ch10 Overall Audit Plan and Audit Program

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Copyright 2003 Pearson Education Canada I nc.

CHAPTER 10
Overall Audit
Plan and Audit
Program
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perform
preliminary
analytical
procedures
Steps in audit planning
preplan
set
materiality, and
assess acceptable
audit risk and
inherent risk
understand
internal control
and assess
control risk
obtain
background
information
obtain
information
about
clients legal
obligations
develop
overall audit
plan and audit
program
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What are the different
types of audit tests?
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- procedures to obtain an understanding
of internal control
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of internal control
The auditor
must focus on both
design and operation
of internal controls.
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of internal control
The auditors
understanding of in-
ternal control must be
supported by evidence.
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of internal control
- tests of controls
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of internal control
- tests of controls
Tests of
controls examine
the effectiveness
of internal
control design
and operation.
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EXAMPLES:
- enquiries of client
personnel
Tests of
controls examine
the effectiveness
of internal
control design
and operation.
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EXAMPLES:
personnel
- examination of docu-
ments, records, and
reports
Tests of
controls examine
the effectiveness
of internal
control design
and operation.
Job
Description
Memo:
CANADIAN BANK
CANADIAN BANK
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EXAMPLES:
personnel
ments, records, and
reports
- observe control-
related activities
Tests of
controls examine
the effectiveness
of internal
control design
and operation.
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EXAMPLES:
personnel
ments, records, and
reports
- observe control-
related activities
- re-perform client
procedures
Tests of
controls examine
the effectiveness
of internal
control design
and operation.
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of internal control
- tests of controls
How are these
two types of
tests related?
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of internal control
- tests of controls
Tests of controls
are designed, in part, to
determine whether the au-
ditors understanding of in-
ternal control is accurate.
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of internal control
- tests of controls

