General Principles governing the audit -Inquiry

of FS -Confirmation
-Code of Professional Ethics -Computation
-Phil Standards of Auditing -Analytical Procedures
-professional skepticism
The Audit Process
Elements of a System of Quality Control -Accepting and engagement
-Leadership Responsibility for Quality on -Audit Planning
Audits -Considering Internal Control
-Ethical Req -Performing Substantive Test
-Integrity -Completing the Audit
-Objectivity -Issuing A Report
-Pro competence and due care
Engagement letter- a written contract
-confidentiality
between the auditor and the client.
-professional behavior
-Independence Audit Planning determine the scope of
-Acceptance and continuance of client rel. the audit procedures to be performed
-HR and Assignment
-Engagement Performance Materiality info is material if its omission
-Direction could influence the economic decision of
-Supervision users takes on the basis of the FS.
-Review Using Materiality Levels
-Consultation Planning Stage
-Engagement Quality Control Review Step 1 Determine the overall materiality -
-Differences of Opinion FS Level
-Monitoring Step 2 Determine the tolerable
Types of Fraud misstatement - Acct Bal Level
-Fraudulent financial reporting (perform audit procedures)
-Misappropriation of assets or employee Completion Stage
fraud Step 3 Compare the aggregate amount of
uncorrected misstatements with the overall
FS Assertions materiality
-assertions about classes of transactions
-Occurrence Audit Risk Model
-Completeness AR = IR * CR * DR
-Accuracy Audit Risk risk that the auditor gives and
-Cutoff inappropriate audit opinion on the FS
-Classification -Less AR more Substantive procedure
-Assertions about acct bal at the period end
-Existence Inherent Risk the susceptibility of an
-Rights and obligations account balance or class of transactions to a
-completeness material misstatement assuming that there
-Valuation and allocation were no related internal controls.
-Assertions about presentation and -More IR more effective substantive
disclosure procedures
-occurrence and rights and obli
Control Risk a material misstatement that
-completeness
could occur in an account balance of class of
-classification and understandability
transactions will not be prevented or
-Accuracy and valuation
detected and corrected on a timely basis by
Audit procedures accounting and internal control system.
-Inspection -More CR more effective SP
-Observation
DR increases Assurance provided by ST Use of Analytical Procedures in an Audit
increases *Planning the audit to understand the
DR inversely related to IR and CR clients business
-to identify areas that my represent
Steps in using the audit risk model
specific task
Step 1 Set the desired level of Audit Risk
*Substantive test to obtain evidence to
Step 2 Asses the level of IR
confirm individual acct bal
Step 3 Asses the level of CR
*Overall Review To identify unusual
Step 4 Determine the acceptable lvl of DR
fluctuations that were not identified in the
DR = AR/IR*CR
planning and testing phases of the audit.
Step 5 Design Substantive Test
Using analytical procedures as a
Audit Risk Model planning tool
*compare FS with expectations
(Audit Planning)
*determine the diff. bet. The expected and
Set desired lvl of AR
recorded balances
Asses IR
-Is the difference significant?
(consideration of internal control)
*Yes design more extensive ST
Asses CR
*No design less extensive ST
(Performing ST)
Determine acceptable lvl of DR Components of internal control
-control environment
Effect of materiality on AR and planned
-risk assessment
audit procedures
-information and comms system
Materiality AR Planed Audit proc
-control activities
Low High More extensive
-monitoring
High Low Less extensive
Control Activities
Steps in applying analytical procedures
-performance reviews
Step 1 Develop expectations regarding FS
-Information processing
Step 2 Compare expectations with the FS
-physical controls
under audit
-segregation of duties
Step 3 Investigate significant unexpected
differences to determine whether FS contain
material misstatements.