Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8 th Edition
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- Julie McDonald
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1 Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8 th Edition William C. Boynton California Polytechnic State University at San Luis Obispo Raymond N. Johnson Portland State University Chapter 11 Audit Procedures in Response to Assessed Risks: Tests of Controls
2 Chapter 11 Overview
3 Assessing Control Risk In assessing control risk, the auditor must evaluate the effectiveness of : Design of internal controls Operation of internal controls
4 Steps in Assessing Control Risk
5 Process for Assessing Control Risk Consider Knowledge Acquired from Procedures to Obtain an Understanding Identify Potential Misstatements
6 Process for Assessing Control Risk Identify Necessary Controls Nature of controls to prevent or detect and correct misstatements Nature of controls implemented by management Significance of each control Risk that designed controls may not operate effectively
7 Control Design for Specific Assertions Completeness Assertion Existence or Occurrence Assertion Valuation and Allocation Assertion Presentation and Disclosure Assertion
8 Identify Necessary Controls
9 Process for Assessing Control Risk Perform Tests of Controls Evidence about effectiveness of the design and operation of controls Evaluate Evidence and Make Assessment Matter of professional judgment Identify strengths and deficiencies Express quantitatively or qualitatively
10 Strategies for Performing Tests of Controls in an IT Environment User Controls Application Controls General Controls and Manual Followup Procedures
11 Overview of Computer Controls
12 Computer-Assisted Audit Techniques (CAATs) Auditing through the computer Advantageous when: Significant part of internal controls is imbedded in a computer program Significant gaps in visible audit trail Large volumes of records to be tested
13 Types of CAATs Parallel Simulation Test Data Integrated Test Facility Continuous Monitoring of On-line Real-time Systems
14 Parallel Simulation versus Test Data
15 Continuous Monitoring of On- Line Real-Time Systems Continuous Monitoring Audit Hook Tagging Transactions Audit Log
16 Methodologies for Meeting the Second Standard of Fieldwork
17 Effects of Preliminary Audit Strategies Primarily Substantive Approaches Lower Assessed Level of Control Risk
18 Designing Tests of Controls Designed to evaluate the operating effectiveness of a control concerned with: How the control was applied Consistency with which it was applied By whom it was applied
19 Nature of Tests of Controls Inquiries of entity personnel Inspection of items indicating performance of the control Observation of the application of the control Reperformance of the application of the control by the auditor
20 Timing of Tests of Controls One Occasion versus Multiple Occasions Timing Issues Interim Period Remaining Period Results from Prior Periods
21 Extent of Tests of Controls Nature of the Control Frequency of Operation Importance of the Control
22 Designing Tests of Controls Staffing Tests of Controls Audit Programs for Tests of Controls Dual-Purpose Tests
23 Additional Considerations Assessing Control Risk for Account Balance Assertions Affected by a Single Transaction Class Assessing Control Risk for Account Balance Assertions Affected by Multiple Transaction Classes
24 Account Balance Assertions and Transaction Class Assertions
25 Account Balance Assertions and Transaction Class Assertions
26 Documenting the Assessed Level of Control Risk Control Risk Assessed at the Maximum Only the conclusion is documented Control Risk Assessed at Below the Maximum Basis for assessment must be documented
27 Communicating Internal Control Matters Internal Control Deficiency Significant Deficiency Material Weakness