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10 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 10 Overall Audit Plan and Audit Program
10 - 1Copyright 2003 Pearson Education Canada Inc.
CHAPTER 10Overall Audit
Plan and Audit Program
10 - 2Copyright 2003 Pearson Education Canada Inc.
performpreliminaryanalytical
procedures
Steps in audit planningSteps in audit planning
preplan
setmateriality, and
assess acceptableaudit risk andinherent risk
understandinternal control
and assesscontrol risk
obtainbackgroundinformation
obtain information about client’s legal obligations
developoverall audit
plan and auditprogram
10 - 3Copyright 2003 Pearson Education Canada Inc.
What are the different What are the different types of audit tests?types of audit tests?
10 - 4Copyright 2003 Pearson Education Canada Inc.
What are the different What are the different types of audit tests?types of audit tests?
- procedures to obtain an understanding of internal control
10 - 5Copyright 2003 Pearson Education Canada Inc.
What are the different What are the different types of audit tests?types of audit tests?
- procedures to obtain an understanding of internal control
The auditormust focus on both
design and operationof internal controls.
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What are the different What are the different types of audit tests?types of audit tests?
- procedures to obtain an understanding of internal control
The auditor’sunderstanding of in-
ternal control must besupported by evidence.
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What are the different What are the different types of audit tests?types of audit tests?
- procedures to obtain an understanding of internal control- tests of controls
?
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What are the different What are the different types of audit tests?types of audit tests?
- procedures to obtain an understanding of internal control- tests of controls
Tests ofcontrols examinethe effectiveness
of internalcontrol design and operation.
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EXAMPLES:- enquiries of client personnel
Tests ofcontrols examinethe effectiveness
of internalcontrol design and operation.
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EXAMPLES:- enquiries of client personnel- examination of docu- ments, records, and reports
Tests ofcontrols examinethe effectiveness
of internalcontrol design and operation.
JobDescription
Memo:CANADIAN BANK
CANADIAN BANK
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EXAMPLES:- enquiries of client personnel- examination of docu- ments, records, and reports- observe control- related activities
Tests ofcontrols examinethe effectiveness
of internalcontrol design and operation.
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EXAMPLES:- enquiries of client personnel- examination of docu- ments, records, and reports- observe control- related activities- re-perform client procedures
Tests ofcontrols examinethe effectiveness
of internalcontrol design and operation.
10 - 13Copyright 2003 Pearson Education Canada Inc.
What are the different What are the different types of audit tests?types of audit tests?
- procedures to obtain an understanding of internal control- tests of controls
How are thesetwo types of
tests related?
10 - 14Copyright 2003 Pearson Education Canada Inc.
What are the different What are the different types of audit tests?types of audit tests?
- procedures to obtain an understanding of internal control- tests of controls
Tests of controlsare designed, in part, to
determine whether the au-ditor’s understanding of in-ternal control is accurate.
10 - 15Copyright 2003 Pearson Education Canada Inc.
What are the different What are the different types of audit tests?types of audit tests?
- procedures to obtain an understanding of internal control- tests of controls
For efficiency,tests of controls and sub-
stantive tests of transactionsare frequently performed
at the same time.
10 - 16Copyright 2003 Pearson Education Canada Inc.
What are the different What are the different types of audit tests?types of audit tests?
- procedures to obtain an understanding of internal control- tests of controls- analytical procedures
?
10 - 17Copyright 2003 Pearson Education Canada Inc.
What are the different What are the different types of audit tests?types of audit tests?
- procedures to obtain an understanding of internal control- tests of controls- analytical procedures
Analytical proceduresuse comparisons and relation-ships to determine reasonable-
ness of balances.
10 - 18Copyright 2003 Pearson Education Canada Inc.
What are the different What are the different types of audit tests?types of audit tests?
- procedures to obtain an understanding of internal control- tests of controls- analytical procedures- tests of details of balances
?
10 - 19Copyright 2003 Pearson Education Canada Inc.
What are the different What are the different types of audit tests?types of audit tests?
