Bus 426 - Lecture 5.docx

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Department
Business Administration
Course
BUS 426
Professor
Michael Favere- Marchesi
Semester
Summer

Description
Lecture 5 Audit Strategy, a planned approach to conduct audit testing, taking into account risks. Therefore, it is developed after the client risk profile is complete. 5 Types of Audit Tests 1. Risk Assessment Procedures, used to assess the likelihood of material misstatement (MM = Inherent Risk + Control Risk) 2. Procedures to Obtain an Understanding of Internal Controls, o First, Review the prior year’s audit work, update and evaluate the changes o Second, Perform inquiries of the client o Third, Review the policies and procedures o Fourth, Examine documents + records o Fifth, Observe activities + operations 3. Test of Controls, To verify if the controls match the auditor’s understanding of the control 4. Analytical Procedures [Substantive Test], understand business, identifying potential misstatements, reduces tests of details, used to assess going concern 5. Test of Details [Substantive Test], The substantive procedures performed to detect the material misstatement, done at the assertion level o Uses examination, inquiry, recalculation, direct communication (confirmation) o Deals with $ amount *Dual-Purpose Test, a test of control and a test of details Audit Program Test of Controls Analytical Procedures  Performed at the beginning of the audit planning and end of audit, the going concern and reasonableness of amounts Test of Details  Procedures are selected for each amount and for each balance-related audit objectives within each account Sampling, a method of obtaining information that will allow an estimate of the value of quantity of a population (N) by examining only a portion (n) of that N  Done for Test of Controls and Test of Details  There is always a sampling risk, which is there because you are not testing the whole N  Non-Sampling Risk, you use an ineffective auditing procedure or a failure to recognize an exception Statistical Sampling, uses probabilities for selecting and evaluating n from N  Quantifies sampling risk  Statistical calculation to measure + express results Probabilisti
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