Professional Documents
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AQ016-3-3
INTERNAL CONTROL PLANNING
Tests of Controls
Testing for Monetary Misstatement
Reduction of Risk
Audit Assurance at Different Levels of
Internal Control Effectiveness
E. Simultaneous Testing of Controls and
Substantive Testing of Transactions
F. Timing of Audit Testing
AQ016-3-3-CAS
A. Tests of Controls
Audit procedures to test the operating
effectiveness of control policies and procedures
in support of a reduced assessed control risk.
Some examples include:
Matching of vendor invoices against a purchase
order and receiving report before approving
invoice for payment.
Examination of employee time cards for
approval of overtime.
AQ016-3-3-CAS
Tests of Details of
Balances
Testing for monetary
misstatements to determine if the
following 9 balance-related audit
objectives have been met:
Existence
Completeness
Accuracy
Classification
Cutoff
Detail tie-in
Realizable value
Rights and obligations
Presentation and disclosure
C. Reduction of Risk
Control Risk
Procedures to gain an
understanding of internal
control
Tests of controls
Once the auditor obtains an
initial understanding of
controls, tests of controls
must be performed to
obtain evidence regarding
the effectiveness of
controls. Stronger controls
will allow the auditor to
assess control risk below
the maximum.
AQ016-3-3-CAS
Detection Risk
Substantive tests of
transactions
Analytical procedures
Tests of details of
balances
The more evidence an
auditor collects from
the above procedures,
the lower the detection
risk. Detection risk
must be lower when
control risk is higher.
Acceptable
assurance
No
assurance
AUDIT ASSURANCE
Audit
assurance
from
substantive
tests
C2
C1
Audit assurance
from control risk
assessment and
tests of control
A
C
B
INTERNAL CONTROL EFFECTIVENESS
Weak control
Strong control
Reliance on controls: C3 None, C2 Some, C1 Maximum
AQ016-3-3-CAS
AQ016-3-3-CAS
AQ016-3-3-CAS
AQ016-3-3-CAS
Analytic
performance
Reperformance
Inquiries of
the client
Observation
Documentation
Type of Test
Physical
Examination
Confirmation
Type of Evidence
Tests of Details of
Balances
If tolerable
misstatement is low,
and inherent risk and
control risk are high,
planned tests of
details of balances
must be high.
AQ016-3-3-CAS
B. Analytical Procedures
IV. A Summary
of the Audit
Process
AQ016-3-3-CAS
AQ016-3-3-CAS
Yes
Perform tests of controls.
Perform substantive tests of transactions.
No
Likelihood of Misstatement
in Financial Statements
Low
Medium High or
unknown
Perform analytical procedures.