II. Financial Statement Audits - Overview of Audit Process

Question 1

Principles Underlying an Audit Conducted in Accordance with GAAS state that sufficient appropriate audit evidence is to be obtained through designing and implementing appropriate responses, i.e., by performing audit procedures, to afford a reasonable basis for an opinion regarding the financial statements under audit. The substantive evidential matter required by this standard may be obtained, in part, through

Answer 1

substantive evidential matter required by the Principles may include evidence obtained through the performance of substantive analytical procedures (as well as that obtained through inspection, observation, inquiries, and confirmation). Analytical procedures performed as substantive tests can be used to provide substantive evidential matter.

Note: Substantive evidential matter means to “verify”

Question 2

The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the

Answer 2

The audit work performed by each assistant should be reviewed for

• adequacy and
• to ensure that it supports the conclusions reached.

Question 3

The auditor faces a risk that the examination will not detect material misstatements which occur in the accounting process. In regard to minimizing this risk, the auditor primarily relies on

Answer 3

Substantive tests.

Purpose: to obtain evidence as to the validity and the propriety of accounting treatment of transactions and balances or, conversely, of errors or irregularities.

Example: Thus, the auditor relies on substantive tests to minimize the risk of failure to detect material misstatements which occur in the accounting process.