Overall Audit Plan

and Audit Program

Chapter 13

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 Learning Objective 1
Use the five types of audit tests
to determine whether financial
statements are fairly stated.

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 Types of Tests

Risk assessment procedures

Further audit procedures

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 Further Audit Procedures
and the Audit Risk Model
Audit risk AAR
= PDR
model IR CR

Sufficient
Substantive Tests of
Tests of Analytical appropriate
+ tests of + + details of =
controls procedures evidence
transactions balances
per GASS

Further audit procedures

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 Risk Assessment Procedures

A major part of these procedures are

done to obtain an understanding
of internal control.

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 Role of All Audit Tests in the
Sales and Collection Cycle
Accounts Cash in
Sales Receivable Bank
Sales Cash receipts
transactions transactions
Audited by Audited by
TOC, STOT, and AP TOC, STOT, and AP

Ending Ending
balance balance
Audited by AP and TDB

TOC + STOT + AP + TDB

= Sufficient appropriate evidence per GAAS
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 Learning Objective 2
Select the appropriate types
of audit tests.

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 Relationship Between Further Audit
Procedures and Evidence
Type of Evidence

Documentation
Confirmation
examination

Observation
Physical
Further Audit Procedures
Tests of controls
Substantive tests of transactions
Analytical procedures
Tests of details of balances

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 Relationship Between Further Audit
Procedures and Evidence
Type of Evidence

Reperformance

Recalculation
Procedures
Inquiries of

Analytical
the Client
Further Audit Procedures
Tests of controls
Substantive tests of transactions
Analytical procedures
Tests of details of balances

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 Audit Assurance at Different Levels of
Internal Control Effectiveness
Acceptable C3
assurance AUDIT ASSURANCE
Audit assurance
C2 from control risk
assessment and
tests of control
C1
Audit assurance
from substantive
No tests
assurance
A C B
INTERNAL CONTROL EFFECTIVENESS
Weak control Strong control
Reliance on controls: C3 None, C2 Some, C1 Maximum
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 Learning Objective 3
Understand how information
technology affects audit testing.

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 Impact of Information
Technology on Audit Testing
SAS 80 (AU 326) and SAS 109 (AU 319)
provide guidance for auditors of entities
that transmit, process, maintain, or access
significant information electronically.

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 Impact of Information
Technology on Audit Testing
Computer assisted audit techniques 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

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 Learning Objective 4
Understand the concept of
evidence mix and how it
should be varied in
different circumstances.

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 Variations in Evidence Mix
Tests Substantive Tests of
of Tests of Analytical Details of
Controls Transactions Procedures Balances
Audit 1 E S E S
Audit 2 M M E M
Audit 3 N E M E
Audit 4 M E E E
Amount of testing: Extensive, Medium, Small, None

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 Learning Objective 5
Design an audit program.

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 Audit Program

Part 1:
Tests of controls and substantive
tests of transactions

Part 2:
Analytical procedures

Part 3:
Tests of details and balances

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 Tests of Controls and Substantive
Tests of Transactions
1. Apply the transaction-related audit objectives
to the class of transactions being tested.

2. Identify key controls that should reduce

control risk for each audit objective.

3. Develop appropriate tests of controls.

4. Design substantive tests of transactions.

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 Methodology for Designing Controls
and Substantive Tests

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 Four-Step Approach to Designing
Control and Substantive Tests

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 Methodology for Designing Tests of
Balances Accounts Receivable

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 Learning Objective 6
Compare and contrast trasnsaction-related
audit objectives with balance-related and
presentation and disclosure-related audit
objectives.

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 Relationship of Transaction-related
Audit Objectives to Balance-related
Audit Objectives
Transaction- Balance-
related related
Audit Audit Nature of
Objective Objective Relationship

Existence Existence or completeness Direct

Completeness Completeness or existence Direct
Accuracy Accuracy Direct
Posting and Detail tie-in Direct
summarization
Classification Classification Direct
Timing Cutoff Direct
Realizable value None
Rights and obligation None

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 Relationship Among Five Key
Evidence-related Terms
Phases of the audit process

Audit objectives

Types of tests

Evidence decisions

Types of evidence

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 Phases of the Audit Process

I. Plan and design an audit approach.

II. Perform tests of controls and
substantive tests of transactions.
III. Perform analytical procedures and
tests of details of balances.
IV. Complete the audit and issue an
audit report.

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 Audit Objectives

Transaction-related

Balance-related

Presentation and disclosure-related

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 Types of Tests

Risk assessment procedures

Tests of controls

Substantive tests of transactions

Analytical procedures

Tests of details of balances

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 Evidence Decisions

Audit procedures

Sample size

Items to select

Timing

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 Types of Evidence

Documentation
Inquiries of the client
Analytical procedures
Observation
Reperformance
Recalculation
Physical examination
Confirmation

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 Learning Objective 7
Integrate the four phases
of the audit process.

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 Summary of the Audit Process

Perform analytical
Plan and design procedures and
Phase I Phase III
an audit approach tests of details
of balances

Perform tests of
Complete the
controls and
Phase II Phase IV audit and issue
substantive tests
an audit report
of transactions

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 Summary of the Audit Process:
Phase I
Accept client and perform initial planning

Understand the clients business and industry

Assess clients business risk

Perform preliminary analytical procedures

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 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

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 Summary of the Audit Process:
Phase II

Plan to reduce assessed No

level of control risk?

Yes
Perform tests of controls

Perform substantive tests of transactions

Assess likelihood of misstatements in

financial statements
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 Summary of the Audit Process:
Phase III

High or
Low Medium
unknown
Perform analytical procedures
Perform tests of key items
Perform additional tests
of details of balances
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 Summary of the Audit Process:
Phase IV
Perform additional tests for
presentation and disclosure

Accumulate final evidence

Evaluate results

Issue audit report

Communicate with audit

committee and management
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 End of Chapter 13

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