Welcome

To
Presentation
by

Knowledge Seekers
(Group 8)
 ID NAME
19-149 Md. Shah-Alam
19-158 Zunaet Islam Bhuiyan
19-161 Enayet Hossen Imran
19-166 Md. Fakhrul Islam
19-200 Iftekhar Uddin Ahmed
 Presentation
On

Overall Audit Plan and Audit Program

Audit Planning
and
Documentation
(An 0verview) Develop overall audit plan and audit
program
(results in the entire audit program the auditor plans to follow in
the audit, including all audit procedures, sample sizes, items to
select and timing)

 Selecting a mix of five types of test that will result in an

effective and efficient audit;
 The trade-offs among the types of tests and consideration
of the cost of each type of test;
 Audit Risk Model and Types of Test

AAR
PDR
IR CR

Procedures to Substantive Tests of Sufficient

obtain an Test of tests of Analytical details of competent
understanding of control transactions procedures balances evidence
internal control (TOC) (SOTT) (TDB) per GAAS
(UIC)
 Procedures to obtain an understanding of internal
control

(the auditor must focus on both the design the operation of aspects of
internal control to the extent necessary to effectively plan the rest of
the audit)

How to go with it
 Update and evaluate the auditor’s previous experience with the entity;
 Make inquires of client personnel;
 Read client’s policy and systems manuals;
 Examine documents and records;
 Observe entity activities and operations;
 Test of control
(the procedures used to obtain evidence)

Process to follow:

 Make inquires of appropriate client personnel;

 Examine documents, records, and reports;
 Observe control related activities;
 Reperform client procedures
Notations
Evidence necessary in test of control depends upon
amount of evidence gathered during understanding
of internal control phase
 A closer look to Understanding of Internal
Control and Test of Control

UIC TOC
Used to
Used to determine
determine whether the
whether placed
controls are controls are
in place effective

Links between them
⌂ They are essentially the same
⌂ Understanding is the first phase and
testing is the next
Differentiate
 Understanding is for finding out
whether control is there
 Testing is for judging the efficiency
and effectiveness
 Substantive tests
(test to measure monetary accuracy of
transactions and balances that affect the
financial statements)

Substantive tests of Analytical Tests of details of

transactions (STOT) procedures balances (TDB)
Substantive tests of transactions
(STOT)
(determines whether the transactions are
correct in monetary term)

It purports to:

Determine whether all the

transactions related audit objectives
are followed;
Test transactions occurring during the
year;
 Analytical procedures
(comparison of recorded amounts to
expectations developed by the auditor)

Two contributions
Indicates the presence of any possible
misstatements in financial statements;
Determine the level of test of details of
balances

Notation
It includes analysis of both transactions and balances
Test of Details of Balances (TDB)
(determines the monetary accuracy of the
general ledger balances)

Important things to know

Applicable for both Balance sheet and Income

Statements accounts;
Emphasize is given upon Balance sheet accounts;
 A closer look to STOT and TDB
STOT
TDB
Test for Test for
monetary monetary
accuracy of accuracy of
transactions balances

Similarity Dissimilarity

STOT applies for transactions

 Purports to check for only;
monetary accuracy TDB applies for general ledger
balances
 Selecting mix of tests to perform
(among various alternatives the auditor must
select which mix of test could be performed in
most efficient way)

What efficiency demands:

 Availability of seven types of evidence;

 The effectiveness of internal control;
 The existence of inherent risk; and
Selection of mix of test depends
 Cost of each type of test;
upon:

 Types of evidence;
 Cost of the evidence;
 Type of Evidence

Documentation
Confirmation

Reperformance

performance
Examination

Observation
Inquiries of
the client

Analytic
Physical
Type of Test
Procedures for internal control    
Tests of controls    
Substantive tests of transactions   
Analytical procedures  
Tests of details of balances     
 Selection of test mix
(Cost consideration)

Test
High
of detail
of balances
Cost of Test

Med Substantive tests

-ium of transactions
Procedures to obtain an
understanding of internal
control and test of control
low
Analytical procedures
 Selection of proper combination
Test procedure Why to select Why not

