Financial statement audits-overview of audit process

Question 1

overview of audit process (4 steps)

Answer 1

1. engagement planning
2. internal control considerations
3. substantive audit procedures (evidence gathering procedures, whose purpose is to detect material misstatements)
4. reporting

Question 2

substantive audit procedures (2 types of procedures)

Answer 2

analytical procedures- evidence gathering procedures that suggest reasonableness (or unreasonableness) based on a comparison to appropriate expectations or benchmarks, such as prior year financial statements, comparability to industry data (including ratios), or other interrelationships involving financial and/or non financial data.

Test of Details- 2 types evidence gathering procedures.

1. tests of ending balances- Where the final balance is assessed by testing the composition of the year-end balance (e.g., testing a sample of individual customers’ account balances that make up the general ledger accounts receivable control account balance).
2. tests of transactions- Where the final balance is assessed by examining those debits and credits that caused the balance to change from last year’s audited balance to the current year’s balance.