Five categories are 1 Control environment 2 Risk assessment 3 Control

Five categories are 1 control environment 2 risk

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Five categories are- 1. Control environment 2. Risk assessment 3. Control activities 4. Information and communication 5. Monitoring 8
Performance of the tests of controls and substantive tests of transaction occurs during this phase. The objectives of phase II are to 1. Obtain evidence in support of the specific controls that contribute to auditor’s assessed control risk, 2. Obtain evidence in support of the monitory correctness of transactions The former objective is met by performing tests of control, and the latter by performing substantive test of transaction. Many of both types of test are conducted simultaneously on the same transaction. When control are not considered effective, or when control deviation are discovered, substantive tests can be expanded in this phase or in phase III. Since the results of tests of controls and substantive tests of transactions are major determinant of extent of tests of detail balances,they are often performed two or three months before balance sheet date. This helps the auditor plan for contingencies, revise the audit program for unexpected results, and complete the audit as soon as possible after the balance sheet date. 9
The objective of phase III is to obtain additional evidence to determine whether the ending balance and footnotes in financial statement are fairly stated. There are two general categories of phase III procedures: analytical procedures and test of detail balance sheet. When performing analytical procedures, the auditors examine both financial data and nonfinancial data, such as the number of employees. When performing analytical procedures, the auditors examine both financial data and nonfinancial data, such as the number of employees. Before starting their analytical procedures, auditors estimate the expected value (of the ratio/ trend/ account balance/ transaction, etc.) before calculating the actual value so as to avoid the actual value being biased for the auditor’s estimate of the expected value. The expected results are estimated based on preliminary discussions with the clients. 10
After the first three phases are completed, it is necessary to accumulate some additional evidences for the financial statements, summarize the results, issue the audit report, and perform other forms of communication. The phase has several parts- Review of contingent liabilities: Contigent liabilities are potential liabilities that must be disclosed in the client’s footnotes. Auditors must make sure that the disclosure id adequate. Review for subsequent events: The auditor must review transactions and events that occurred after the balance sheet date to determine whether any of these transactions or events affect the fair presentation or disclosure of the current period statements. The auditing procedures required by auditing standards to verify these transactions and events are commonly called the review for subsequent events or post-balance-sheet review.

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