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Arens14e Ch13 Ppt Ge

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©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e, Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 5 - 5 Developing the Overall Developing the Overall Audit Plan Audit Plan and Audit Program and Audit Program Chapter 13 Chapter 13
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©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 5 - 5

Developing the Overall Audit Developing the Overall Audit PlanPlan

and Audit Programand Audit Program

Chapter 13Chapter 13

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 22

PLANNING AN AUDIT AND PLANNING AN AUDIT AND DESIGNING AND AUDIT APPROACHDESIGNING AND AUDIT APPROACH

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 33

Learning Objective 1Learning Objective 1

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

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 44

Types of TestsTypes of Tests

Risk assessment procedures

Further audit procedures

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 55

Further Audit ProceduresFurther Audit Proceduresand the Audit Risk Modeland the Audit Risk Model

Audit riskmodel

Further audit procedures

Tests ofcontrols

Substantivetests of

transactions+

AARIR × CR

= PDR

+ Analyticalprocedures

Tests ofdetails ofbalances

Sufficientappropriate

evidenceper GASS

+ =

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 66

Risk Assessment ProceduresRisk Assessment Procedures

A major part of these procedures aredone to obtain an understandingof internal control.

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 77

Role of All Audit Tests in the Role of All Audit Tests in the Sales and Collection CycleSales and Collection Cycle

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 88

Learning Objective 2Learning Objective 2

Select the appropriate types of audit Select the appropriate types of audit tests.tests.

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 99

Relationship Between Further Relationship Between Further Audit Procedures and EvidenceAudit Procedures and Evidence

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 1010

Audit Assurance at Different Audit Assurance at Different Levels of Internal Control Levels of Internal Control

EffectivenessEffectiveness

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 1111

Learning Objective 3Learning Objective 3

Understand how information Understand how information technology affects audit testing.technology affects audit testing.

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 1212

Impact of Information Impact of Information Technology on Audit TestingTechnology on Audit Testing

SAS 80 (AU 326) and SAS 109 (AU 319)provide guidance for auditors of entitiesthat transmit, process, maintain, or accesssignificant information electronically.

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 1313

Impact of Information Impact of Information Technology on Audit TestingTechnology on Audit Testing

Computer-assisted audit techniques may beused to test automated controls or data.

Reports produced by IT may be used to testthe effectiveness of IT general controls.

Program change controls Access controls

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 1414

Learning Objective 4Learning Objective 4

Understand the concept of evidence Understand the concept of evidence mix and how it should be varied in mix and how it should be varied in different circumstances.different circumstances.

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 1515

Variations in Evidence MixVariations in Evidence Mix

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 1616

Learning Objective 5Learning Objective 5

Design an audit program.Design an audit program.

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 1717

Audit ProgramAudit Program

Part 1:Tests of controls and substantivetests of transactions

Part 2:Analytical procedures

Part 3:Tests of details and balances

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 1818

Methodology for Designing Methodology for Designing Controls and Substantive TestsControls and Substantive Tests

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 1919

Four-Step Approach to Designing Four-Step Approach to Designing Control and Substantive TestsControl and Substantive Tests

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 2020

Methodology for Designing Tests Methodology for Designing Tests of Balances – Accounts of Balances – Accounts

ReceivableReceivable

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 2121

Methodology for Designing Tests Methodology for Designing Tests of Balances – Accounts of Balances – Accounts

ReceivableReceivable

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 2222

Learning Objective 6Learning Objective 6

Compare and contrast transaction-Compare and contrast transaction-related audit objectives with balance-related audit objectives with balance-related and presentation and related and presentation and disclosure-related audit objectives.disclosure-related audit objectives.

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 2323

Relationship of Transaction-Relationship of Transaction-related Audit Objectives to related Audit Objectives to

Balance-related Audit ObjectivesBalance-related Audit ObjectivesTransaction-relatedAuditObjective

Balance-relatedAuditObjective

Nature ofRelationship

OccurrenceCompletenessAccuracyPosting and summarizationClassificationTiming

Existence or completenessCompleteness or existenceAccuracyDetail tie-in

ClassificationCutoffRealizable valueRights and obligation

DirectDirectDirectDirect

DirectDirectNoneNone

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 2424

Relationship Among Five Relationship Among Five Key Evidence-related TermsKey Evidence-related Terms

Phases of the audit process

Audit objectives

Types of tests

Evidence decisions

Types of evidence

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 2525

Phases of the Audit ProcessPhases of the Audit Process

I. Plan and design an audit approach.

II. Perform tests of controls andsubstantive tests of transactions.

III. Perform analytical procedures andtests of details of balances.

IV. Complete the audit and issue anaudit report.

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 2626

Audit ObjectivesAudit Objectives

Transaction-related

Balance-related

Presentation and disclosure-related

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 2727

Types of TestsTypes of Tests

Risk assessment procedures

Tests of controls

Substantive tests of transactions

Analytical procedures

Tests of details of balances

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 2828

Evidence DecisionsEvidence Decisions

Audit procedures

Sample size

Items to select

Timing

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 2929

Reperformance

Documentation

Inquiries of ClientPhysical Evidence

Analytical Procedures

Observation

Audit Evidence

Types of EvidenceTypes of Evidence

RecalculationConfirmation

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 3030

Learning Objective 7Learning Objective 7

Integrate the four phases of the audit Integrate the four phases of the audit process.process.

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 3131

Summary of the Audit Summary of the Audit ProcessProcess

Phase IPlan and design

an audit approach

Phase II

Perform tests ofcontrols and

substantive testsof transactions

Phase III

Perform analyticalprocedures andtests of details

of balances

Phase IVComplete the

audit and issuean audit report

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 3232

Summary of the Audit Summary of the Audit Process: Phase IProcess: 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, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 3333

Summary of the Audit Summary of the Audit Process: Phase IProcess: Phase I

Set materiality and assess acceptableaudit 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, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 3434

Summary of the Audit Summary of the Audit Process: Phase IIProcess: Phase II

Perform substantive tests of transactions

No

YesPerform tests of controls

Assess likelihood of misstatements infinancial statements

Plan to reduce assessedlevel of control risk?

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 3535

Summary of the Audit Summary of the Audit Process: Phase IIIProcess: Phase III

Perform analytical procedures

Perform tests of key items

Perform additional testsof details of balances

Low MediumHigh or

unknown

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 13 - 13 - 3636

Summary of the Audit Summary of the Audit Process: Phase IVProcess: Phase IV

Perform additional tests forpresentation and disclosure

Accumulate final evidence

Evaluate results

Issue audit report

Communicate with auditcommittee and management

©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 5 - 5

End of Chapter 13End of Chapter 13


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