Chapter 13 Slides

Question 1

auditors select various tests based on the trade off of __ and __ and depending on the reliance on __ __

Answer 1

cost and benefit
internal control

Question 2

4 steps of designing tests of controls and substantive tests of transactions

Answer 2

1. apply transaction related audit objectives to a class of transactions
2. identify key controls and make a preliminary assessment of control risk
3. design tests of controls (audit procedures, sample size, items to select, timing)
4. design substantive tests of transactions (APs, SS, items to select, timing)

Question 3

2 types of audit procedures

Answer 3

1. risk assessment procedures
2. further audit procedures (TOC, STOT, SAP, TDB)

Question 4

auditors use results of risk assessment procedures to determine

Answer 4

type and amount of audit procedures needed to form opinion on fairness of FS

Question 5

amount of evidence needed for TOCs depends on 2 things

Answer 5

1. extent of evidence obtained in gaining understanding of IC
2. planned reduction in CR

Question 6

Used to determine whether all six transaction-related audit objectives have been satisfied for each class of transactions.

Answer 6

Substantive Tests of Transactions

Question 7

although not required, may be used to audit account balance

Answer 7

Substantive analytical procedures

Question 8

2 most important purposes of SAP

Answer 8

1. indicate possible misstatements in FS
2. provide substantive evidence

Question 9

the primary emphasis of tests of balances is on the

Answer 9

balance sheet

Question 10

Selecting which types of tests to perform (2 factors)

Answer 10

1. availability of types of evidence for further audit procedures
2. relative costs

Question 11

types of tests (5) in increasing order of costs

Answer 11

1. SAP
2. risk assessment procedures
3. TOC
4. STOT
5. TDB

Question 12

when TOC show deviations, auditors perform __ __ to determine whether material misstatement actually occurred

Answer 12

substantive tests

Question 13

analytical procedures only __ the __ of misstatement; unusual fluctuations increase likelihood

Answer 13

indicate the likelihood

Question 14

types of evidence chosen and extent of use vary across audits based on (2)

Answer 14

1. levels of IC effectiveness
2. inherent risks

Question 15

combination of types and amounts of evidence needed in an audit

Answer 15

evidence mix

Question 16

audit program

Answer 16

auditor uses risk assessment procedures to determine appropriate emphasis on each of the other four types of tests, and design specific audit procedures for each type of test

Question 17

4 parts of audit procedure

Answer 17

1. risk assessment procedures
2. TOCs and STOTs
3. SAPs
4. TDBs

Question 18

four step approach to reduce assessed control risk

Answer 18

1. apply trx-related AO to class of transactions being tested
2. ID key controls that should reduce control risk for each trx-related AO
3. develop appropriate TOCs for all ICs that are used to reduce the preliminary assessment of control risk below maximum (key controls)
4. for potential types of misstatements related to each trx-related AO, design appropriate STOTs, considering deficiencies in IC and expected results of the TOCs in step 3

Question 19

6 key decisions involved in designing TDBs

Answer 19

1. identify significant risks and assess risk of material misstatement
2. set performance materiality
3. assess control risk for sales and collection cycle
4. design and perform TOCs and STOTs
5. design and perform SAPs
6. design TDBs

Question 20

the primary test to reduce detection risk to an acceptable level

Answer 20

TDBs

Question 21

substantive tests of balances needed to meet these objectives (2)

Answer 21

1. realizable value
2. rights and obligations