CHAPTER 7 (INU)  Audit around the computer; or

 Use Computer-Assisted Audit Techniques

CHARACTERICTICS OF COMPUTER (CAATs)
INFORMATION SYSTEMS (LCECSV)
SOME OF THE COMMONLY USED CAATs
 Lack of visible transaction trails INCLUDE (TIP)
 Consistency of performance
 Ease of Access to data and computer  Test data
Programs (EADCP)  Integrated test facility (ITF)
 Concentration of duties  Parallel simulation
 Systems generated transactions
 Vulnerability of data and program storage OTHER CAATs (highly complicated
media (VDPSM) computerized system)

INTERNAL CONTROL PROCEDURES  Snapshots

CLASSIFIED INTO TWO  System control audit review files (SCARF)

 General controls CHAPTER 8

 Application controls TWO TYPES OF SUBSTANTIVE TEST (AT)
GENERAL CONTROL (OSADM)  Analytical Procedures
OVERALL COMPUTER INFORMATION  Test of details
SYSTEM CONTROLS INCLUDE: THE FOLLOWING GENERALIZATION MAY
 Organizational controls BE HELPFUL IN ASSESSING THE
 Systems development and documentation PREDICTABILITY OF THE ACCOUNTS.
controls (IAR)
 Access controls
 Data recovery controls  Income statement account are more
 Monitoring controls predictable compare to balance sheet
accounts
ORGANIZATIONAL CONTROLS  Accounts that are not subject to
 Segregation between the CIS department management discretion are generally
and user department predictable.
 Segregation of duties within the CIS  Relationships in a stable environment are
department more predictable than those in a dynamic or
unstable environment.
APPLICATION CONTROLS THESE
INCLUDES TEST OF DETAILS

 Controls over input  Test of details of balance

 Controls over processing  Test of details on transaction
 Controls over output EFFEECTIVENESS OF SUBSTANTIVE TEST
EXAMPLE OF INPUT CONTOLS INCLUDE: affected by it’s; (NTE)

