4-Substantive Testing and FSA

7/31/2019 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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4-Substantive Testing and FSA

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