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What is the nature, timing, and extent of the substantive tests based on?

Understanding of internal control


Sufficiency relates to _____ of ______ _________

Sufficiency relates to EXTENT of Substantive Testing

Sufficiency relates to QUANTITY of Audit Evidence (Conclusive Evidence < Persuasive Evidence)


Appropriateness relates to ____ of ______ ________

Appropriateness Relates to the NATURE of Substantive Testing

Appropriateness relates to the QUALITY of audit evidence


The extent of Substantive testing relates to

Sufficiency of audit evidence


the nature of substantive testing relates to

appropriateness of audit evidence


What is the Quality of audit evidence Based on?

1. Relevance: Relates to Management Assertions (U-PERCV)

2. Reliability/Faithful Representation – Source (Persuasiveness) and nature


Why is persuasive evidence More Important Than conclusive evidence?

- Due to the limitations of the Audit

- Cost/Benefit Trade off


What should be considered when assessing Risk and Designing audit procedures?

Sufficiency And Appropriateness Of audit Evidence


What is the source of evidence indicate?

Persuasiveness Of audit evidence (Persuasive > Conclusive)


List the Sources of Audit evidence

(Most to least persuasive)

1. Directly obtained by Auditor (Auditor developed > indirectly obtained)

2. Obtained from outsider (Outside)

3. Prepared by outsider but Obtained from client (Outside/Inside)

4. Prepared by client (Inside)

*Concerned with Accuracy & Completeness when using info provided by the client

*No audit can rely Entirely on Client prepared accounting Data


What is the relationship between Validity of evidence and Detection Risk?

- Inverse relationship

- The higher the level of Validity (Persuasiveness), the Lower is the achieved level of Detection Risk in the audit

- And audit with low acceptable level Of Detection Risk usually requires Highest level of Persuasiveness


What Document represents lowest level of persuasiveness?

Management representation letter

- Due to the absence of any effective internal control over Management


Corroborative evidence

“Other Information” Evidence used By the Auditor (except for the Client Accounting records)


With characteristics is Reliability of Audit evidence Directly related to?

1. Source in which it was obtained

2. Conditions Under which it is Developed and Acquired (original > photocopy)

3. its Form (written > orally)


Which levels should the Auditor respond to the assessed level of RMM to reduce Audit risk?

In 2 ways:

1. At the financial statement level

2. At the relevant assertion Level


At the financial statement, what will an Auditor consider to address RMM?

1. Users of the financial statements

2. Purposes for which F/S will be used

3. Economic and Industry Conditions

4. Management Compensation

5. Financing agreements

6. Changes in management

*to determine if there is any Incentive to Overstate/Understate Results


When is the Control environment weak?


*More sub. Testing (vs. interim period)


What does the nature of audit procedures include?

Purpose (Test of control vs. Sub Procedures)




What is the most important Consideration in responding to assessed risk?

The nature of Audit procedures


The HIGHER the auditor's risk Assessment (RMM).... the ….

1. The more relevant & reliable The audit evidence should be

2. The closer period end SUB procedures should be performed

3. The greater the extent of Audit procedures (more procedures or larger sample sizes)


What does Timing of audit tests refer to?

When Audit procedures performed


The period OR date Which the Audit evidence is Applicable

*tests performed at an Interim date or at period end)


What does the Extent of audit procedures refer to?

- The quantity of a Specific Audit procedure


What is the extent of audit procedures Based on?

The Auditor's Judgement which considers:

- Tolerable misstatement

- assessed RMM

- Degree of assurance they plan to obtain


At the relevant assertion level, what will an Auditor consider to address RMM?

The individual elements of Financial Reporting

- Operating items

- Account balances

*magnitude/materiality then procedures for SA evidence


Which assertion should an Auditor concentrate on if the asset is susceptible to theft?

Existence Assertion


Which assertion should an Auditor concentrate on if transactions include numerous shipping arrangements under various shipping terms?

Cutoff Assertion

- highly likely that the transaction (i.e. Sale) will be recognized on an inappropriate date



While assessing the level of RMM at the relevant assertion level, the auditor should identify....

1. Determine if E,A,T represents RMM

2. If RMM --- det. type of likely misstatement

3. Det. assertions most affected (U-PERCV)

*4. I/C reliance (if any – cost-benefit/don't exist) (combined approach)

*5. Test of Controls (if any) for S.A. Evidence (combined approach)

6. Sub. procedures (ICORRI-A) for S.A. Evidence

(required, at min. - Substantive Approach)


Which F/S elements is substantive procedures required for?

For Each Material:

- Transaction Class

- Account Balance

- Disclosure Item


When is Test of Controls required?

when Substantive testing alone cannot provide SUFFICIENT evidence to adequately reduce RMM

(i.e. not enough source documents to support Reasonable Assurance)


Define Management's Assertions

Implicit and explicit representations (11 assertions) made by management in the F/S being audited (AU-C 500)

- recognition, measurement, presentation, and disclosures (in F/S & related disclosures)

*U – PERCV* or *COCA-CURVE* (11 Assertions)