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40 Cards in this Set

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The five categories of audit tests auditors use to determine whether financial statements are fairly stated;
Types of Tests
The 5 types of tests include:
1. Risk Assessment procedures
2. Tests of controls
3. Substantive tests of transactions
4. Analytical procedures
5. Tests of details of balances
What is a combination of test of controls, substantive tests of transactions, analytical procedures, and tests of details of balances performed in response to risks of material misstatement identified by the auditor's risk assessment procedures
Further audit procedures
The second standard of field work requires the auditor to..
obtain an understanding of the entity and its environment.
What are audit procedures to test the effectiveness of controls in support of a reduced assessed control risk?
Tests of controls
The amount of additional evidence required for tests of controls depends on two things:
1. The extent of evidence obtained in gaining the understanding of internal control
2. The planned reduction in control risk
One way the auditor can verify recording of transactions is to perform...
tests of controls.
What are procedures designed to test for dollar misstatements that directly affect the correctness of the financial statement balances?
Substantive tests
What are used to determine whether all six transaction related audit objectives have been satisfied for each class of transaction?
Substantive tests of transactions
When auditors are confident that all transactions were correctly recorded in the journals and correctly posted, considering all 6 transaction related audit objectives...
they can be confident that general ledger totals are correct.
Both tests of controls and substantive tests of transactions are performed for..
transactions in the cycle, not on the ending account balances.
It is more efficient to do test of controls and ____ at the same time.
substantive test of transactions
What involves comparisons of recorded amounts to expectations developed by the auditor?
Analytical procedures
Analytical procedures may be performed to audit..
an account balance.
The two most important purposes of analytical procedures in the audit of account balances are to:
1. indicate possible misstatements in the financial statements
2. Provide substantive evidence
If auditors believe that analytical procedures indicate a reasonable possibility of misstatement..
they may perform additional analytical procedures or decide to modify test of details of balances.
When the auditor develops expectations using analytical procedures and concludes that the client's ending balances in certain accounts appear reasonable...
certain tests of details of balances may be eliminated or sample sizes reduced.
What are audit procedures testing for monetary misstatements to determine whether the eight balance related audit objectives have been satisfied for each significant account balance?
Test of details of balances
The primary focus on the test os details of balances is on..
the balance sheet
What forms the basis for the auditor's report on internal control over financial reporting for public companies?
Tests of controls
Several factors influence the auditor's choice of types of tests to select including:
1. the avaliability of the eight types of evidence
2. the relative costs of each type of test
3. the effectiveness of internal controls
4. inherent risks
What are the 8 types of evidence?
1. Physical examination 2. Confirmation 3. Documentation 4. Observation 5. Inquiry 6. Reperformance 7. Analytical procedures 8. Recalculation
More types of tests are used for ___ than any other type of test.
tests of details of balances
Only _____ involve physical examination ad confirmation.
tests of details of balances
_____ are made for every type of test.
_____ & _____ is used in every type of tests except for analytical procedures.
Documentation & Reperformance
____ are the least costly test.
Analytical procedures
_____ almost always cost considerably more than any of the other types of procedures.
Tests of details of balances
What is the combination of the types of tests to obtain sufficient appropriate evidence for a cycle?
evidence mix
The audit program for most audits is designed in three parts:
1. tests of controls and substantive tests of transactions
2. substantive analytical procedures
3. test of details of balances
When controls are effective and control risk is assessed as low, auditors put heavy emphasis on...
tests of controls
If control risk is assessed at a maximum, only ____ will be used.
substantive tests of transactions
Auditors follow a four step approach to reduce assessed control risk:
1. Apply the transaction related audit objectives to the class of transactions being tested
2. Identify key controls that should reduce control risk for each audit objective
3. Develop appropriate tests of controls
4. Design substantive tests of transactions
The design of ____ is normally the most difficult part of the entire planning process because it is subjective and requires considerable professional judgement.
Tests of details of balances
What are the 4 evidence decisions?
1. Audit procedures
2. Sample size
3. Timing
4. Items to select
What are the 4 phases of the audit?
1. Plan and design an audit approach
2. Perform tests of controls and substantive tests of transactions
3. Perform analytical procedures and tests of details of balances
4. Complete the audit and issue audit report
Even when all transaction realted audit objectives are met, the auditor will still rely primarily on substantive tests of balances to meet two balance related audit objectives:
1. realizable value
2. rights and obligations
What are the 6 transaction related audit objectives?
1. occurrence 2. completeness 3. accuracy 4. posting and summarization 5. classification 6. timing
What are the four presentation and disclosure related audit objectives?
1. occurrence and rights and obligations
2. completeness
3. accuracy and valuation
4. classification and understandability
Auditors must gather the following evidence for the financial statements as a whole during the completion phase:
1. perform final analytical procedures
2. evaluate the going concern assumption
3. obtain a client representation letter
4. read information in the annual report to make sure that it is consistent with the financial statements