L&T_ OUTLINE_Lecture 8_S1_2019.pdf - LECTURE 8 THE...

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1 LECTURE 8: THE AUDIT ENGAGEMENT: SUBSTANTIVE TESTS OF TRANSACTIONS AND BALANCES WEEK OF MAY 6 th 2019 1: INTRODUCTION In Lecture 8 we explore substantive audit testing. Substantive tests of transactions and of balances are conducted in every audit in order to reduce planned detection risk. Substantive tests of transactions are designed to verify the dollar value of transactions. Substantive tests of balances are used to test the ending balances (dollar value) of ledger accounts. Substantive tests are also undertaken with respect to specific audit objectives. It is by undertaking substantive tests that the auditor gains direct information concerning any misstatements in the financial statements. 2: LEARNING OBJECTIVES 1. Understand the nature and purpose of substantive tests 2. Understand the difference between substantive tests of transactions and substantive tests of balances 3. Understand the relationship between substantive tests and tests of control 4. Understand how substantive tests relate to financial statement assertions 5. Understand substantive testing of the following: (a) cash (b) sales and accounts receivable; (c) purchases and sales and inventories; (d) accounts payable and cash payments; (e) non current assets; and (f) liabilities. 6. Understand the application of dollar unit sampling in substantive testing. 3: REQUIRED READING Textbook: Chapter 11 and section 12.5.3 of Chapter 12 Handbook ASA 330 Planning an Audit of a Financial Report ASA 500 Audit Evidence ASA 501 Audit Evidence Specific Considerations for Inventory and Segments ASA 505 External Confirmations ASA 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates and Related Disclosures GS 016 Bank Confirmation Requests Film: A few minutes with…Film 11 Substantive Testing
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