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Overall Audit Plan and Audit Program Chapter 13. Types of Audit Tests Procedures to obtain an understanding of internal control (Ch 10) Focused on understanding.

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Presentation on theme: "Overall Audit Plan and Audit Program Chapter 13. Types of Audit Tests Procedures to obtain an understanding of internal control (Ch 10) Focused on understanding."— Presentation transcript:

1 Overall Audit Plan and Audit Program Chapter 13

2 Types of Audit Tests Procedures to obtain an understanding of internal control (Ch 10) Focused on understanding the design and operation of aspects of I/C necessary to plan the rest of the audit Tests of control (Ch 10) Procedures used to obtain evidence needed to assess control risk.

3 Types of Audit Tests Analytical procedures (Ch 8) To indicate possible misstatements To indicate possible misstatements To reduce tests of details of balances To reduce tests of details of balances Tests of details of balances Focus on ending G/L balances Substantive tests of transactions Procedures designed to test for dollar misstatements of financial statement misstatements of financial statementbalances.

4 Types of Audit Tests and the Audit Risk Model Audit risk model Types of audittests Procedures to obtain an understanding of internal control Tests of controls(TOC)Substantive tests of transactions(STOC) ++ AAR AAR IR × CR = PDR

5 Types of Audit Tests and the Audit Risk Model Audit risk model Types of audittests Analyticalprocedures(AP) Tests of details of balances(TDP)Sufficientcompetentevidence per GASS += AAR AAR IR × CR = PDR

6 Relationship Between Types of Tests and Evidence (Table 13-2) Type of Test Procedures for I/C Tests of controls Substantive T.O.T. Analytical procedures Tests of details PhysicalexaminationConfirmationDocumentationObservation     Type of Evidence Inquiries of the client          Reperformance Analytical proc.

7 Audit Assurance at Different Levels of Internal Control Effectiveness (Figure 13-3) Acceptableassurance Noassurance INTERNAL CONTROL EFFECTIVENESS Weak control Strong control Reliance on controls: C 3 – None, C 2 – Some, C 1 – Maximum Audit assurance from control risk assessment and tests of control Audit assurance from substantive tests ACB C3C3C3C3 C2C2C2C2 C1C1C1C1 AUDIT ASSURANCE

8 Impact of Information Technology on Audit Testing SAS 80 (AU 326) and SAS 94 (AU 319) provide guidance for auditors of entities that transmit, process, maintain, or access significant information electronically.

9 Impact of Information Technology on Audit Testing Computer assisted audit techniques (CAATS) may be used to test automated controls or data. Reports produced by IT may be used to test the effectiveness of IT general controls. Program change controls Access controls

10 Variations in Evidence Mix

11 Designing the Audit Program It is convenient to think of the audit program as consisting of the three major classes of tests: 1.Tests of controls 2.Substantive tests of transactions 3.Analytical procedures Auditing standards require auditors to use a Written audit program.

12 Remainder of Chapter to be Covered Next Monday


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