2018 Lecture Slides Topic 8 ST.pdf - TOPIC 8 Overview Of Substantive Procedures Assertions Nature Timing and Extent of Substantive Procedures(incl CAATs

2018 Lecture Slides Topic 8 ST.pdf - TOPIC 8 Overview Of...

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18/03/2018 1 E XE CUTIO N O F THE AUDIT – P E R F O R MING S UBS TANTIVE P R O CE DUR E S TOPIC 8 ISA(NZ) 200;240;315;500;501;505;520;530 Overview Of Substantive Procedures & Assertions Nature, Timing and Extent of Substantive Procedures (incl. CAATs) Concluding & Documenting the Results of Audit Procedures Overview Of Substantive Procedures Definition: procedures designed to obtain direct evidence as to the completeness, accuracy and validity of data & other information contained in the financial statements. Overall objective: to supplement controls testing (TOC) the auditor may have performed in order to determine that the underlying accounting records are materially correct and reconcile to the financial statements that the auditor will ultimately form an opinion on. OVERVIEW OF SUBSTANTIVE PROCEDURES AR = f(IR, CR, DR) Figure 9.2 Linkage between inherent risk, control risk and detection risk > AP < TODOT, TODOB < AP >TODOT, TODOB
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18/03/2018 2 Audit risk model is modelled by this equation (from Chapter 4): AR = f(IR, CR, DR) Which ones represent the risk of material misstatement (IR, CR)? If IR and CR are low, will the auditor accept a low or a high DR? OVERVIEW OF ASSERTIONS e.g. the auditor needs to verify that sales transactions recorded in the income statement occurred and relate to the entity (occurrence assertion) ASSERTIONS ABOUT CLASSES OF TRANSACTIONS AND EVENTS ASSERTIONS ABOUT ACCOUNT BALANCES AT YEAR-END ASSERTIONS ABOUT PRESENTATIONS AND DISCLOSURE Typically income statement accounts Typically balance sheet accounts Disclosures made in the financial statements 1. OCCURRENCE 1. EXISTENCE 1. OCCURRENCE 2. RIGHTS AND OBLIGATIONS 2. RIGHTS AND OBLIGATIONS 2. COMPLETENESS 3. COMPLETENESS 3. COMPLETENESS 3. CUT OFF 4. ACCURACY 4. VALUATION AND ALLOCATION 4. CLASSIFICATION AND UNDERSTANDABILITY 5. CLASSIFICATION The auditor will need to perform extensive substantive procedures to provide SAE to reach a conclusion. This is often the case when auditing smaller businesses that do not have appropriate segregation of duties, or may not have internal controls in place for the entire period of reliance NATURE OF SUBSTANTIVE PROCEDURES Audit procedures that are designed to obtain as to the 1. Completeness 2. Accuracy 3. validity of data, and 4. reasonableness of estimates and other information contained in the financial statements.
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