Auditing 81.3550
Audit Planning and
the Audit Program
Chapter 10
Highlights
• Examine the four types of audit test
commonly used
• Relationship amongst evidence components
• Examine/review the relationships between
transaction related and balance related
objectives
• Review the design of an audit program
Steps in audit planning
preplan
obtain
background
information
set
materiality, and
assess acceptable
audit risk and
inherent risk
obtain
information
about
client’s legal
obligations
understand
internal control
and assess
control risk
perform
preliminary
analytical
procedures
develop
overall audit
plan and audit
program
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Types of Tests
• Four basic types of test are used to ensure
F/S are fairly presented
–
–
–
–
Procedures to obtain understanding of IC
Tests of Controls
Analytical procedures
Test of details of balances
• First 2 = aid in assessing control risk
• Next 2 = substantive tests
What are the different
types of audit tests?
- procedures to obtain an understanding
of internal control
The auditor’s
understanding of internal control must be
supported by evidence.
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EXAMPLES:
Tests of
controls examine
the effectiveness
of internal
control design
and operation.
- enquiries of client
personnel
- examination of documents, records, and
reports
- observe controlrelated activities
- re-perform client
procedures
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Test of Controls (review)
Tests of controls
are designed, in part, to
determine whether the
auditor’s understanding of
internal control is accurate.
Note: often used dual purpose test =
procedures that are both test of
controls and substantive procedures
on the same acct balances or
transaction for efficiency
What are the different
types of audit tests?
- procedures to obtain an understanding
of internal control
- tests of controls
- analytical procedures
Analytical procedures
use comparisons and relationships to determine reasonableness of balances.
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What are the different
types of audit tests?
- procedures to obtain an understanding
of internal control
- tests of controls
- analytical procedures
- tests of details of balances
Tests of details
of balances examine monetary
misstatements in details of
financial statement accounts.
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What are the different
types of audit tests?
- procedures to obtain an understanding
of internal control
- tests of controls
- analytical procedures
- tests of details of balances
The primary emphasis
of this type of test is
the balance sheet.
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Types of Tests & Risk Model
AR = IR x CR x (P)DR
Understd
IC procedures
Test of
Controls
Sufficient
Appropriate
Evidence
GAAS
Analytical
Procedures
Test of
Details of
Balances
types of evidence
- physical examination
- confirmation
- documentation (vouching)
- observation
- enquiries of client
- reperformance
- analytical procedures
What types of evidence are produced
by the different types of audit tests?
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What types of evidence are produced
by the different types of audit tests?
types of audit test
types of evidence
produced by test
procedures to obtain
an understanding
of internal control
- documentation
- observation
- enquiries of client
- reperformance
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What types of evidence are produced
by the different types of audit tests?
types of audit test
tests of controls
types of evidence
produced by test
- documentation
- observation
- enquiries of client
- reperformance
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What types of evidence are produced
by the different types of audit tests?
types of audit test
analytical
procedures
types of evidence
produced by test
- enquiries of client
- analytical
procedures
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What types of evidence are produced
by the different types of audit tests?
types of audit test
tests of details
of balances
types of evidence
produced by test
- physical
examination
- confirmation
- documentation
- enquiries of client
- reperformance
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Tests & Costs
• Tests of details of
balances
• Procedures
Understanding IC
and test of
Controls
• Analytical
Procedures
What is the
evidence mix?
the
combination
of the four types
of audit tests used
in the audit of a cycle
Evidence Mix
• In general, if the auditor assesses the
controls and accounting system as
relatively effective, the mix will involve
more tests of controls and less
substantive tests.
• Conversely, if the auditor assesses the
controls and accounting system as
relatively ineffective, the mix will involve
less tests of controls and more
substantive tests.
What is an audit program?
• Set of instructions for
the audit specifically
related to the
collection of evidence
• Includes details on
procedures, timing of
procedures, sample
sizes, items to be
tested and associated
assertions
What is an audit program?
Many programs
have a separate
set of subaudit
programs for
each transaction
cycle.
As discussed in Chapter 5, an audit
can be divided into four phases.
I
III
II
IV
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As discussed in Chapter 5, an audit
can be divided into four phases.
I. Plan and design
an audit approach.
II
III
IV
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preplan
obtain
background
information
obtain
information
about
client’s legal
obligations
perform
preliminary
analytical
procedures
I. Plan and design
an audit approach.
set
materiality, and
assess acceptable
audit risk and
inherent risk
understand
internal control
and assess
control risk
develop
overall audit
plan and audit
program
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An audit can be divided
into four phases.
I. Plan and design
an audit approach.
III
II. Perform tests
of controls.
IV
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Does the
auditor plan to
reduce the assessed
level of control
risk?
II. Perform tests
of controls.
no
yes
Perform tests
of controls
Assess the likelihood of
misstatements in the
financial statements
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An audit can be divided
into four phases.
I. Plan and design
an audit approach.
III. Perform analytical procedures and
tests of details of
balances.
II. Perform tests
of controls.
IV
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Considering the assessed
likelihood of financial statement misstatements (low,
medium, high, unknown):
III. Perform analytical procedures and
tests of details of
balances.
Perform analytical
procedures
Perform tests
of key items
Perform additional
tests of details
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An audit can be divided
into four phases.
I. Plan and design
an audit approach.
III. Perform analytical procedures and
tests of details of
balances.
II. Perform tests
of controls.
IV. Complete the
audit and issue an
audit report.
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Review for
contingent liabilities
Review for
subsequent events
I. IV.
Plan
and design
Complete
the
an
audit
audit
andapproach.
issue an
audit report.
Accumulate
final evidence
Evaluate results
Issue audit report
Communicate with audit
committee and management
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