MGAD10H3 Lecture Notes - Trend Analysis, Financial Statement, Regression Analysis

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Published on 15 Dec 2012
School
UTSC
Department
Financial Accounting
Course
MGAD10H3
Professor
Chapter 9 Execution of the Audit Performing Substantive Procedures
Substantive procedures
- Designed to obtain direct evidence of completeness, accuracy and validity of data and the
reasonableness of the estimates and other info contained in F/S
- Common substantive procedures: sending bank confirm, observing inventory count, confirming
receivables balances, examine material journal entries and other adjustments of audit
importance
Relationship between Risk Assessment and Nature, Timing, Extent of Substantive Procedures
- Timing of Substantive Procedures
o Accounts accumulate transactions perform before year end
o Others perform at interim date depends on existence of an effective control
environment and effectiveness of controls
o Most flexible substantive procedures is when control environment is effective and
tested
o When substantive procedures performed prior to YE perform roll-forward
procedures
Update findings from time of interim procedures through to YE
Substantive Audit Procedures
- Tests of Details
o Not analytical procedures
o Tests of details of transactions verify balance/transaction back to supporting
documentation (vouching)
Balance is taken from records and verified by agreeing to evidence
Ensures transactions not overstated
o Tracing source document traced to records
Ensure balance not understated (i.e. completeness)
o Dual purpose tests evidence of effectiveness of controls and item recorded properly
o Tests of Details of Balances
Support ending general ledger balances of an account
o 3 main types of tests of details
Key Item Testing
Statistical basis/professional judgement to identify and test key items in
balance
Test the largest balanced item
The more persuasive evidence from other procedures, less coverage key
items needed
Representative Sampling
Ensure each item has same chance of being selected
Representative Sampling using Audit Risk Tables
o When do not expect errors or expect low number of errors
o Riskof material misstatement is low, concern is overstatement
Variables estimation sampling
o Expect more than a few errors
o Used when concern is both under and overstatement
o Detect mm of book value s
o Select carrying value and compare to audited value, difference
projected to estimate error in population
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Document Summary

Chapter 9 execution of the audit performing substantive procedures. Designed to obtain direct evidence of completeness, accuracy and validity of data and the reasonableness of the estimates and other info contained in f/s. Common substantive procedures: sending bank confirm, observing inventory count, confirming receivables balances, examine material journal entries and other adjustments of audit importance. Relationship between risk assessment and nature, timing, extent of substantive procedures. Update findings from time of interim procedures through to ye. Tests of details: not analytical procedures, tests of details of transactions verify balance/transaction back to supporting documentation (vouching) Balance is taken from records and verified by agreeing to evidence. Ensures transactions not overstated: tracing source document traced to records. Ensure balance not understated (i. e. completeness: dual purpose tests evidence of effectiveness of controls and item recorded properly, tests of details of balances. Support ending general ledger balances of an account: 3 main types of tests of details.

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