Further audit procedures a combination of tests of

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Further audit proceduresa combination of tests of controls, substantive tests oftransactions, analytical procedures, and tests of details of balances performed inresponse to risks of material misstatement by the auditor’s risk assessment procedures.Each audit procedure falls into one, and sometimes more than one, of these five categories.Tests of controls are performed to support the reduced assessment of control risk, while auditors useanalytical procedures and tests of details of balances.Substantive tests of transactions affect both control risk and planned detection risk, because they testthe effectiveness of controls (if used as part of control testing) and the dollar amount of transactions.
Risk Assessment ProceduresRisk assessment procedures– used to assess the likelihood of material misstatement (inherent riskplus control risk) in the financial statementsProcedures performed to obtain an understanding of the entity and its environment, including fraudrisk and internal controls, represent the auditor’s risk assessment procedures.A major part of the auditor’s risk assessment procedures are done to obtain an understanding ofinternal control.Procedures to obtain an understanding of internal control– focus on both the design andimplementation of internal control and are used to assess control risk for each transaction-relatedassertion.Tests of ControlsThe auditor’s understanding of internal control is to assess control risk for each transaction-relatedaudit objective.Examples are assessing the accuracy objective for sales transactions as low and the occurrenceobjective as moderate.When control policies and procedures are believed to be effectively designed and where it is efficientto do so, the auditor will choose to assess control risk at a level that reflects that evaluation.To obtain sufficient appropriate evidence to support that assessment, the auditor performstests ofcontrols– audit procedures to test the effectiveness of controls in support of a reduced assessedcontrol riskTests of controls, either manual or automated, may include the following types of procedures:1.Make inquiries of appropriate client personnel2.Examine documents, records, and reports3.Observe control-related activities4.Reperform client proceduresSubstantive Tests of TransactionsSubstantive test is a procedure designed to test for dollar misstatements (due to either errors orfraud) that directly affect the correctness of financial statement balances.Auditors rely upon three types of substantive tests:1.Substantive tests of transactions2.Substantive analytical procedures3.Tests of details of balancesSubstantive procedures must be performed for:Each material class of transactions, account balance, and disclosure (regardless of the assessedrisk of material misstatement)Each significant risk at the assertion level. If the auditor is not using tests of controls, then

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Term
Fall
Professor
Smith
Tags
analytical procedures, substantive tests

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