5.
Factors
Audit risk
The nature of internal control
Reliance on effective controls
(cake) cumulative audit knowledge and experience
Materiality
Audit findings
Source and reliability of info
2. Sufficient
6.
Derived from understanding the business its
environment and controls
Audit risk
7.
The nature of control should be applied
Computerised or manual
The nature of internal
control
8.
It includes preliminary understandings and its
evalutions.
Reliance on effective
controls
20.
Types of Audit Evidence
A. Physical examination
B. Confirmations
C. Documentation
D. Analytical Procedures
E. Inquiries of the Client
F. Reperformance
G. Observation
22.
Confirmations and Information Often
Confirmed
Confirmations may be positive or negative
Positive Confirmations
Asks for response even if
balance is correct.
More reliable than
negative confirmations.
Negative Confirmations
Asks for a response only
is if balance incorrect.
Uncertainty associated
with no response.
23.
Confirmations and Information
Often Confirmed
Information
Assets
Cash in bank (example)
Accounts receivable
Notes receivable
Owned inventory out on
consignment
Inventory held in public
warehouses
Cash surrender value of life
insurance
Source
Bank
Customer
Maker
Consignee
Consignee
Insurance co.
25.
Types of Documents
Internal Document
Prepared and used within
client company. Does not
go outside the client.
External Document
Document has been in
hands of an outside party
to the transaction.
More reliable than
internal documents.
26.
Analytical procedures are one of many financial
audit processes which help an auditor understand
the client's business and changes in the business,
and to identify potential risk areas to plan other audit
procedures
Analytical Procedures
27.
Auditor obtains information from the
client in response to questions.
Although much evidence is obtained
through inquiry, it can not be regarded
as conclusive and may be biased in the
client’s favor.
Inquiries
28.
Financial statement assertions are management's explanation
about the recognition, measurement, presentation and disclosure of
information in the financial statements.
Financial Statement Assertions(cont.)
29.
Existence; an asset or liability exists at a given data . e.g.
1).A computer is recorded on the asset register. Does it really exist?
Occurrence; The transaction or event actually took place during the
period. e.g.
1).Revenue was recorded . Did the organization really make the sale?
2).Expense was recorded. Was the expense actually incurred?
Financial Statement
Assertions(cont.)
30.
Cutoff; Transactions and events have been recorded in the
correct accounting period.
Classification; The transaction have been recorded in the
proper account.
Completeness; all transaction that should have been
recorded.
Accuracy; The transaction were recorded at the proper
amount or revenue or with out any error.
Financial Statement Assertions
31.
Substantive procedures are designed to detect
material misstatements at the assertion level.
They comprise tests of details and
substantive analytical procedures.
5. Substantive
procedures
32.
Procedures consist of the evaluation of financial
information in audit, made by a study of
pausible relationships among both financial
and non-financial data.
Analytical Procedure -
Definition
33. Substantive Procedures
Aim
Tests of account balances
Tests of classes of transactions
Tests of disclosures
One may change the scope of audit procedures by
changing the (NTE, or re-ordered as NET):
Nature (type and form)
Timing (when performed)
Extent (quantity of evidence obtained)
34.
Holding the extent of procedures constant, one may
increase the scope of procedures (make them more
effective) by either changing the
Nature-- obtain more reliable evidence
often externally generated evidence.
Timing--wait until year-end to obtain evidence from
entire set of transactions as contrasted to performing
interim testing, say two months prior to year-end and
simply updating those procedures.
Nature and Timing of Procedures
35.
Holding other factors such as the nature and timing of
procedures constant:
The greater the risk of material misstatement, the greater
the needed extent of substantive procedures
The main way to increase the extent of audit procedures is
to examine more items
Sample sizes should reduce detection risk so as to restrict
audit risk to a low level
Extent of Procedures