AUDITING REVISION CHAPTER 6 AND 7

Materiality is a driver of the entire audit process:

 Planning the audit ( overall materiality, performance materiality, specific materiality)
 Evaluating results ( estimate total misstatement in segment, estimate combined
misstatement, compare combined misstatement, with overall materiality)
 Completing the audit ( conclude on overall reasonableness of financial statements, report to
those in charge of governance)

The audit risk model:

Audit risk: inherent risk* control risk* detection risk
Inherent factors for the audit risk model include
- complexity
-Subjectivity
- change
-uncertainty

Planned detection risk: ACCEPTABLE AUDIT RISK/ ( INHERENT RISK* CONTROL RISK)
If CR and IR are equal then PDR= AAR

AUDITING REVISION CHAPTER 4 AND 5 ( AUDIT RESPONSIBILTIES AND OBJECTIVES AND AUDIT
EVIDENCE)

Assertions about classes of transactions and events and related disclosures for period under audit

OCCURENCE: transactions and events that have been recorded or disclosed have occurred and
pertain to the entity
COMPLETNESS: all transactions and events that should have been recorded, and all related
disclosures, have been recorded.
ACCURACY: amounts and other data relating to recorded transactions and events have been
recorded appropriately and related disclosures have been appropriately measured and described
CUT-OFF: transactions and events have been recorded in the correct accounting period.
CLASSIFICATION: transactions and events have been recorded in the proper accounts
PRESENTATIONS: transactions and events are appropriately aggregated or disagree-gated and
clearly described, and related disclosures are relevant and understandable

Assertions about account balances and related disclosures at period end

EXISTENCE: Assets, liabilities, and equity interests exist.

COMPLETNESS: all assests, liabilities and equity interests that should have been recorded have
been recorded and all related disclosures that should have been included in the financial
statements are included
ACCURACY, VALUATION, AND ALLOCATION: Assets, liabilities and equity interests are included in
the financial statements at appropriate amounts
CLASSIFICATIONS: assets, liabilities and equity have been recorded in the proper accounts
RIGHTS AND OBLIGATIONS: the entity holds or controls the rights to assets and liabilities are the
obligation of the entity
PRESENTATION: Assets, liabilities and equity interests are appropriately aggregated or aggregated
and clearly described and related disclosures are relevant and understand

The AUDIT PROCESS:

STEP 1: client acceptance

STEP 2: audit planning
STEP 3: assess risk of material misstatement
STEP 4: develop risk response
STEP 5: perform risk response
STEP 6: conclusion
STEP 7: reporting

RELATIONSHIP AMONG EVIDENCE DECISIONS AND PERSUASIVENESS:

AUDIT EVIDENCE DESCISIONS QUALITY AFFECTING PERSUASIVENESS OF
EVIDENCE
NATURE OF AUDIT PROCEDURES APPOPRIATNESS
RELEVANCE
RELIABILITY
EXTEND OF TESTING SUFFICIENCY

TIMING TIMELINESS

AUDIT PROCEDURE AND AUDIT EVIDENCE

1) INSPECTION:
a) examine: a reasonable detailed study of a document or record to determine specific facts
about it
b) read: an examination of written information to determine facts pertinent to the audit and the
recording of those facts in a working paper
C) Count: a determination of assets on hand at a given time. This term should only be associated
with the type of evidence definded as physical examination

2) ANALYTICAL PROCEDURES:
Scan: a less detailed examination of a document or record to determine if there is something
unusual warranting further investigation
Compute: a calculation done by the auditor independent of the client
3) RECALCULATION:
Recompute: a calculation done to determine whether a clients calculation is correct
Foot: an addition of a column of numbers to determine if the total is the same as the clients

4) REPERFORMANCE:
Trace:
Compare: a comparison of information in 2 different locations

5) OBSERVATION

AUDIT OBJECTIVES:

6 factors to consider when assessing the reliability of evidence

A) evidence obtained directly by auditor
B) Independence source
C) Qualifications of source
D) Consistency from multiple sources
E) Effectiveness of internal controls
F) Degree of objectivity

Types of audit procedures

1) RISK ASSESSMENT PRCEDURES: performed by the auditor to obtain information for identifying
and assessing risks of material misstatement in the financial statements due to fraud or error.
1) TEST OF CONTROLS: designed to evaluate the operating effectiveness of controls at the
assertion level
2) SUBSTANTIVE PROCEDURES: designed to detect material misstatements in accounts, which
include tests of details and analytical procedures

AUDIT TEST USED FOR TEST OF CONTROLS:

-inquiry
-examination
- observation
-reperformance

TEST OF DETAILS OF BLANCES

-physical examinations
- direct communication
- examine documentation
-client enquiry
CHAPTER 12: Audit of the Revenue Cycle
Substantive Procedures and Tests of detail