Welcome

To
Presentation
by

Knowledge Seekers
(Group 8)

Members
of

Knowledge Seekers
ID
19-149

NAME
Md. Shah-Alam

19-158

Zunaet Islam Bhuiyan

19-161

Enayet Hossen Imran

19-166

Md. Fakhrul Islam

19-200

Iftekhar Uddin Ahmed

Presentation
On

Overall Audit Plan and Audit Program

Prepla
n

d
n
u
ro
g
k
ac
b
in tion
a
t
Ob orma
inf

Obtain in
formatio
n about c
lients le
gal
obligatio
n

Set mater
ia
acceptab
le audit r lity, and assess
isk and in
herent
risk

Audit Planning
and
Documentation
(An 0verview)

al
c
i
t
ly
a
n
ya
r
a
in
m
i
l
re
p
m
r
o
f
Per cedure
pro

al ntro
n
r
te s c o
n
i
s
d
e
n
s
a
s
t
rs and a
e
d
Un trol,
con
risk

Develop overall audit plan and audit

program

Develop overall audit plan and

audit program
(results in the entire audit program the auditor plans to follow in
the audit, including all audit procedures, sample sizes, items to
select and timing)

Selecting a mix of five types of test that will result in an

effective and efficient audit;
The trade-offs among the types of tests and consideration
of the cost of each type of test;

Audit Risk Model and Types of Test

AAR

IR

Procedures to
obtain an
understanding of
internal control
(UIC)

Test of
control
(TOC)

Substantive
tests of
transactions
(SOTT)

PDR

CR

Analytical
procedures

Tests of
details of
balances
(TDB)

Sufficient
competent
evidence
per GAAS

Procedures to obtain an understanding of internal

control
(the auditor must focus on both the design the operation of aspects of
internal control to the extent necessary to effectively plan the rest of
the audit)

How to go with it
Update and evaluate the auditors previous experience with the entity;
Make inquires of client personnel;
Read clients policy and systems manuals;
Examine documents and records;
Observe entity activities and operations;

Test of control
(the procedures used to obtain evidence)

Process to follow:
Make inquires of appropriate client personnel;
Examine documents, records, and reports;
Observe control related activities;
Reperform client procedures
Notations
Evidence necessary in test of control depends upon
amount of evidence gathered during understanding
of internal control phase

A closer look to Understanding of Internal

Control and Test of Control
UIC
Used to
determine
whether
controls are
in place

Links between them

They are essentially the same
Understanding is the first phase and
testing is the next

Used to
determine
whether the
placed
controls are
effective

TOC

Differentiate
Understanding is for finding out
whether control is there
Testing is for judging the efficiency
and effectiveness

Substantive tests

(test to measure monetary accuracy of

transactions and balances that affect the
financial statements)

Substantive tests of
transactions (STOT)

Analytical
procedures

Tests of details of
balances (TDB)

Substantive tests of transactions

(STOT)
(determines whether the transactions are
correct in monetary term)

It purports to:
Determine whether all the
transactions related audit objectives
are followed;
Test transactions occurring during the
year;

Analytical procedures
(comparison of recorded amounts to
expectations developed by the auditor)

Two contributions
Indicates the presence of any possible
misstatements in financial statements;
Determine the level of test of details of
balances
Notation
It includes analysis of both transactions and balances

Test of Details of Balances (TDB)

(determines the monetary accuracy of the
general ledger balances)

Important things to know

Applicable for both Balance sheet and Income
Statements accounts;
Emphasize is given upon Balance sheet accounts;

A closer look to STOT and TDB

STOT

TDB
Test for
monetary
accuracy of
transactions

Similarity
Purports to check for
monetary accuracy

Test for
monetary
accuracy of
balances

Dissimilarity
STOT applies for transactions
only;
TDB applies for general ledger
balances

Selecting mix of tests to perform

(among various alternatives the auditor must
select which mix of test could be performed in
most efficient way)
What efficiency demands:
Availability of seven types of evidence;
The effectiveness of internal control;
The existence of inherent risk; and
Cost of each type of test;

Selection of mix of test depends

upon:
Types of evidence;
Cost of the evidence;

Analytic
performance

Reperformance

Inquiries of
the client

Observation

Procedures for internal control

Tests of controls
Substantive tests of transactions
Analytical procedures
Tests of details of balances

Documentation

Type of Test

Type of Evidence
Physical
Examination
Confirmation

x
i
m
)
t
n
s
o
e
i
t
t
f
a
r
o
e
n
d
i
o
i
s
t
n
c
o
e ec
l
e
S
c
n
e
d
i
v
(E

Selection of test mix

(Cost consideration)

Cost of Test

High

Med
-ium

low

Test
of
detail
of
balan
ces tests of
Substantive
transactions
Procedures to obtain an
understanding of internal control
and test of control
Analytical procedures

