Post on 22-Dec-2015
Auditing 81.3550Auditing 81.3550
Audit Planning and
the Audit Program
Chapter 10
Audit Planning and
the Audit Program
Chapter 10
HighlightsHighlights
• Examine the four types of audit test commonly used
• Relationship amongst evidence components
• Examine/review the relationships between transaction related and balance related objectives
• Review the design of an audit program
• Examine the four types of audit test commonly used
• Relationship amongst evidence components
• Examine/review the relationships between transaction related and balance related objectives
• Review the design of an audit program
10 - 2Copyright 2003 Pearson Education Canada Inc.
performpreliminaryanalytical
procedures
Steps in audit planningSteps in audit planning
preplan
setmateriality, and
assess acceptableaudit risk andinherent risk
understandinternal control
and assesscontrol risk
obtainbackgroundinformation
obtaininformation
about client’s legal obligations
developoverall audit
plan and auditprogram
Types of TestsTypes of Tests
• Four basic types of test are used to ensure F/S are fairly presented – Procedures to obtain understanding of IC– Tests of Controls– Analytical procedures– Test of details of balances
• First 2 = aid in assessing control risk • Next 2 = substantive tests
• Four basic types of test are used to ensure F/S are fairly presented – Procedures to obtain understanding of IC– Tests of Controls– Analytical procedures– Test of details of balances
• First 2 = aid in assessing control risk • Next 2 = substantive tests
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What are the different What are the different types of audit tests?types of audit tests?
- procedures to obtain an understandingof internal control
The auditor’sunderstanding of in-
ternal control must besupported by evidence.
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EXAMPLES:- enquiries of client
personnel- examination of docu-
ments, records, andreports
- observe control-related activities
- re-perform clientprocedures
Tests ofcontrols examinethe effectiveness
of internalcontrol design and operation.
Test of Controls (review)Test of Controls (review)Tests of controls
are designed, in part, todetermine whether the
auditor’s understanding of internal control is accurate.
Note: often used dual purpose test = procedures that are both test of
controls and substantive procedures on the same acct balances or transaction
for efficiency
Tests of controlsare designed, in part, todetermine whether the
auditor’s understanding of internal control is accurate.
Note: often used dual purpose test = procedures that are both test of
controls and substantive procedures on the same acct balances or transaction
for efficiency
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What are the different What are the different types of audit tests?types of audit tests?
- procedures to obtain an understandingof internal control
- tests of controls- analytical procedures
Analytical proceduresuse comparisons and relation-ships to determine reasonable-
ness of balances.
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What are the different What are the different types of audit tests?types of audit tests?
- procedures to obtain an understandingof internal control
- tests of controls- analytical procedures- tests of details of balances
Tests of detailsof balances examine monetary
misstatements in details offinancial statement accounts.
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What are the different What are the different types of audit tests?types of audit tests?
- procedures to obtain an understandingof internal control
- tests of controls- analytical procedures- tests of details of balances
The primary emphasisof this type of test isthe balance sheet.
Types of Tests & Risk ModelTypes of Tests & Risk Model
AR = IR x CR x (P)DR
UnderstdIC procedures
Test ofControls
Analytical Procedures
Test of Details of Balances
SufficientAppropriate
EvidenceGAAS
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- physical examination - confirmation - documentation (vouching)- observation - enquiries of client - reperformance - analytical procedures
types of evidence types of evidence
What What types of evidencetypes of evidence are producedare producedby the different by the different types of audit teststypes of audit tests??
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What What types of evidencetypes of evidence are producedare producedby the different by the different types of audit teststypes of audit tests??
procedures to obtainan understandingof internal control
- documentation- observation - enquiries of client - reperformance
types of audit testtypes of audit testtypes of evidencetypes of evidenceproduced by testproduced by test
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What What types of evidencetypes of evidence are producedare producedby the different by the different types of audit teststypes of audit tests??