 Key verification  Nature of substantive test

 Field check  Timing of substantive test
 Validity check  Extent of substantive test
 Self-checking digit AUDIT EVIDENCE CONSISTS OF; (UC)
 Limit check
 Control totals  Underlying accounting data
 Corroborating information
IN TESTING APPLICATION CONTROLS,
THE AUDITOR MAY EITHER: (AU)
WHEN OBTAINING AUDIT EVIDENCE
FROM EITHER TEST OF CONTROL OR
SUBSTANTIVE TEST, AUDITOR CONSIDER;
 Sufficiency
 Appropriateness
FACTORS MAY BE CONSIDERED IN
EVALUATING THE SUFFICIENCY OF
EVIDENCE; (CMRE)
 The competence of evidence
 The materiality of the item being examined
 The risk involved in a particular account
 Experience gained during previous audit
may indicate the amount of evidence taken
before and whether such evidence was
enough.
GENERALIZATIONS COULD HELP THE
AUDITOR IN ASSESSING THE
RELIABILITY OF AUDIT EVIDENCE;
 Audit evidence obtained from independent
outside sources (for example, confirmation
received from a third party) is more reliable
than that generated internally
 Audit evidence generated internally is more
reliable when the related accounting and
internal control systems are effective
 Audit evidence obtained directly by the
auditor is more reliable than that obtained
from the entity
 Audit evidence is the forms of documents
and written representations is more
reliable than oral representations.
FUNCTION OF WORKING PAPER
Working paper are prepared primarily to
 Support the auditor’s opinion on
financial statement
 Support the auditor’s representation
as to compliance with PSA
 Assist the auditor in the planning,
performance, review and supervision
of the engagement.
Secondarily, working paper also assist the
auditor in
 Planning future audits
 Providing information useful in
rendering other service (MAS or Tax
consultancy)
 Providing adequate defense in case
of litigation.
FORM, CONTENT AND EXTENT OF AUDIT
DOCUMENT
IN DECIDING ON FORM, CONTENT AND
EXTENT OF AUDIT DOCUMENT WHAT
WOULD ENABLE AN EXPERIENCE
AUDITOR, HAVING NO PREVIOUS
CONNECTION WITH AUDIT, TO
UNDERSTAND;
 The nature, timing and extent of the audit
procedures performed to comply with PSAs
and applicable legal and regulatory
requirements;
 The results of the audit procedures and the
audit evidence obtained; and
 Significant matters arising during the audit
and the conclusions reach thereon.
IMPORTANT ITEM WOULD NORMALLY
REQUIRE AUDIT DOCUMENTATION
 Significant matters
 Depart from a basic principle or an essential
procedure
 Nature, timing and extent or audit
procedures performed
IN DOCUMENTING THE NATURE, TIMING
AND EXTENT OF AUDIT PROCEDURE
PERFORM, AUDITOR SHOULD RECORD
 Who performed the audit work and the date
such work was completed; and
 Who reviewed the audit work performed
and the date and extent of such review
CLASSIFICATION OF WORKING PAPER
 Permanent file
 Current file
PERMANENT FILE INCLUDE (CMEOAI)
 Copies of the article of incorporation and by
laws
 Major contracts
 Engagement letter
 Organizational chart
 Analyses of long-term account such as plant
asset, long-term liabilities and stockholders’
accounts
 Internal control analyses
CURRENT FILE NORMALLY INCLUDES
(AAWLDC)
 A copy of the financial statements
 Audit programs
 Working trial balance
 Lead schedules
 Detailed schedules
 Correspondence with other parties such as
lawyers, customers, bank and management.
TECHNIQUES MAY BE USED BY THE
AUDITOR WHEN PREPARING WORKING
PAPERS (HICT)
 Heading
 Indexing
 Cross-indexing/ cross referencing
 Tick marks
CHAPTER 9
RISK IN SAMPLING
 Sampling risk
 Non-sampling risk
TWO TYPES OF SAMPLING RISK
 Alpha Risk
 Beta Risk
AUDITORS CONTROL SAMPLING RISK BY
 Increasing the sample size, and (ISS)
 Using an appropriate sample selection
method (UASSM)
NON-SAMPLING RISK CAN BE MINIMIZED
BY (PA)
 Proper planning; and
 Adequate direction, review and supervision
of the audit team (ADRSAT)
TWO SAMPLING APPROACHES CAN BE
USE TO GATHER SAE
 Statistical Sampling
 Non-statistical sampling
STATISTICAL SAMPLING HELPS
AUDITO R TO (DMO)
 Design an efficient sample
 Measure the sufficiency of evidence
obtained; and
 Objectively evaluate the sample results
AUDIT SAMPLING PLANS
 Attribute sampling
 Variable sampling
BASIC STEPS IN AUDIT SAMPLING
(DDDSAE)
1. Define the objective of the test
2. Determine the audit procedure to be
performed
3. Determine the sample size
4. Select the sample
5. Apply the procedure
6. Evaluate the sample result
DIFFERENT BETWEEN AUDIT SAMPLING
AND 100% EXAMINATION IS THAT AUDIT
SAMPLING;
 Determine the sample size
 Select of sample and
 Projection of errors in evaluating the sample
results
THREE FACTORS AFFECTING THE
DETERMINATION OF SAMPLE RISK FOR
TEST CONTROLS (ATE)
 Acceptable sampling risk
 Tolerable deviation rate
 Expected deviation rate
SAMPLE SELECTION METHOD FOR TEST
CONTROLS
THREE PRINCIPAL METHOD OF
SELECTING SAMPLES
 Random number selection
 Systematic selection
 Haphazard selection
GENERAL GUIDELINES MAY USED WHEN
EVALUATION SAMPLE RESULTS FOR
TEST OF CONTROLS
1. Determine the sample deviation rate
THE 2. Compare the sample deviation rate with the
tolerable deviation rate and draw an overall
conclusion about the population
 OTHER SAMPLING APPLICATION FOR
TEST OF CONTROLS
 Sequential Sampling
 Discovery sampling
FACTORS IN DETERMINING THE SAMPLE
SIZE FOR SUBSTANTIVE TEST (ATEV)
 Acceptable sampling risk
 Tolerable misstatement
 Expected misstatement
 Variation in the population
SAMPLE SELECTION METHOD
SELECTING A SAMPLE FOR SUBSTANTIVE
TESTS (SV)
 Stratified sampling
 Value weighted selection
EVALUATING SAMPLE RESULTS FOR
SUBSTANTIVE TEST
 Project the misstatement to the population
 Compare the projected misstatement
together with the tolerable misstatement and
draw an overall conclusion
(CPMTTMDOC)