CHAPTER 10 OVERALL AUDIT PLAN AND AUDIT PROGRAM

CHAPTER 10 OVERALL AUDIT PLAN AND AUDIT PROGRAM

TYPES OF TESTS • PROCEDURES TO OBTAIN UNDERSTANDING OF INTERNAL CONTROL – – INQUIRIES OF CLIENT READ POLICY AND PROCEDURES MANUALS EXAMINE DOCUMENTS OBSERVE PERSONNEL • TESTS OF CONTROL – OBSERVE PERSONNEL – REPERFORM PROCEDURES • WAS PROCEDURE PERFORMED? • WAS IT PERFORMED CONSISTENTLY • WHO PERFORMED IT?

• SUBSTANTIVE TESTS OF TRANSACTIONS – TEST FOR DOLLAR MISSTATEMENT – SATISFY ALL SIX TRANSACTION-RELATED OBJECTIVES FOR EACH CLASS OF TRANSACTIONS • • • RECORED SALES OCCURRED RECORDED SALES ARE COMPLETE RECORDED SALES ARE ACCURATE RECORDED SALES ARE IN CORRECT TIME PERIOD RECORDED SALES ARE PROPERLY CLASSIFIED RECORDED SALES ARE ACCURATELY SUMMARIZED • ANALYTICAL PROCEDURES – COMPARISONS OF DATA – FOUR PURPOSES

• TESTS OF DETAILS OF BALANCES – FOCUS ON ENDING G/L BALANCES – EXTENT DEPENDENT ON RESULTS OF OTHER TESTS • TESTS OF CONTROL • ANALYTICAL PROCEDURES • TESTS OF TRANSACTIONS • SUMMARY OF TYPES OF TESTS – CONTROL RISK ASSESSMENT • TESTS OF CONTROL • TESTS OF TRANSACTIONS – LOWER DETECTION RISK • TESTS OF TRANSACTIONS • ANALYTICAL PROCEDURES • TESTS OF DETAILS OF BALANCES

RELATIONSHIP BETWEEN TESTS AND EVIDENCE • RELATIVE COSTS – ANALYTICAL PROCEDURES – PROCEDURES TO OBTAIN UNDERSTANDING OF I/C AND TESTS OF CONTROL – SUBSTANTIVE TESTS OF TRANSACTIONS – TESTS OF DETAIL OF BALANCES • RELATION BETWEEN TESTS OF CONTROL AND SUBSTANTIVE TESTS – DEVIATION FROM CONTROL INCREASES RISK OF DOLLAR ERROR

EVIDENCE MIX • TRADE OFF BETWEEN TESTS OF CONTROL AND SUBSTANTIVE TESTS – FIGURE 10 -4 – ANALYSIS OF AUDITS 1 TO 4 ON PAGES 337 -338

DESIGN AUDIT PROGRAM • TESTS OF CONTROL AND SUBSTANTIVE TESTS OF TRANSACTIONS – FOUR STEPS • • APPLY TRANSACTION-RELATED OBJECTIVES IDENTIFY SPECIFIC CONTROLS TO REDUCE RISK DEVELOP TESTS OF CONTROL DESIGN SUBSTANTIVE TESTS OF TRANSACTIONS FOR POTENTIAL MISSTATEMENTS – CONSIDER CONTROL RISK ASSESSMENT

• ANALYTICAL PROCEDURES – AUDITOR JUDGMENT – INDUSTRY-SPECIFIC PROCEDURES • TESTS OF DETAIL OF BALANCES – SET MATERIALITY LEVEL, ACCEPTABLE AUDIT RISK, AND ASSESS INHERENT RISK – ASSESS CONTROL RISK – DESIGN TESTS OF BALANCES FOR EACH BALANCE-RELATED OBJECTIVE • RELATION OF AUDIT OBJECTIVES – TABLE 10 -5

SUMMARY OF AUDIT PROCESS • PHASE I – PLAN AUDIT – DESIGN APPROACH • PHASE II – PERFORM TESTS OF CONTROLS – PERFORM TESTS OF TRANSACTIONS • PHASE III – PERFORM ANALYTICAL PROCEDURES – PERFORM TESTS OF BALANCES • PHASE IV – COMPLETE AUDIT AND ISSUE REPORT