- documentation- observation - enquiries of client - reperformance
tests of controls
types of audit testtypes of audit testtypes of evidencetypes of evidenceproduced by testproduced by test
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What What types of evidencetypes of evidence are producedare producedby the different by the different types of audit teststypes of audit tests??
analyticalprocedures
- enquiries of client - analytical
procedures
types of audit testtypes of audit testtypes of evidencetypes of evidenceproduced by testproduced by test
10 - 30Copyright 2003 Pearson Education Canada Inc.
What What types of evidencetypes of evidence are producedare producedby the different by the different types of audit teststypes of audit tests??
- physical examination
- confirmation- documentation- enquiries of client - reperformance
tests of detailsof balances
types of audit testtypes of audit testtypes of evidencetypes of evidenceproduced by testproduced by test
Tests & CostsTests & Costs• Tests of details of
balances
• Procedures Understanding IC and test of Controls
• Analytical Procedures
• Tests of details of balances
• Procedures Understanding IC and test of Controls
• Analytical Procedures
What is the evidence mixevidence mix??
thecombination
of the four typesof audit tests used
in the audit of a cycle
Evidence MixEvidence Mix
• In general, if the auditor assesses the controls and accounting system as
relatively effective, the mix will involve more tests of controls and less substantive tests.
• Conversely, if the auditor assesses the controls and accounting system as
relatively ineffective, the mix will involve less tests of controls and more
substantive tests.
• In general, if the auditor assesses the controls and accounting system as
relatively effective, the mix will involve more tests of controls and less substantive tests.
• Conversely, if the auditor assesses the controls and accounting system as
relatively ineffective, the mix will involve less tests of controls and more
substantive tests.
What is an audit program?What is an audit program?
• Set of instructions for the audit specifically related to the collection of evidence
• Includes details on procedures, timing of procedures, sample sizes, items to be tested and associated assertions
• Set of instructions for the audit specifically related to the collection of evidence
• Includes details on procedures, timing of procedures, sample sizes, items to be tested and associated assertions
What is an audit program?What is an audit program?
Many programshave a separate
set of subaudit programs for
each transaction cycle.
Many programshave a separate
set of subaudit programs for
each transaction cycle.
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As discussed in Chapter 5, an audit As discussed in Chapter 5, an audit can be divided into can be divided into four phasesfour phases..
I II
III IV
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II
III IV
I. Plan and designan audit approach.
As discussed in Chapter 5, an audit As discussed in Chapter 5, an audit can be divided into can be divided into four phasesfour phases..
10 - 53Copyright 2003 Pearson Education Canada Inc.
setmateriality, and
assess acceptableaudit risk andinherent risk
understandinternal control
and assesscontrol risk
performpreliminaryanalytical
procedures
preplanobtain
backgroundinformation
obtaininformation
about client’s legal obligations
developoverall audit
plan and auditprogram
I. Plan and designan audit approach.
10 - 54Copyright 2003 Pearson Education Canada Inc.
An audit can be divided An audit can be divided into into four phasesfour phases..
III IV
I. Plan and designan audit approach.
II. Perform testsof controls.
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II. Perform testsof controls.
no
yes
Does theauditor plan to
reduce the assessedlevel of control
risk?
Perform testsof controls
Assess the likelihood ofmisstatements in thefinancial statements
10 - 58Copyright 2003 Pearson Education Canada Inc.
An audit can be divided An audit can be divided into into four phasesfour phases..
I. Plan and designan audit approach.
II. Perform testsof controls.
III. Perform analyt-ical procedures and
tests of details ofbalances.
IV
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III. Perform analyt-ical procedures and
tests of details ofbalances.
Considering the assessedlikelihood of financial state-ment misstatements (low,medium, high, unknown):
Perform analyticalprocedures
Perform testsof key items
Perform additionaltests of details
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An audit can be divided An audit can be divided into into four phasesfour phases..
I. Plan and designan audit approach.
II. Perform testsof controls.
III. Perform analyt-ical procedures and
tests of details ofbalances.
IV. Complete theaudit and issue an
audit report.
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I. Plan and designan audit approach.
Review for contingent liabilities
Review for subsequent events
Accumulatefinal evidence
Evaluate results
Issue audit report
Communicate with auditcommittee and management
IV. Complete theaudit and issue an
audit report.