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Overall Audit Plan and Audit Program. Chapter 13. Midterm topic guide will be ready and posted to the website by sometime Saturday (2/25). Types of Audit Tests. Procedures to obtain an understanding of internal control (Ch 10) Focused on understanding the design and

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types of audit tests
Types of Audit Tests

Procedures to obtain an understanding

of internal control (Ch 10)

Focused on understanding the design and

operation of aspects of I/C necessary to plan

the rest of the audit

Tests of control (Ch 10)

Procedures used to obtain evidence

needed to assess control risk.

types of audit tests4
Types of Audit Tests

Substantive tests of transactions

Procedures designed to test for dollar

misstatements of financial statement

balances.

  • Analytical procedures (Ch 8)
    • To indicate possible misstatements
    • To reduce tests of details of balances

Tests of details of balances

Focus on ending G/L balances

types of audit tests and the audit risk model

Audit risk

model

AAR

IR × CR

= PDR

Types of

audit

tests

Procedures

to obtain an

understanding

of internal control

+

Tests of

controls

(TOC)

+

Substantive

tests of

transactions

(STOC)

Types of Audit Tests and the Audit Risk Model
types of audit tests and the audit risk model6

Audit risk

model

AAR

IR × CR

= PDR

Types of

audit

tests

Analytical

procedures

(AP)

+

Tests of

details of

balances

(TDP)

=

Sufficient

competent

evidence

per GASS

Types of Audit Tests andthe Audit Risk Model
relationship between types of tests and evidence table 13 2

Type of Evidence

Physical

examination

Confirmation

Documentation

Observation

Type of Test

Procedures for I/C

Tests of controls

Substantive T.O.T.

Analytical procedures

Tests of details

Relationship Between Types of Tests and Evidence (Table 13-2)

Reperformance

Analytical

Inquiries of

the client

audit assurance at different levels of internal control effectiveness figure 13 3

C3

Acceptable

assurance

Audit assurance

from control risk

assessment and

tests of control

C2

AUDIT ASSURANCE

C1

Audit assurance

from substantive

tests

No

assurance

A

C

B

INTERNAL CONTROL EFFECTIVENESS

Weak control

Strong control

Reliance on controls: C3 – None, C2 – Some, C1 – Maximum

Audit Assurance at Different Levels of Internal Control Effectiveness (Figure 13-3)
impact of information technology on audit testing
Impact of Information Technology onAudit Testing

SAS 80 (AU 326) and SAS 94 (AU 319)

provide guidance for auditors of entities

that transmit, process, maintain, or access

significant information electronically.

impact of information technology on audit testing10

Program change controls

Access controls

Impact of Information Technology on Audit Testing

Computer assisted audit techniques (CAATS)

may be used to test automated controls or data.

Reports produced by IT may be used to test

the effectiveness of IT general controls.

audit program
Audit Program

It is convenient to think of the audit program as

consisting of the three major classes of tests:

Tests of controls and

substantive tests of transactions

Analytical procedures

Tests of details and balances

designing controls and substantive tests of transactions figure 13 4

Design tests of controls

and substantive tests

of transactions to meet

transaction-related

audit objectives.

Assess control risk.

Determine extent of

testing controls.

Designing Controls and Substantive Tests of Transactions (Figure 13-4)

Perform procedures to

understand internal

control.

Audit procedures

Sample size

Items to select

Timing

phases of the audit process
Phases of the Audit Process
  • Plan and design an audit approach.

2. Perform tests of controls and substantive

tests of transactions.

3. Perform analytical procedures and tests

of details of balances.

4. Complete the audit and issue an audit report.

audit objectives ch 6

Transaction-related

Balance-related

1. Existence

2. Completeness

3. Accuracy

4. Classification

5. Timing

6. Posting and

summarization

1. Existence

2. Completeness

3. Accuracy

4. Classification

5. Cutoff

6. Detail tie-in

7. Realizable value

8. Rights and obligations

9. Presentation and

disclosure

Audit Objectives (Ch. 6)
types of evidence ch 7
Types of Evidence (Ch. 7)

1. Physical examination

2. Confirmation

3. Documentation

4. Analytical procedures

5. Observation

6. Inquiry of the client

7. Reperformance

summary of the audit process

Phase I

Plan and design

an audit approach.

Phase III

Perform analytical

procedures and

tests of details

of balances.

Phase II

Perform tests of

controls and

substantive tests

of transactions.

Phase IV

Complete the

audit and issue

an audit report.

Summary of the Audit Process
summary of the audit process phase i

Understand the client’s business and industry.

Assess client’s business risk.

Perform preliminary analytical procedures.

Summary of the Audit Process:Phase I

Accept client and perform initial planning.

summary of the audit process phase i23

Understand internal control and assess control risk.

Gather information to assess fraud risks.

Develop overall audit plan and audit program.

Summary of the Audit Process:Phase I

Set materiality and assess acceptable

audit risk and inherent risk.

summary of the audit process phase ii

Plan to reduce

assessed level

of control risk?

No

Yes

Perform tests of controls.

Perform substantive tests of transactions.

Assess likelihood of misstatements in

financial statements.

Summary of the Audit Process:Phase II
summary of the audit process phase iii

Low

Medium

High or

unknown

Summary of the Audit Process:Phase III

Perform analytical procedures.

Perform tests of key items.

Perform additional tests of details

of balances.

summary of the audit process phase iv

Review for contingent liabilities.

Review for subsequent events.

Accumulate final evidence.

Evaluate results.

Issue audit report.

Communicate with audit

committee and management.

Summary of the Audit Process:Phase IV