Modern

Modern Auditing:
Auditing:

Assurance
Assurance Services
Services and
and the
the Integrity
Integrity
th
of
Financial
Reporting,
8
of Financial Reporting, 8th Edition
Edition
William C. Boynton

California Polytechnic State

University at San Luis Obispo

Raymond N. Johnson
Portland State University

Chapter 5 Overview of the Financial Statement Audit

Chapter
Chapter 5
5 Overview
Overview

Overview
Overview of
of the
the Audit
Audit Process
Process

Overview
Overview of
of the
the Audit
Audit Process
Process
(cont.)
(cont.)

Phase
Phase II -- Perform
Perform Risk
Risk
Assessment
Assessment Procedures
Procedures
Identify Relevant Financial Statement
Assertions
Existence or Occurrence
Completeness
Rights and Obligations
Valuation or Allocation
Presentation and Disclosure

Phase
Phase II -- Perform
Perform Risk
Risk
Assessment
Assessment Procedures
Procedures
Understand the Entity and its
Environment

Industry, Regulatory Environment, and Other

External Factors
Nature of Entity, Including Accounting
Policies
Objectives, Strategies, and Business Risks
Management and Review of Financial
Performance

Phase
Phase II -- Perform
Perform Risk
Risk
Assessment
Assessment Procedures
Procedures
Make Decisions About Materiality
Based on professional judgment
Guides auditor in evaluation

Perform Preliminary Analytical

Procedures
Study of plausible relationships
Identification of potential
misstatements

Phase
Phase II -- Perform
Perform Risk
Risk
Assessment
Assessment Procedures
Procedures
Identify Risks Audit Risk Model

Phase
Phase II -- Perform
Perform Risk
Risk
Assessment
Assessment Procedures
Procedures
Identify Risk Risk of Fraud

Phase
Phase II -- Perform
Perform Risk
Risk
Assessment
Assessment Procedures
Procedures
Develop Preliminary Audit
Strategies
Understand Internal Control

Identify types of potential

misstatements
Consider factors that affect risk of
material misstatement
Design audit procedures

Phase
Phase II
II Assess
Assess the
the Risk
Risk of
of
Material
Material Misstatement
Misstatement
Relate Risk to Potential Misstatements
Assertion Level Risks
Financial Statement Level Risks

Determining the Magnitude of Potential

Misstatements
Considering the Likelihood of Material
Misstatements
Significant Inherent Risks

Study
Study Break
Break
1. This assertion deal with whether the
accounts have been included in the
financial statements at the appropriate
amount.
A. Existence or Occurrence
B. Completeness
C. Rights and Obligations
D. Valuation or Allocation
D. Valuation or Allocation

Study
Study Break
Break
2. ________ is defined as the susceptibility
of an assertion to a material
misstatement assuming there are no
internal controls.
A. Inherent risk
B. Control risk
C. Detection risk
D. Audit risk
A. Inherent risk

Phase
Phase III
III Respond
Respond to
to Assessed
Assessed
Risks
Risks
Staffing and Supervision
Nature of Audit Tests

Risk Assessment Procedures

Tests of Control
Substantive Tests

Substantive
Substantive Tests
Tests
Initial Procedures
Substantive Analytic Procedures
Tests of Details of Transactions
Tests of Details of Balances
Tests of Details of Accounting Estimates
Tests of Details of Disclosures

Phase
Phase III
III Respond
Respond to
to Assessed
Assessed
Risks
Risks
Timing of Audit Tests
Extent of Audit Tests
Responding to Significant Inherent
Risks

Phase
Phase IV
IV Perform
Perform Further
Further Audit
Audit
Procedures
Procedures
Further Risk Assessment Procedures
Tests of Controls
Substantive Tests

Phase
Phase V
V Evaluate
Evaluate Evidence
Evidence
Reevaluate Risk Assessment
Procedures
Determine the Significance of
Findings
Form and Document Conclusions

Phase
Phase VI
VI Communicate
Communicate Audit
Audit
Findings
Findings
The Auditors Opinion
Other Required Communications
Other Assurance Service Findings

Study
Study Break
Break
3. Responding to assessed risks
includes all of the following
except:
A. Staffing and Supervision
B. Timing of Audit Tests
C. Evaluating Evidence
D. Extent of Audit Tests
C. Evaluating Evidence

Study
Study Break
Break
4. Other required communications include
all of the following except:
A. Disagreements with management
B. Significant audit adjustments
C. Consultation with other accountants
D. Assessment of management
performance
D. Assessment of management
performance