Assertions and Types of Audit Procedures

Question 1

What are the auditors BASIS for conclusion?

Answer 1

1) Risk assessment procedures- The assess the risk of material misstatement, emphasis on internal controls
2) Tests of controls- Procedures to obtain information on the OPERATING EFFECTIVENESS of internal controls to prevent or correct misstatements. NON-ISSUERS we DO NOT have to do this (not required under AICPA)
3) Substantive procedures- detect material misstatement at the relevant assertion level (required at every material level)

Question 2

What is the menu of specific substantive audit procedures?

Answer 2

1) Inspection of records/documents: Examining records or documents; whether internal or external, whether paper or electronic
2) Inspection of Tangible Assets: Physical examination of the assets
3) Observation: Looking at a process or procedure being performed by others
4) Inquiry: Seeking information of knowledgeable persons inside or outside the entity and evaluating their responses. Note that inquiry alone does not provide sufficient appropriate evidence either for substantive procedures or for tests of controls
4) Confirmation: obtaining a representation directly from a knowledgable third party
5) Recalculation: Checking the mathematical accuracy of documents
6) Re-performance: The auditors execution of procedures or controls originally performed as part of the entity’s internal controls
7) Analytical Procedures- Includes “scanning” to review accounting data to identify unusual items to be tested further

Question 3

T/F: The auditor is required to link audit procedures to risk assessment?

Answer 3

TRUE!! Basic responsibility- Plan and perform substantial procedures to be responsive to the assessed RMM.

Question 4

Detection risk is determined by:

Answer 4

1) Nature- Substantive procedures consists of 1) Test of details and 2) Substantive analytical procedures
2) Extent of substantive procedures- Sample Size
3) Timing- May be performed at interim (before year-end) or at final

Question 5

What are the documentation requirements:

Answer 5

1) Overall response at the F/S level to assessed risk of RMM
2) Nature, timing, and extent of further audit procedures
3) Linkage of those procedures with assessed RMM at the relevant assertion level
4) Results of the audit procedures performed
5) Conclusions reached in current audit period about the operating effectiveness of controls tested in a prior period