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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