Test of detail of balances  Gather highest no. of  Most costly

evidences

Substantive tests of  Could be applied with  Expensive

transactions computerized technology

Procedures to obtain an  Medium cost  Physical examination and

understanding of internal  Assistance from confirmation are ignored
control and test of control computerized technology

Analytical procedures  Least costly  Less evidence

Notation
The procedures need to select that ensures maximum possible audit quality and least cost to the firm
 Evidence Mix
 The choice of which types of tests to use & how extensively they need to be performed
can vary widely among audits for differing levels of internal control of effectiveness &
inherent risk.
 There can also be variations from cycle to cycle within a given audit.
 The combination of the five types of tests used for any given cycle is often called the
evidence mix.
Variations in Evidence Mix
Procedures to Tests Substantive Analytical Tests of
Obtain an of Tests Procedures Details
Understanding Control of of
of Internal Transactions Balances
Control
Audit 1 E E S E S

Audit 2 M M M E M

Audit 3 M N E M E

Audit 4 M M E E E

 E=Extensive amount of testing; M=medium amount of testing; S=small amount of testing; N=no testing
Continued………..
Client 1 is a large company with sophisticated internal controls
and low inherent risk.
Client 2 is medium sized with some controls & a few inherent
risks.
Client 3 is medium sized but has few effective controls &
significant inherent risks.
Client 4 is a situation where the original plan was to follow the
approach used in client 2.

however, the auditor found extensive control test deviations &

significant misstatements while performing substantive test of
transactions & controls where controls were not effective.
Design an Audit Program

Most audits design an audit program in the following three parts:

 Tests of Controls and Substantive Tests of Transaction

 Analytical Procedures
 Tests of Details of Balances
A. Tests of Controls and Substantive
Tests of Transactions (cont.….)
Methodology for Designing Controls and Substantive Tests:

Design tests of controls

Perform procedures
and substantive tests
to understand
of transactions to meet
internal control
transaction-related
audit objectives.

Assess control risk Audit procedures

Sample size
Items to select
Evaluate cost-benefit
of testing controls Timing
A. Tests of Controls and Substantive Tests of
Transactions (cont.….)
Four-Step Approach to Designing Control and Substantive Tests

Apply transaction- Identify key controls

related audit objectives and make an assessment
to a class of transactions of control risk
(Step 1). (Step 2).

Design substantive tests Design tests of

of transactions (Step 4). controls (Step 3).

Audit procedures Sample size Items to select Timing

Analytical Procedures

Analytical procedures may be performed during 3 different stages of the

audit:
 In the planning stage to help the auditor understand the client’s business
and determine other evidence needed to satisfy acceptable audit risk.
 During the audit, especially during substantive testing.
 Near the end of the audit as a final test of reasonableness.
Tests of Details of Balances

 If the results of tests of controls, substantive tests of transactions, and

analytical procedures are not consistent with the predictions, tests of details
of balances will need to be changed as the audit progresses
Methodology for Designing Tests of
Balances – Accounts Receivable
Set tolerable misstatement
and assess inherent risk
for accounts receivable.

Assess control risk for sales

and collection cycle.

Design and perform tests of

controls and substantive tests
of transactions for sales and
collection cycle.
Methodology for Designing Tests of
Balances – Accounts Receivable

Design and perform analytical

procedures for accounts
receivable balance.

Audit procedures
Design tests of details of
Sample size
accounts receivable balance
to satisfy balance-related Items to select
audit objectives.
Timing
 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.
Summary of the Audit process
Phase I

Accept client and perform initial planning.

Understand the client’s business and industry.

Assess client’s business risk.

Perform preliminary analytical procedures.

Set materiality and assess acceptable audit risk

and inherent risk.

Understand internal control and assess control risk.

Develop overall audit plan and audit program.

Summary of the Audit process
Phase II

No
Plan to reduce assessed
level of control risk?

Yes

Perform tests of controls.

Perform substantive tests of transactions.

Assess likelihood of misstatements in

financial statements.
Summary of the Audit process
Phase III

Low Medium High or

unknown

Perform analytical procedures.

Perform tests of key items.

Perform additional tests of details of balances.

Summary of the Audit Process
Phase IV
Review for contingent liabilities.

Review for subsequent events.

Accumulate final evidence.

Evaluate results.

Issue audit report.

Communicate with audit

committee and management.