Additional questions for essay type QUIZ on July 5, 2014

(effort please to memorize

!"ases of t"e audit pro#ess
The four aspects of a complete audit:
1 plan and design an audit approach
2 perform tests of controls and substantive tests of transactions
3 perform analytical procedures and tests of details of balances, and
4 complete the audit and issue an audit report
Analyti#al pro#edures
The use of comparisons and relationships to assess whether account balances or
other data appear reasonable
$ele%ant assertions
Assertions that have a meaningful bearing on whether an account is fairly stated and
used to assess the risk of material misstatement and the design and performance of
audit procedures
&ana'ement assertions
mplied or e!pressed representations by management about classes of transactions,
related account balances, and presentation and disclosures in the financial
statements
(ests of #ontrols
Audit procedures to test the effectiveness of controls in support of a redu#ed
assessed #ontrol ris)
Tests of controls are audit procedures to test the operating effectiveness of control
policies and procedures in support of a reduced assessed control risk" #!amples
include:
1" The e!amination of vendor invoices for indication that they have been
clerically tested, compared to a receiving report and purchase order, and
approved payment"
2" #!amination of employee time cards for approval of overtime hours
worked"
3" #!amination of $ournal entries for proper approval"
4" #!amination of approvals for the write%off of bad debts"
*u+stanti%e tests of transa#tions
Audit procedures testin' for monetary misstatements to determine ,"et"er t"e
si- transa#tion.related audit o+/e#ti%es "a%e +een satisfied for ea#" #lass of
transa#tions
(ransa#tion.related audit o+/e#ti%es
&i! '() audit ob$ectives that must be met before the auditor can conclude that
the total for any given class of transactions is fairly stated" The general
transaction%related audit ob$ectives are *
1" occurrence
2" completeness
3" accuracy
4" classification
+" timing, and
(" posting and summari,ation
&ubstantive tests of transactions are performed to verify the accuracy of a
client-s accounting system" This is accomplished by determining whether
individual transactions are correctly recorded and summari,ed in the $ournals,
master files, and general ledger" &ubstantive tests of transactions are also
concerned with classes of transactions, such as payroll, ac.uisitions, or cash
receipts" Tracing amounts from a file of vouchers to the ac.uisitions $ournal is an
e!ample of a substantive test of transactions for the ac.uisition and payment
cycle" Tests of details of balances verify the ending balance in an individual
account 'such as inventory, accounts receivable, or depreciation e!pense) on
the financial statements" An e!ample of a test of details of balances for the
ac.uisition and payment cycle is to physically e!amine a sample of the client-s
fi!ed assets"
/efore reduced substantive testing is permitted, internal controls must be
effective and the auditor must have found the results of the tests of controls
satisfactory" 0ost effectiveness of reduced assessed control risk should be
considered in making the decisions as to whether to test controls" The cost
effectiveness of reduced control risk is an audit efficiency issue"
(ests of details of +alan#es
Audit procedures testing for monetary misstatements to determine whether the eight
'1) balance%related audit ob$ectives have been satisfied for each significant account
balance
0alan#e.related audit o+/e#ti%es
#ight '1) audit ob$ectives that must be met before the auditor can conclude that any
given account balance is fairly stated" The general balance%related audit ob$ectives
are:
1" e!istence
2" completeness
3" accuracy
4" classification
+" cutoff
(" detail tie%in
2" reali,able value, and
1" rights and obligations
!resentation and dis#losure.related audit o+/e#ti%es
3our '4) audit ob$ectives that must be met before the auditor can conclude that
presentation and disclosures are fairly stated" The four '4) presentation and
disclosure%related audit ob$ectives are:
2" occurrence and rights and obligations
3" completeness
4" accuracy,andvaluation, and
+" classification and understandability
("e fi%e types of tests auditors use to determine ,"et"er finan#ial statements are
fairly stated in#ludes t"e follo,in':
1" 4rocedures to gain an understanding of internal control
2" Tests of controls
3" &ubstantive tests of transactions
4" Analytical procedures
(" Tests of details of balances
5hile procedures to gain an understanding of internal control help the auditor obtain
information to make an initial assessment of control risk, tests of controls must be
performed as support of an assessment of control risk that is below ma!imum" The
purpose of tests of controls is to obtain evidence regarding the effectiveness of
controls which may allow the auditor to assess control risk below ma!imum" f
controls are found to be effective and functioning, the substantive evidence may be
reduced" &ubstantive evidence is obtained to reduce detection risk" &ubstantive
evidence includes evidence from substantive tests of transactions, analytical
procedures, and tests of details of balances"