Developing the Overall Audit Plan and Audit Program

Chapter 13

©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

5-5

PLANNING AN AUDIT AND DESIGNING AND AUDIT APPROACH

©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

13 - 2

Learning Objective 1
Use the five types of audit tests to determine whether financial statements are fairly stated.

©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

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Auditing 14/e.Types of Tests  Risk assessment procedures Further audit procedures ©2012 Pearson Education.4 . Arens/Elder/Beasley 13 .

Auditing 14/e.5 . Arens/Elder/Beasley 13 .Further Audit Procedures and the Audit Risk Model Audit risk model AAR IR × CR = PDR Tests of controls Sufficient Substantive Tests of Analytical appropriate + tests of + procedures + details of = evidence transactions balances per GASS Further audit procedures ©2012 Pearson Education.

Risk Assessment Procedures A major part of these procedures are done to obtain an understanding of internal control.6 . Auditing 14/e. Arens/Elder/Beasley 13 . ©2012 Pearson Education.

Role of All Audit Tests in the Sales and Collection Cycle ©2012 Pearson Education. Arens/Elder/Beasley 13 .7 . Auditing 14/e.

Arens/Elder/Beasley 13 .Learning Objective 2 Select the appropriate types of audit tests. Auditing 14/e.8 . ©2012 Pearson Education.

Arens/Elder/Beasley 13 .9 .Relationship Between Further Audit Procedures and Evidence ©2012 Pearson Education. Auditing 14/e.

Auditing 14/e. Arens/Elder/Beasley 13 .10 .Audit Assurance at Different Levels of Internal Control Effectiveness ©2012 Pearson Education.

©2012 Pearson Education.11 .Learning Objective 3 Understand how information technology affects audit testing. Auditing 14/e. Arens/Elder/Beasley 13 .

12 . maintain. Auditing 14/e. Arens/Elder/Beasley 13 . ©2012 Pearson Education. or access significant information electronically. process.Impact of Information Technology on Audit Testing SAS 80 (AU 326) and SAS 109 (AU 319) provide guidance for auditors of entities that transmit.

Arens/Elder/Beasley 13 .13 .  Program change controls  Access controls ©2012 Pearson Education. Auditing 14/e. Reports produced by IT may be used to test the effectiveness of IT general controls.Impact of Information Technology on Audit Testing Computer-assisted audit techniques may be used to test automated controls or data.

Arens/Elder/Beasley 13 . Auditing 14/e.Learning Objective 4 Understand the concept of evidence mix and how it should be varied in different circumstances. ©2012 Pearson Education.14 .

Variations in Evidence Mix ©2012 Pearson Education. Arens/Elder/Beasley 13 . Auditing 14/e.15 .

Arens/Elder/Beasley 13 . ©2012 Pearson Education.Learning Objective 5 Design an audit program.16 . Auditing 14/e.

Audit Program Part 1: Tests of controls and substantive tests of transactions Part 2: Analytical procedures Part 3: Tests of details and balances ©2012 Pearson Education. Auditing 14/e. Arens/Elder/Beasley 13 .17 .

Arens/Elder/Beasley 13 .Methodology for Designing Controls and Substantive Tests ©2012 Pearson Education.18 . Auditing 14/e.

Auditing 14/e.19 . Arens/Elder/Beasley 13 .Four-Step Approach to Designing Control and Substantive Tests ©2012 Pearson Education.

Arens/Elder/Beasley 13 .Methodology for Designing Tests of Balances – Accounts Receivable ©2012 Pearson Education.20 . Auditing 14/e.

Auditing 14/e.21 . Arens/Elder/Beasley 13 .Methodology for Designing Tests of Balances – Accounts Receivable ©2012 Pearson Education.

Auditing 14/e. ©2012 Pearson Education.22 . Arens/Elder/Beasley 13 .Learning Objective 6 Compare and contrast transaction-related audit objectives with balance-related and presentation and disclosure-related audit objectives.

Auditing 14/e.Relationship of Transaction-related Audit Objectives to Balance-related Audit Objectives Transactionrelated Audit Objective Balancerelated Audit Objective Nature of Relationship Occurrence Existence or completeness Direct Completeness Completeness or existence Direct Accuracy Accuracy Direct Posting and Detail tie-in Direct summarization Classification Classification Direct Timing Cutoff Direct Realizable value None Rights and obligation None ©2012 Pearson Education. Arens/Elder/Beasley 13 .23 .

Arens/Elder/Beasley 13 . Auditing 14/e.24 .Relationship Among Five Key Evidence-related Terms Phases of the audit process Audit objectives Types of tests Evidence decisions Types of evidence ©2012 Pearson Education.

Auditing 14/e. Perform analytical procedures and tests of details of balances. Perform tests of controls and substantive tests of transactions. IV. Plan and design an audit approach. III. ©2012 Pearson Education. Complete the audit and issue an audit report.25 . II.Phases of the Audit Process I. Arens/Elder/Beasley 13 .

Arens/Elder/Beasley 13 .Audit Objectives  Transaction-related Balance-related Presentation and disclosure-related ©2012 Pearson Education.26 . Auditing 14/e.

Types of Tests  Risk assessment procedures Tests of controls Substantive tests of transactions Analytical procedures Tests of details of balances ©2012 Pearson Education. Arens/Elder/Beasley 13 .27 . Auditing 14/e.

Evidence Decisions  Audit procedures Sample size Items to select Timing ©2012 Pearson Education. Arens/Elder/Beasley 13 . Auditing 14/e.28 .

Auditing 14/e. Arens/Elder/Beasley Reperformance 13 .Types of Evidence Documentation Inquiries of Client Physical Evidence Confirmation Audit Evidence Recalculation Analytical Procedures Observation ©2012 Pearson Education.29 .

Arens/Elder/Beasley 13 . ©2012 Pearson Education.Learning Objective 7 Integrate the four phases of the audit process. Auditing 14/e.30 .

Arens/Elder/Beasley 13 .Summary of the Audit Process Plan and design Phase I an audit approach Perform analytical procedures and Phase III tests of details of balances Perform tests of controls and Phase II substantive tests of transactions Phase IV Complete the audit and issue an audit report ©2012 Pearson Education. Auditing 14/e.31 .

32 .Summary of the Audit Process: Phase I Accept client and perform initial planning Understand the client’s business and industry Assess client’s business risk Perform preliminary analytical procedures ©2012 Pearson Education. Auditing 14/e. Arens/Elder/Beasley 13 .

Auditing 14/e. Arens/Elder/Beasley 13 .Summary of the Audit Process: Phase I Set materiality and assess acceptable audit risk and inherent risk Understand internal control and assess control risk Gather information to assess fraud risks Develop overall audit plan and audit program ©2012 Pearson Education.33 .

34 . Arens/Elder/Beasley 13 .Summary of the Audit Process: Phase II Plan to reduce assessed level of control risk? Yes Perform tests of controls No Perform substantive tests of transactions Assess likelihood of misstatements in financial statements ©2012 Pearson Education. Auditing 14/e.

Auditing 14/e.Summary of the Audit Process: Phase III High or unknown Low Medium Perform analytical procedures Perform tests of key items Perform additional tests of details of balances ©2012 Pearson Education. Arens/Elder/Beasley 13 .35 .

Auditing 14/e.36 .Summary of the Audit Process: Phase IV Perform additional tests for presentation and disclosure Accumulate final evidence Evaluate results Issue audit report Communicate with audit committee and management ©2012 Pearson Education. Arens/Elder/Beasley 13 .

Arens/Elder/Beasley 5-5 .End of Chapter 13 ©2012 Pearson Education. Auditing 14/e.