- procedures to obtain an understanding of internal control- tests of controls- analytical procedures- tests of details of balances
Tests of detailsof balances examine monetary
misstatements in details offinancial statement accounts.
10 - 20Copyright 2003 Pearson Education Canada Inc.
What are the different What are the different types of audit tests?types of audit tests?
- procedures to obtain an understanding of internal control- tests of controls- analytical procedures- tests of details of balances
The primary emphasisof this type of test isthe balance sheet.
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- inspection - confirmation - documentation- observation - enquiries of client - reperformance - analytical procedures
As discussed in chapter 6, there are sixAs discussed in chapter 6, there are six
types of evidence types of evidence
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- physical examination - confirmation - documentation (vouching)- observation - enquiries of client - reperformance - analytical procedures
types of evidence types of evidence
What What types of evidencetypes of evidence are produced are producedby the different by the different types of audit teststypes of audit tests??
10 - 23Copyright 2003 Pearson Education Canada Inc.
What What types of evidencetypes of evidence are produced are producedby the different by the different types of audit teststypes of audit tests??
types of audit testtypes of audit testtypes of evidencetypes of evidenceproduced by testproduced by test
procedures to obtain an understanding of internal control ?
10 - 24Copyright 2003 Pearson Education Canada Inc.
What What types of evidencetypes of evidence are produced are producedby the different by the different types of audit teststypes of audit tests??
procedures to obtain an understanding of internal control
- documentation- observation - enquiries of client - reperformance
types of audit testtypes of audit testtypes of evidencetypes of evidenceproduced by testproduced by test
10 - 25Copyright 2003 Pearson Education Canada Inc.
What What types of evidencetypes of evidence are produced are producedby the different by the different types of audit teststypes of audit tests??
tests of controls ?types of audit testtypes of audit test
types of evidencetypes of evidenceproduced by testproduced by test
10 - 26Copyright 2003 Pearson Education Canada Inc.
What What types of evidencetypes of evidence are produced are producedby the different by the different types of audit teststypes of audit tests??
- documentation- observation - enquiries of client - reperformance
tests of controls
types of audit testtypes of audit testtypes of evidencetypes of evidenceproduced by testproduced by test
10 - 27Copyright 2003 Pearson Education Canada Inc.
What What types of evidencetypes of evidence are produced are producedby the different by the different types of audit teststypes of audit tests??
analyticalprocedures ?
types of audit testtypes of audit testtypes of evidencetypes of evidenceproduced by testproduced by test
10 - 28Copyright 2003 Pearson Education Canada Inc.
What What types of evidencetypes of evidence are produced are producedby the different by the different types of audit teststypes of audit tests??
analyticalprocedures
- enquiries of client - analytical procedures
types of audit testtypes of audit testtypes of evidencetypes of evidenceproduced by testproduced by test
10 - 29Copyright 2003 Pearson Education Canada Inc.
What What types of evidencetypes of evidence are produced are producedby the different by the different types of audit teststypes of audit tests??
tests of detailsof balances ?
types of audit testtypes of audit testtypes of evidencetypes of evidenceproduced by testproduced by test
10 - 30Copyright 2003 Pearson Education Canada Inc.
What What types of evidencetypes of evidence are produced are producedby the different by the different types of audit teststypes of audit tests??
- physical examination- confirmation- documentation- enquiries of client - reperformance
tests of detailsof balances
types of audit testtypes of audit testtypes of evidencetypes of evidenceproduced by testproduced by test
10 - 31Copyright 2003 Pearson Education Canada Inc.
The types of audit testsThe types of audit testsvary in their vary in their relative costsrelative costs..
10 - 32Copyright 2003 Pearson Education Canada Inc.
The types of audit testsThe types of audit testsvary in their vary in their relative costsrelative costs..
Which typeof audit test is
most expensive?
10 - 33Copyright 2003 Pearson Education Canada Inc.
The types of audit testsThe types of audit testsvary in their vary in their relative costsrelative costs..
