Ch. 9 Approach

Question 1

What are the two approaches for an audit?

Answer 1

1) Substantive Procedures - TOD, and substantive analytics

2) Test of controls - evalutes the effectiveness of controls in preventing, detecting, or correcting material misstatemnts at the assertion level

Note: if you use test of controls, you still need to do substantive procedures but less

Question 2

How do you decide which appraoch to take - substantive or combined?

Answer 2

substative approach has no reliance on operating effectiveness. This is used when the internal controls is not reliable or not yet been established and implemented.

You still need to udnerstand the controls though per CAS 315. Sometimes ti might also be easier to just test it if there are a few transactions instead of testing controls and testing that

combined - it is used when substantive procedures cannot provide SAAE and/or there is an expectations that controls are operating effectively.

this is ideal as it reduces substantive work required, and if they have routine business transactions that have a reliance on automated processing, no manual intervention, high volume of low dollar values (that tod is unfeasible), has a high degree of judgement and estimations where you need to understand their controls (CAS 330.18)

Question 3

What are some other considerations?

Answer 3

IF there is a group audit with with subsidiary companies.

When there is, we need to obtain an understanding of all significant components and their environments (finanical significant or nature/circumstances)

If there are several locations that are significant and they are unable to audit all locations where significant components exists, they either need to propose a new engagement, or ddecline or continue and disclaim.