chap 13 selecting which types of tests to perform Flashcards
what is the order of the cost of test from lowest to highest cost?
- substantive analytical procedures 2. risk assessment procedures 3. test of controls 4. substantive test of transactions 5. test of details of balances
when do auditors have to develop a sufficiently precise expectation (analytical procedure) to support the account balance (2)?
- when substantive analytical procedures are the primary evidence for an account balance 2. when substantive analytical procedures are used to reduce tests of details of balances
increasing the sample size for the confirmation of A/R is what kind of test?
substantive test of details of balances
what is the only test that the audit evidence of physical examination is used for?
test of details of balances
what 4 types of audit evidence is used for test of controls?
- inspection 2. observation 3. inquiries of the client 4. reperformance
like tests of controls, what other test only indicates the likelihood of misstatment affecting the dollar value of the FSs?
analytical procedures
why do test of details of blances almost always cost the most?
because of the cost of procedures such as sending confirmations and counting inventories
if control test deviations are considered to be significant deficiencies or material weaknesses, the auditore should perform substantive tests of transactions or test of details of balances to determine what?
whether material dollar misstatements have actually occurred
what type of audit evidence is used for every type of test?
inquiries of the client
risk assessment procedures are required in all audits to assess the risk of material misstatement while the other four types of tests are performed in response to what?
the risks identified to provide the basis for the auditors opinion
auditors may reperform a control for what 2 reasons?
- as part of a transaction walkthrough 2. to test a control that is not supported by sufficient documentary evidence
what is the only test that the audit evidence of observation is used for?
tests of controls
why do substantive tests of transactions cost more than tests of controls that do not include reperformance?
because they often require recalculations and tracings
T/F when deciding which type of test to select for obtaining suffiecient appropriate evidence, the cost of evidence is not an important consideration
F
what are the two test the audit evidence of recalculation is used for?
substantive test of transactions tests of details of balances
why are risk assessment procedures not as costly as other audit tests?
because auditors can easily make inquireis and observations and perform planning analytical procedures. alos examining documents is cheap
what 4 types of audit evidence is used for substantive tests of transactions?
- inspection 2. inquiries of the client 3. reperformance 4. recalculation
T/F auditors typically use all 5 types of test when doing an audit of the FSs but certain types bay be emphazed depending on the circumstances
T
why are substantive analytical procedures the least costly?
because of the relative ease of making calculations and comparison
if auditors assess control risk below the maximum, they must do what?
perform tests of controls to determine whether the assessed level of control risk is supported
which tests do auditors try and plan to minimize their use?
test of details of balances
what 6 types of audit evidence is used for tests of details of balances?
- physical examination 2. confirmation 3. inspection 4. inquiries of the client 5. reperformance 6. Recalculation
the auditors understanding of internal control performed as part of risk assessment procedures provides the basis for the auditor’s what?
initial assessment of control risk
what is the only test that the audit evidence of analytical procedures is used for?
substantive analytical procedures
which test has 6 of the 8 types of audit evidence available
tests of details of balances
auditors are most liekly to believe material dollar misstatements exist in the FSs when control test deviations are considered to be what (2)
- significant deficiencies 2. material weaknesses
what is the difference between an exception in a test of control and an exception in a substantive test of transactions or a test of details of balances?
exception in test of control- indicates the likelihood of misstatements affecting the dollar value of the FSs exception in the 2 substantive tests= is a FS misstatement
verifying prices, extensions, and footings are what kinds of tests?
substantive tests of transactions
what is the only test that the audit evidence of reperformance is not used for?
substantive analytical procedures
only test of the details of balances involve which 2 types of audit evidence
physical examination confirmation
what are 4 factors that influence the auditors choice of the types of tests to select?
- the availability of the eight types of evidence 2. the relative costs of each type of test 3. the effectiveness of internal controls 4. inherent risks
auditors often limit their tests to substantive analytical procedures if they conclude the accounts are reasonably stated for what kinds of accounts (2)?
- those with small balances 2. those with only minimal potential for material misstatments
if tests of control support the control risk assessment, what 2 things happen?
- planned detection risk in the audit risk model is increased 2. planned substantive tests can be reduced
what is the only test that the audit evidence of confirmation is used for?
test of details of balances
how can auditors poerform a large number of tests of controls quickly?
using audit software
exceptions in test of controls are called ?
control test deviations
what 2 types of audit evidence is used for substantive analytical procedures?
- inquiries of the client 2. analytical procedures
T/F even with maximum reliance on controls, some substantive procedures are still required in an audit of FSs
T
what is the only test that the audit evidence of inspection is not used for?
substantive analytical procedures
what are the only two tests performed in the audit of internal control over financial reporting?
- risk assessment procedures 2. tests of controls
why are test of controls more costly relative to the auditors risk assment procedures?
because of the greater extent of testing required to obtain evidence that a control is operating effectively especially when involving reperformance
when dealing with reperformance and recalculation tests, when do auditors perform them?
- since they need to do some of them anyway they might do them as part of the original tests of controls 2. they might do them after they know the results of the tests of controls and then determine the total sample size needed
