Escolar Documentos
Profissional Documentos
Cultura Documentos
Audit Planning,
Types of Audit
Tests, and
Materiality
McGraw-Hill/Irwin
LO# 1
3-2
Prospective Client
Acceptance
1. Obtain and review financial information.
LO# 1
3-5
LO# 1
Conflicts over
accounting and
auditing issues
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Preliminary Engagement
Activities
LO# 2
LO# 3
LO# 4
3-9
LO# 5
Internal Auditors
3-10
LO# 6
LO# 7
3-12
LO# 7
3-13
LO# 7
To identify
financial statement
accounts likely to
contain errors
LO# 7
Establish Materiality
Establish overall
materiality
(more on this later!)
Establish tolerable
misstatement for
accounts
Establish tolerable
misstatement for
disclosures
3-15
LO# 7
Consider Multilocations or
Business Units
Consolidated
Financial
Statements
High Risk
Moderate
Risk
Low
Risk
The auditor correlates the amount of audit attention devoted to the location or
business unit with the level of risk present.
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LO# 7
Use of Specialists
A major consideration in planning the audit is the need for
a specialist.
The use of an IT specialist
is a significant aspect of
most audit engagements.
The presence of complex
information technology
may require the use of an
IT specialist.
LO# 7
Illegal
Acts
Direct and
Material
Material and
Indirect
Consider laws
and regulations
as part of audit
LO# 7
Illegal Acts
3-19
LO# 7
Related Parties
Some examples from FASB ASC Topic
850, Related Party Disclosures
How to Identify
Related Parties
and management.
significant influence.
transactions.
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LO# 7
Additional Value-Added
Services
Tax Planning
System
Design and
Integration
Internal
Reporting
Risk
Assessment
Benchmarking
Electronic
Commerce
LO# 7
Document Audit
Strategy and Plan
Document overall audit strategy and
audit plan, which involves documenting
the decisions about
Nature
Timing
Extent
A
U
D
I
T
T
E
S
T
S
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LO# 7
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LO# 8
3-24
LO# 9
Tests of Controls
Substantive
Procedures
LO# 9
Tests of Controls
Inquiry
Inspection
Observation
Walkthrough
Reperformance
3-26
LO# 9
Tests of Controls
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LO# 9
Substantive Procedures
Tests of
Details
Analytical
Procedures
Evaluations of financial
information through analysis
of plausible relationships
among financial and nonfinancial data
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LO# 9
Dual-Purpose Tests
Substantive
Tests of
Transactions
Tests of
Controls
DualPurpose
Tests
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LO# 10
Materiality
The United States Supreme Court
interpretation of materiality is that a fact
is material if there is a substantial
likelihood that thefact would have been
viewed by the reasonable investor as
having significantly altered the total mix
of information made available.
Materiality is not an absolute and
it is not a black or white issue!
The determination of materiality
requires professional judgment.
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LO# 11
Step 1:
Determine a materiality level for the overall financial statements
(planning materiality)
Step 2:
Determine tolerable misstatement
(allocation of materiality at individual account/class of transactions level)
Step 3:
Evaluate auditing findings
(near the end of the audit)
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LO# 11
Material misstatements in
prior years.
Total assets.
Total revenues.
Gross profit.
Materiality Examples
Constant %
5% of pretax income
1/2% of total assets
1% of total equity
1/2% of total revenues
Sliding scale
2-5% of GP if between $0-20k
1-2% if between $20,000-1M
1/2-1% if between $1M-100M
1/2% if over $100M
Blends
averages diff. methods
Other
1.6(greater of assets or revs)2/3
33
LO# 11
LO# 11
End of Chapter 3
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