55 medium Describe the five types of audit tests Identify which of the five

55 medium describe the five types of audit tests

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55.mediumDescribe the five types of audit tests. Identify which of the five types are substantive tests, andwhich are used to reduce assessed control risk.Answer:The five types of audit tests used to determine whether financial statements are fairlystated are: procedures to obtain an understanding of internal control, tests of controls,substantive tests of transactions, analytical procedures, and tests of details of balances.Substantive tests of transactions, analytical procedures, and tests of details of balances aresubstantive tests, whereas procedures to obtain an understanding of internal control andtests of controls are used to reduce assessed control risk.56.mediumConsider the audit risk model and the five types of audit tests. Which tests provide evidencepertinent to the various elements of the audit risk model?Answer:Evidence can be obtained about control risk via procedures to obtain an understanding ofinternal controls, tests of controls, and substantive tests of transactions. Evidence can beobtained about planned detection risk via substantive tests of transactions, analyticalprocedures, and tests of details of balances.57.mediumDiscuss the purposes of (1) substantive tests of transactions, (2) tests of controls, and (3) testsof details of balances. Give an example of each.Answer:The purpose of substantive tests of transactions is to determine whether all sixtransaction-related audit objectives have been satisfied for each class of transactions. Forexample, as part of the auditor’s test of the accuracy objective for sales, the auditor wouldcompare the amount recorded in the sales journal for a sample of sales transactions withthe total on the corresponding sales invoices. The purpose of tests of controls is to determine the effectiveness of both the design andoperations of specific internal controls. For example, the auditor might observe for amonth whether statements are mailed to all customers.The purpose of tests of details of balances is to determine the monetary correctness of theaccounts they relate to. The confirmation of accounts receivable is an example.13-8
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58.mediumThere are seven types of audit evidence. Of these seven, identify which types are used whenperforming (1) tests of details of balances, and (2) tests of controls.Answer:When testing details of balances, the auditor would use: physical examination,confirmation, documentation, inquiries of the client, and reperformance.When testing controls, the auditor would use: documentation, observation, inquiries ofthe client, and reperformance.59.mediumA four-step approach to designing tests of controls and substantive tests of transactions isfollowed when the auditor plans to reduce assessed control risk. The first step is “Apply thetransaction-related audit objectives to the class of transactions being tested.” The fourth step is“For the potential types of misstatements related to each transaction-related audit objective,design appropriate substantive tests of transactions, considering weaknesses in internal control
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