Chapter 13
Overall Audit Strategy and Audit Program
Types of Tests
Types of tests — the fve categories of audit tests auditors use to determine
whether fnancial statements are fairly stated: risk assessment procedures" tests
of controls" substantive tests of transactions" analytical procedures" and tests of
details of balances.
Further audit procedures — combination of tests of controls" substantive tests of
transactions" analytical procedures" and tests of details of balances performed in
response to risks of material misstatement identifed by the auditor’s risk
assessment procedures.
Risk Assessment Procedure
Procedures to obtain an understanding of internal control — procedures used by
the auditor to gather evidence about the design and implementation of specifc
controls.
Test of Controls
Tests of controls — audit procedures to test the efectiveness of controls in
support of a reduced assessed control risk.
Tests of controls" either manual or automated" may include the following types of
evidence.
• Make inquiries of appropriate client personnel
• Examine documents" records" and reports
• Observe control-related activities
• Reperform client procedures
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
, Substantive Tests of Transactions
Substantive tests are procedures designed to test for dollar misstatements (often
called monetary misstatements) that directly afect the correctness of fnancial
statement balances.
Substantive tests of transactions are used to determine whether all six
transactionrelated audit objectives have been satisfed for each class of
transactions
Analytical Procedure
Analytical procedures involve comparisons of recorded amounts to expectations
developed by the auditor. Auditing standards require that they be done during
planning and completing the audit. Although not required" analytical procedures
may also 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 fnancial statements
2. Provide substantive evidence
Tests of Details of Balances
Tests of details of balances focus on the ending general ledger balances for both
balance sheet and income statement accounts. The primary emphasis in most
tests of details of balances is on the balance sheet.
Tests of details of balances help establish the monetary correctness of the
accounts they relate to and therefore are substantive tests.
Summary of Types of Tests
Tests of controls help auditors evaluate whether controls over transactions in the
cycle are sufciently efective to support the reduced assessment of control risk"
and thereby allow reduced substantive testing. Tests of controls also form the
Overall Audit Strategy and Audit Program
Types of Tests
Types of tests — the fve categories of audit tests auditors use to determine
whether fnancial statements are fairly stated: risk assessment procedures" tests
of controls" substantive tests of transactions" analytical procedures" and tests of
details of balances.
Further audit procedures — combination of tests of controls" substantive tests of
transactions" analytical procedures" and tests of details of balances performed in
response to risks of material misstatement identifed by the auditor’s risk
assessment procedures.
Risk Assessment Procedure
Procedures to obtain an understanding of internal control — procedures used by
the auditor to gather evidence about the design and implementation of specifc
controls.
Test of Controls
Tests of controls — audit procedures to test the efectiveness of controls in
support of a reduced assessed control risk.
Tests of controls" either manual or automated" may include the following types of
evidence.
• Make inquiries of appropriate client personnel
• Examine documents" records" and reports
• Observe control-related activities
• Reperform client procedures
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
, Substantive Tests of Transactions
Substantive tests are procedures designed to test for dollar misstatements (often
called monetary misstatements) that directly afect the correctness of fnancial
statement balances.
Substantive tests of transactions are used to determine whether all six
transactionrelated audit objectives have been satisfed for each class of
transactions
Analytical Procedure
Analytical procedures involve comparisons of recorded amounts to expectations
developed by the auditor. Auditing standards require that they be done during
planning and completing the audit. Although not required" analytical procedures
may also 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 fnancial statements
2. Provide substantive evidence
Tests of Details of Balances
Tests of details of balances focus on the ending general ledger balances for both
balance sheet and income statement accounts. The primary emphasis in most
tests of details of balances is on the balance sheet.
Tests of details of balances help establish the monetary correctness of the
accounts they relate to and therefore are substantive tests.
Summary of Types of Tests
Tests of controls help auditors evaluate whether controls over transactions in the
cycle are sufciently efective to support the reduced assessment of control risk"
and thereby allow reduced substantive testing. Tests of controls also form the