Tests of detailsof balances are the most ex-
pensive type of audit test, e.g.,confirmations, physical
examination.
10 - 34Copyright 2003 Pearson Education Canada Inc.
The types of audit testsThe types of audit testsvary in their vary in their relative costsrelative costs..
Which typeof audit test is
least expensive?
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The types of audit testsThe types of audit testsvary in their vary in their relative costsrelative costs..
Analytical proceduresare least expensive because of the
relative ease of calculating andcomparing, particularly if
software is employed.
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What is theevidence mixevidence mix??
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What is theevidence mixevidence mix??
thecombination
of the four typesof audit tests used
in the audit of a cycle
10 - 38Copyright 2003 Pearson Education Canada Inc.
What is theevidence mixevidence mix??
thecombination
of the four typesof audit tests used
in the audit of a cycle
In general, if the auditorassesses the controls andaccounting system as relatively effective, the mix will involve more tests of controls and less substantive tests.
10 - 39Copyright 2003 Pearson Education Canada Inc.
What is theevidence mixevidence mix??
thecombination
of the four typesof audit tests used
in the audit of a cycle
Conversely, if the auditorassesses the controls andaccounting system as relatively ineffective, the mix will involve less tests of controls and more substantive tests.
10 - 40Copyright 2003 Pearson Education Canada Inc.
What is an What is an audit audit programprogram??
10 - 41Copyright 2003 Pearson Education Canada Inc.
What is an What is an audit audit programprogram??
The audit program is the set of detailedinstructions for the entire collection of
evidence for an audit.
10 - 42Copyright 2003 Pearson Education Canada Inc.
What is an What is an audit audit programprogram??
The audit program is the set of detailedinstructions for the entire collection of
evidence for an audit.includes:
- procedures to perform enquiries examination
of documentsand recordsanalytical
procedures
observation
10 - 43Copyright 2003 Pearson Education Canada Inc.
What is an What is an audit audit programprogram??
The audit program is the set of detailedinstructions for the entire collection of
evidence for an audit.includes:
- sample sizes$ $
$$ $$
$$$
$ $ $
10 - 44Copyright 2003 Pearson Education Canada Inc.
What is an What is an audit audit programprogram??
The audit program is the set of detailedinstructions for the entire collection of
evidence for an audit.includes:
- items to select$ $
$$ $$
$$$
$ $ $
10 - 45Copyright 2003 Pearson Education Canada Inc.
What is an What is an audit audit programprogram??
The audit program is the set of detailedinstructions for the entire collection of
evidence for an audit.includes:
- timing of tests$ $
$$ $$
$$$
$ $ $
10 - 46Copyright 2003 Pearson Education Canada Inc.
What is an What is an audit audit programprogram??
The audit program is the set of detailedinstructions for the entire collection of
evidence for an audit.
Many programshave a separate set of subaudit programs foreach transaction cycle.
10 - 47Copyright 2003 Pearson Education Canada Inc.
The audit program for most The audit program for most audits is designed in three parts.audits is designed in three parts.
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The audit program for most The audit program for most audits is designed in three parts.audits is designed in three parts.
testsof controls
10 - 49Copyright 2003 Pearson Education Canada Inc.
The audit program for most The audit program for most audits is designed in three parts.audits is designed in three parts.
testsof controls
analyticalprocedures
10 - 50Copyright 2003 Pearson Education Canada Inc.
The audit program for most The audit program for most audits is designed in three parts.audits is designed in three parts.
testsof controls
analyticalprocedures
tests ofdetails ofbalances
10 - 51Copyright 2003 Pearson Education Canada Inc.
As discussed in Chapter 5, an audit As discussed in Chapter 5, an audit can be divided into can be divided into four phasesfour phases..
I IIIII IV
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II
III IV
I. Plan and designan audit approach.
As discussed in Chapter 5, an audit As discussed in Chapter 5, an audit can be divided into can be divided into four phasesfour phases..
