1. Overall Audit Plan and Audit Program
Chapter 13

2. Midterm topic guide will be ready and posted to the website by sometime Saturday (2/25)

3. 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.

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

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

6. Types of Audit Tests and the Audit Risk Model
Analytical
procedures
(AP)
Tests of
details of
balances
(TDP)
Sufficient
competent
evidence
per GASS + =
AAR
IR × CR
= PDR

7. 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
examination
Physical
Confirmation
Documentation
Observation 
Type of Evidence
Inquiries of
the client
Reperformance
Analytical          

8. Audit Assurance at Different Levels of Internal Control Effectiveness (Figure 13-3)
Acceptable
assurance No
INTERNAL CONTROL EFFECTIVENESS
Weak control
Strong control
Reliance on controls: C3 – None, C2 – Some, C1 – Maximum
Audit assurance
from control risk
assessment and
tests of control
from substantive
tests A C B C3 C2 C1
AUDIT ASSURANCE

9. 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.

10. 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

11. Variations in Evidence Mix

12. Chapter 13 starts “putting the pieces” of the audit together.

13. Audit Program It is convenient to think of the audit program as
consisting of the three major classes of tests:
Tests of controls and
substantive tests of transactions
Analytical procedures
Tests of details and balances

14. Role of Audit Tests: Sales & Collection Cycle Example (Fig 13-2)

15. Designing Controls and Substantive Tests of Transactions (Figure 13-4)
Design tests of controls
and substantive tests
of transactions to meet
transaction-related
audit objectives.
Perform procedures to
understand internal
control.
Assess control risk.
Audit procedures
Sample size
Determine extent of
testing controls.
Items to select
Timing

16. Approach to Designing Tests of Details of Balances (Figure 13-6)

17. Partial View of Table 13-4 Tests of Details of Balances – Audit Program

18. Phases of the Audit Process
Plan and design an audit approach.
2. Perform tests of controls and substantive
tests of transactions.
3. Perform analytical procedures and tests
of details of balances.
4. Complete the audit and issue an audit report.

19. Audit Objectives (Ch. 6) Transaction-related 1. Existence
2. Completeness
3. Accuracy
4. Classification
5. Timing
6. Posting and
summarization
Balance-related
1. Existence
2. Completeness
3. Accuracy
4. Classification
5. Cutoff
6. Detail tie-in
7. Realizable value
8. Rights and obligations
9. Presentation and
disclosure

20. Types of Evidence (Ch. 7) 1. Physical examination 2. Confirmation
3. Documentation
4. Analytical procedures
5. Observation
6. Inquiry of the client
7. Reperformance

21. Summary of the Audit Process
Phase I
Plan and design
an audit approach.
Phase III
Perform analytical
procedures and
tests of details
of balances.
Phase II
Perform tests of
controls and
substantive tests
of transactions.
Phase IV
Complete the
audit and issue
an audit report.

22. 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.

23. 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.

24. Summary of the Audit Process: Phase II
Plan to reduce
assessed level
of control risk?
Perform substantive tests of transactions. No
Yes
Perform tests of controls.
Assess likelihood of misstatements in
financial statements.

25. Summary of the Audit Process: Phase III
Low
Medium
High or
unknown
Perform analytical procedures.
Perform tests of key items.
Perform additional tests of details
of balances.

26. Summary of the Audit Process: Phase IV
Review for contingent liabilities.
Review for subsequent events.
Accumulate final evidence.
Evaluate results.
Issue audit report.
Communicate with audit
committee and management.