Lecture Notes Ch. 13 (ACCT-422)

Lecture Notes Ch. 13 (ACCT-422) - Chapter 13 Overall Audit...

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Chapter 13 Overall Audit Plan and Audit Program Chapter 13 addresses the five types of tests that may be used by the auditor in developing his/her overall audit plan. In developing his/her audit plan, the auditor must consider both the benefits/shortfalls of each type of test and the costs associated with each type of test. The five types of tests are: 1. Procedures to obtain an understanding of internal control 2. Tests of controls 3. Substantive tests of transactions 4. Analytical Procedures 5. Tests of details of balances The first two tests listed above relate to the study and evaluation of internal control, while the last three are substantive tests. Procedures to obtain an understanding of internal control , as discussed in Chapter 10, include: (1) updating and evaluating the auditor’s previous experiences with the client, (2) making inquiries of client personnel, (3) examining client’s documents and accounting records, (4) observing client’s activities and operations, and (5) performing walkthroughs of client’s accounting system. The auditor should look not only at the design of the controls but also at whether, and how, those controls are put into operation. Tests of controls Tests of controls are audit procedures performed to test the effectiveness of internal controls. Tests of controls look to the appropriateness of the design of the controls as well as the operating effectiveness of the controls. They are performed when control policies and procedures are believed to be effectively designed, and the auditor wants to assess control risk below the maximum. In evaluating whether to perform tests of controls to determine if the controls support an assessment of control risk below the maximum, the auditor takes into account the costs associated with such tests of controls. If the auditor believes that the costs associated with the tests of controls outweighs the
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This note was uploaded on 04/11/2010 for the course ACCT 422 taught by Professor Blake during the Spring '10 term at MD University College.

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Lecture Notes Ch. 13 (ACCT-422) - Chapter 13 Overall Audit...

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