10 - 53Copyright 2003 Pearson Education Canada Inc.
setmateriality, and
assess acceptableaudit risk andinherent risk
understandinternal control
and assesscontrol risk
performpreliminaryanalytical
procedures
preplanobtain
backgroundinformation
obtain information about client’s legal obligations
developoverall audit
plan and auditprogram
I. Plan and designan audit approach.
10 - 54Copyright 2003 Pearson Education Canada Inc.
An audit can be divided An audit can be divided into into four phasesfour phases..
III IV
I. Plan and designan audit approach.
II. Perform testsof controls.
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II. Perform testsof controls.
no
yes
Does theauditor plan to
reduce the assessedlevel of control
risk?
10 - 56Copyright 2003 Pearson Education Canada Inc.
II. Perform testsof controls.
no
yes
Does theauditor plan to
reduce the assessedlevel of control
risk?
Perform testsof controls
10 - 57Copyright 2003 Pearson Education Canada Inc.
II. Perform testsof controls.
no
yes
Does theauditor plan to
reduce the assessedlevel of control
risk?
Perform testsof controls
Assess the likelihood ofmisstatements in thefinancial statements
10 - 58Copyright 2003 Pearson Education Canada Inc.
An audit can be divided An audit can be divided into into four phasesfour phases..
I. Plan and designan audit approach.
II. Perform testsof controls.
III. Perform analyt-ical procedures and
tests of details ofbalances.
IV
10 - 59Copyright 2003 Pearson Education Canada Inc.
III. Perform analyt-ical procedures and
tests of details ofbalances.
Considering the assessedlikelihood of financial state-ment misstatements (low,medium, high, unknown):
10 - 60Copyright 2003 Pearson Education Canada Inc.
III. Perform analyt-ical procedures and
tests of details ofbalances.
Considering the assessedlikelihood of financial state-ment misstatements (low,medium, high, unknown):
Perform analyticalprocedures
10 - 61Copyright 2003 Pearson Education Canada Inc.
III. Perform analyt-ical procedures and
tests of details ofbalances.
Considering the assessedlikelihood of financial state-ment misstatements (low,medium, high, unknown):
Perform analyticalprocedures
Perform testsof key items
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III. Perform analyt-ical procedures and
tests of details ofbalances.
Considering the assessedlikelihood of financial state-ment misstatements (low,medium, high, unknown):
Perform analyticalprocedures
Perform testsof key items
Perform additionaltests of details
10 - 63Copyright 2003 Pearson Education Canada Inc.
An audit can be divided An audit can be divided into into four phasesfour phases..
I. Plan and designan audit approach.
II. Perform testsof controls.
III. Perform analyt-ical procedures and
tests of details ofbalances.
IV. Complete theaudit and issue an
audit report.
10 - 64Copyright 2003 Pearson Education Canada Inc.
I. Plan and designan audit approach.
IV. Complete theaudit and issue an
audit report.
Review for contingent liabilities
10 - 65Copyright 2003 Pearson Education Canada Inc.
I. Plan and designan audit approach.
IV. Complete theaudit and issue an
audit report.
Review for contingent liabilities
Review for subsequent events
10 - 66Copyright 2003 Pearson Education Canada Inc.
I. Plan and designan audit approach.
IV. Complete theaudit and issue an
audit report.
Review for contingent liabilities
Review for subsequent events
Accumulatefinal evidence
10 - 67Copyright 2003 Pearson Education Canada Inc.
I. Plan and designan audit approach.
IV. Complete theaudit and issue an
audit report.
Review for contingent liabilities
Review for subsequent events
Accumulatefinal evidence
Evaluate results
10 - 68Copyright 2003 Pearson Education Canada Inc.
I. Plan and designan audit approach.
IV. Complete theaudit and issue an
audit report.
Review for contingent liabilities
Review for subsequent events
Accumulatefinal evidence
Evaluate results
Issue audit report
10 - 69Copyright 2003 Pearson Education Canada Inc.
I. Plan and designan audit approach.
Review for contingent liabilities
Review for subsequent events
Accumulatefinal evidence
Evaluate results
Issue audit reportCommunicate with audit
committee and management
