliance on controls: C3 None, C2 Some, C1 Maximum
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Analytic
performance
Reperformance
Inquiries of
the client
Observation
Documentation
Type of Test
Physical
Examination
Confirmation
Type of Evidence
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Substantive Testing of
Transactions
In some situations it may be more
efficient to assess control risk at
a higher level and reduce or
eliminate tests of controls. This
depends on cost of testing
controls versus the additional
substantive testing that would
result from a higher control
risk.
Tests of Details of
Balances
If tolerable misstatement
is low, and inherent risk
and control risk are
high, planned tests of
details of balances must
be high.
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B. Analytical Procedures
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IV. A Summary
of the Audit
Process
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No
Yes
Perform tests of controls.
Perform substantive tests of transactions.
Assess likelihood of misstatements in
financial statements.
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Likelihood of Misstatement
in Financial Statements
Low
Medium High or
unknown
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