Designing substantive procedures Flashcards
Detection risk formula
Detection risk = AR / (IR x CR)
Low detection risk
High substantive testing
Moderate or high detection risk
Low substantive testing
Nature of substantive testing
Type and effectiveness of audit procedures to be performed
Timing of substantive procedures
High detection risk = procedures performed towards end of year
Low detection risk = procedures performed near or at balance date
Extent of substantive procedures
The amount of evidence required
Low detection risk = more evidence needed
High detection risk = less evidence needed
3 types of substantive procedures
- Analytical procedures
- Test of details of transactions
- Test of details of balances
Analytical procedures
Relationships between financial and non-financial information
- Ratio analysis
- Horizontal analysis
- Vertical analysis
Test of details or transactions
Tests to obtain evidence of a sample of the individual debits and credits that make up at account
Test of details of balances
Test of details of balances focus on obtaining evidence directly about and ending account balance
CAATS
- Extract dats for testing
- Re-performing calculations
- Extraction of invoices over a certain value
- Identifying inconsistencies
3 types of CAATS
- Generalized audit software
- Customized audit software
- Utility programs
Assertions about transactions
- Occurrence
- Completeness
- Accuracy
- Cut-off
- Classification
Assertions about balances
- Existence
- Completeness
- Rights and obligations
- Valuation and allocation