For efficiency,
tests of controls and sub-
stantive tests of transactions
are frequently performed
at the same time.
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of internal control
- tests of controls
- analytical procedures
?
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of internal control
- tests of controls
Analytical procedures
use comparisons and relation-
ships to determine reasonable-
ness of balances.
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of internal control
- tests of controls
- tests of details of balances
?
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of internal control
- tests of controls
Tests of details
of balances examine monetary
misstatements in details of
financial statement accounts.
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of internal control
- tests of controls
The primary emphasis
of this type of test is
the balance sheet.
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- inspection
- confirmation
- documentation
- observation
- reperformance
As discussed in chapter 6, there are six
types of evidence
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- physical examination
- confirmation
- documentation (vouching)
- observation
- reperformance
types of evidence
What types of evidence are produced
by the different types of audit tests?
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types of audit test
types of evidence
produced by test
procedures to obtain
an understanding
of internal control
?
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procedures to obtain
an understanding
of internal control
- documentation
- observation
- reperformance
types of audit test
types of evidence
produced by test
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tests of controls
?
types of audit test
types of evidence
produced by test
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- documentation
- observation
- reperformance
tests of controls
types of audit test
types of evidence
produced by test
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analytical
procedures
?
types of audit test
types of evidence
produced by test
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analytical
procedures
- analytical
procedures
types of audit test
types of evidence
produced by test
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tests of details
of balances
?
types of audit test
types of evidence
produced by test
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- physical
examination
- confirmation
- documentation
- reperformance
tests of details
of balances
types of audit test
types of evidence
produced by test
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The types of audit tests
vary in their relative costs.
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Which type
of audit test is
most expensive?
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Tests of details
of balances are the most ex-
pensive type of audit test, e.g.,
confirmations, physical
examination.
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Which type
of audit test is
least expensive?
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Analytical procedures
are least expensive because of the
relative ease of calculating and
comparing, particularly if
software is employed.
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What is the
evidence mix?
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What is the
evidence mix?
the
combination
of the four types
of audit tests used
in the audit of a cycle
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What is the
evidence mix?
the
combination
of the four types
of audit tests used
In general, if the auditor
assesses the controls and
accounting system as
relatively effective, the
mix will involve more
tests of controls
and less
substantive tests.
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What is the
evidence mix?
the
combination
of the four types
of audit tests used
Conversely, if the auditor
assesses the controls and
accounting system as
relatively ineffective, the
mix will involve less
tests of controls
and more
substantive tests.
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What is an audit
program?
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What is an audit
program?
The audit program is the set of detailed
instructions for the entire collection of
evidence for an audit.
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What is an audit
program?
includes:
- procedures to perform
enquiries examination
of documents
and records
analytical
procedures
observation
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What is an audit
program?
includes:
- sample sizes
$
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$
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What is an audit
program?
includes:
- items to select
$
$
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$
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$ $
$ $
$
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What is an audit
program?
includes:
- timing of tests
$
$
$
$
$
$
$
$ $
$ $
$
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What is an audit
program?
Many programs
have a separate set of
subaudit programs for
each transaction cycle.
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The audit program for most
audits is designed in three parts.
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tests
of controls
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tests
of controls
analytical
procedures
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tests
of controls
analytical
procedures
tests of
details of
balances
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As discussed in Chapter 5, an audit
can be divided into four phases.
I II
III
IV
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II
III
IV
I. Plan and design
an audit approach.
As discussed in Chapter 5, an audit
can be divided into four phases.
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set
materiality, and
assess acceptable
audit risk and
inherent risk
understand
internal control
and assess
control risk
perform
preliminary
analytical
procedures
preplan
obtain
background
information
obtain
information
about
clients legal
obligations
develop
overall audit
plan and audit
program
I. Plan and design
an audit approach.
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An audit can be divided
into four phases.
III IV
I. Plan and design
an audit approach.
II. Perform tests
of controls.
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II. Perform tests
of controls.
no
yes
Does the
auditor plan to
reduce the assessed
level of control
risk?
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II. Perform tests
of controls.
no
yes
Does the
auditor plan to
reduce the assessed
level of control
risk?
Perform tests
of controls
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II. Perform tests
of controls.
no
yes
Does the
auditor plan to
reduce the assessed
level of control
risk?
Perform tests
of controls
Assess the likelihood of
misstatements in the
financial statements
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into four phases.
I. Plan and design
an audit approach.
II. Perform tests
of controls.
III. Perform analyt-
ical procedures and
tests of details of
balances.
IV
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ical procedures and
tests of details of
balances.
Considering the assessed
likelihood of financial state-
ment misstatements (low,
medium, high, unknown):
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ical procedures and
tests of details of
balances.
Perform analytical
procedures
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ical procedures and
tests of details of
balances.
Perform analytical
procedures
Perform tests
of key items
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ical procedures and
tests of details of
balances.
Perform analytical
procedures
Perform tests
of key items
Perform additional
tests of details
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into four phases.
I. Plan and design
an audit approach.
II. Perform tests
of controls.
ical procedures and
tests of details of
balances.
IV. Complete the
audit and issue an
audit report.
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I. Plan and design
an audit approach.
IV. Complete the
audit and issue an
audit report.
Review for
contingent liabilities
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I. Plan and design
an audit approach.
IV. Complete the
audit and issue an
audit report.
Review for
Review for
subsequent events
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I. Plan and design
an audit approach.
IV. Complete the
audit and issue an
audit report.
Review for
Review for
subsequent events
Accumulate
final evidence
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I. Plan and design
an audit approach.
IV. Complete the
audit and issue an
audit report.
Review for
Review for
subsequent events
Accumulate
final evidence
Evaluate results
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I. Plan and design
an audit approach.
IV. Complete the
audit and issue an
audit report.
Review for
Review for
subsequent events
Accumulate
final evidence
Evaluate results
Issue audit report
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I. Plan and design
an audit approach.
Review for
Review for
subsequent events
Accumulate
final evidence
Evaluate
results
Issue audit report
Communicate with audit
committee and management

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Copyright 2003 Pearson Education Canada I nc.

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