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Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8 th Edition. William C. Boynton California Polytechnic State University at San Luis Obispo Raymond N. Johnson Portland State University.

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Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8 th Edition


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Modern Auditing:

Assurance Services and the Integrity of Financial Reporting, 8th Edition

William C. Boynton

California Polytechnic State University at San Luis Obispo

Raymond N. Johnson

Portland State University

Chapter 12 – Audit Procedures in Response to Assessed Risks: Substantive Tests

determining detection risk
Determining Detection Risk
  • Detection Risk Model
  • If, AR = IR x CR x DR, and
  • DR = AP x TD so,
  • DR = AR / (IR x CR)
study break
Study Break
  • Which of the following is the correct representation of detection risk?
    • DR = AP x CR
    • DR = AP x IR
    • DR = TD x AP
    • DR = TD x AR

C. DR = TD x AP

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Study Break
  • Which of the following is not a step for assessing the risk of a material misstatement?
    • Evaluate the magnitude of potential misstatement
    • Evaluate the likelihood of potential misstatement
    • Evaluate who identified the potential misstatement
    • Evaluate the type of potential misstatement

C. Evaluate who identified the potential misstatement

using it to support substantive tests
Using IT to Support Substantive Tests
  • Generalized Audit Software
  • Reconcile Detail Audit Data with the General Ledger
  • Selecting and Printing Audit Samples
  • Testing Calculations and Making Computations
  • Testing the Entire Population
  • Summarizing Data and Performing Analyses
timing of substantive tests
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
special considerations
Special Considerations
  • Balance Sheet and Income Statement Accounts
  • Related Party Transactions
general framework for developing an audit program for substantive tests
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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Study Break
  • This type of test determines the fairness of significant financial statement assertions.
    • Tests of Controls
    • Substantive Tests
    • Inherent Tests
    • None of the above

B. Substantive Tests

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Study Break
  • This type of substantive test involves comparing plausible relationships among both financial and nonfinancial data.
    • Initial Procedures
    • Substantive Analytical Procedures
    • Tests of Details of Transactions
    • Tests of Details of Balances

B. Substantive Analytical Procedures

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Study Break
  • 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.
    • Nature
    • Timing
    • Extent
    • Staffing

C. Extent