modern auditing ch12.ppt
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Transcript of modern auditing ch12.ppt
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Modern Auditing:Assurance Services and the Integrity
of Financial Reporting, 8thEdition
William C. BoyntonCalifornia Polytechnic State
University at San Luis Obispo
Raymond N. JohnsonPortland State University
Chapter 12 Audit Procedures in Response to Assessed
Risks: Substantive Tests
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Chapter Overview
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Determining Detection Risk
Detection Risk Model
If, AR = IR x CR x DR, and
DR = AP x TD so,
DR = AR / (IR x CR)
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Preliminary Audit Strategy, Planned
Detection Risk, and Planned Emphasis on
Audit Tests
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Study Break
1. Which of the following is the
correct representation of
detection risk?
A. DR = AP x CR
B. DR = AP x IR
C. DR = TD x AP
D. DR = TD x AR
C. DR = TD x AP
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Study Break
2. Which of the following is not a step forassessing the risk of a materialmisstatement?
A. Evaluate the magnitude of potential
misstatementB. Evaluate the likelihood of potential
misstatement
C. Evaluate who identified the potentialmisstatement
D. Evaluate the type of potential misstatement
C. Evaluate who identified the potentialmisstatement
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Tests of Controls and
Substantive Tests
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Using IT to Support Substantive
Tests
Generalized Audit Software
Reconcile Detail Audit Data with the GeneralLedger
Selecting and Printing Audit Samples
Testing Calculations and Making Computations
Testing the Entire Population
Summarizing Data and Performing Analyses
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Audit Choices in the Design of
Substantive Tests
Nature
Timing
Extent
Staffing
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Nature of Substantive Tests
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Timing of Substantive Tests
Prior to Balance Sheet Date
Interim Date Risks
Importance of Internal Controls
At the Balance Sheet Date
Comparison of Account Balances
Investigate Unusual Amounts
Other Analytical Procedures
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Extent of Substantive Tests
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Summary of Relationships
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Special Considerations
Balance Sheet and Income
Statement Accounts
Related Party Transactions
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General Framework for Developing an
Audit Program for Substantive Tests
Nature of Procedures to be
Performed
Outline of the work to be done
Basis for coordinating, supervising,
and controlling the audit
A record of the work performed
Addressing All Assertions
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Audit Objectives Example
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Study Break
3. This type of test determines the
fairness of significant financial
statement assertions.
A. Tests of Controls
B. Substantive Tests
C. Inherent Tests
D. None of the above
B. Substantive Tests
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Study Break
4. This type of substantive testinvolves comparing plausiblerelationships among both financial
and nonfinancial data.A. Initial Procedures
B. Substantive Analytical Procedures
C. Tests of Details of Transactions
D. Tests of Details of Balances
B. Substantive Analytical Procedures
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Study Break
5. This choice in designing a substantive
test specifically identifies the size of a
sample that is needed to meet the
acceptable level of detection risk.A. Nature
B. Timing
C. Extent
D. Staffing
C. Extent