Selection of proper combination

Test procedure

Why to select

Why not

Test of detail of balances

Gather highest no. of

evidences

Most costly

Substantive tests of
transactions

Could be applied with

computerized technology

Expensive

Procedures to obtain an
understanding of internal
control and test of control

Medium cost
Assistance from
computerized technology

Physical examination and

confirmation are ignored

Analytical procedures

Least costly

Less evidence

Notation
The procedures need to select that ensures maximum possible audit quality and least cost to the firm

Evidence Mix

The choice of which types of tests to use & how extensively they need to be performed can vary
widely among audits for differing levels of internal control of effectiveness & inherent risk.

There can also be variations from cycle to cycle within a given audit.

The combination of the five types of tests used for any given cycle is often called the evidence
mix.

Variations in Evidence Mix

Procedures to
Obtain an
Understanding
of Internal
Control

Tests
of
Control

Substantive
Tests
of
Transactions

Analytical
Procedures

Tests of
Details
of
Balances

Audit 1

Audit 2

Audit 3

Audit 4

E=Extensive amount of testing; M=medium amount of testing; S=small amount of testing; N=no
testing

Continued..
Client 1 is a large company with sophisticated internal controls
and low inherent risk.
Client 2 is medium sized with some controls & a few inherent
risks.
Client 3 is medium sized but has few effective controls &
significant inherent risks.
Client 4 is a situation where the original plan was to follow the
approach used in client 2.
however, the auditor found extensive control test deviations &
significant misstatements while performing substantive test of
transactions & controls where controls were not effective.

Design an Audit Program

Most audits design an audit program in the following three parts:

Tests of Controls and Substantive Tests of Transaction

Analytical Procedures

Tests of Details of Balances

A. Tests of Controls and Substantive

Tests of Transactions (cont..)
Methodology for Designing Controls and Substantive Tests:
Perform procedures
to understand
internal control

Assess control risk

Design tests of controls

and substantive tests
of transactions to meet
transaction-related
audit objectives.
Audit procedures
Sample size

Evaluate cost-benefit
of testing controls

Items to select
Timing

A. Tests of Controls and Substantive Tests of

Transactions (cont..)
Four-Step Approach to Designing Control and Substantive Tests

Apply transactionrelated audit objectives

to a class of transactions
(Step 1).

Identify key controls

and make an assessment
of control risk
(Step 2).

Design substantive tests

of transactions (Step 4).

Design tests of
controls (Step 3).

Audit procedures

Sample size

Items to select

Timing

Analytical Procedures
Analytical procedures may be performed during 3 different stages of the
audit:

In the planning stage to help the auditor understand the clients business
and determine other evidence needed to satisfy acceptable audit risk.

During the audit, especially during substantive testing.

Near the end of the audit as a final test of reasonableness.

Tests of Details of Balances

If the results of tests of controls, substantive tests of transactions, and

analytical procedures are not consistent with the predictions, tests of details
of balances will need to be changed as the audit progresses

Methodology for Designing Tests of

Balances Accounts Receivable
Set tolerable misstatement
and assess inherent risk
for accounts receivable.

Assess control risk for sales

and collection cycle.

Design and perform tests of

controls and substantive tests
of transactions for sales and
collection cycle.

Methodology for Designing Tests of

Balances Accounts Receivable
Design and perform analytical
procedures for accounts
receivable balance.
Audit procedures

Design tests of details of

accounts receivable balance
to satisfy balance-related
audit objectives.

Sample size
Items to select
Timing

Summary of the Audit Process

Plan and design

Phase I
an audit approach.

Perform analytical
procedures and
Phase III
tests of details
of balances.

Perform tests of
controls and
Phase II
substantive tests
of transactions.

Complete the
Phase IV audit and issue
an audit report.

Summary of the Audit process

Phase I
Accept client and perform initial planning.
Understand the clients business and industry.
Assess clients business risk.
Perform preliminary analytical procedures.
Set materiality and assess acceptable audit risk
and inherent risk.
Understand internal control and assess control risk.
Develop overall audit plan and audit program.

Summary of the Audit process

Phase II
Plan to reduce assessed
level of control risk?

Yes
Perform tests of controls.
Perform substantive tests of transactions.
Assess likelihood of misstatements in
financial statements.

No

Summary of the Audit process

Phase III
Medium

Perform tests of key items.

Perform additional tests of details of balances.

Low

High or
unknown

Perform analytical procedures.

Summary of the Audit Process

Phase IV
Review for contingent liabilities.
Review for subsequent events.
Accumulate final evidence.
Evaluate results.
Issue audit report.
Communicate with audit
committee and management.

Anything more to know

Thank You