Audit Ch. 13

Q: What are the five types of audit tests?

• A: Risk assessment procedures, tests of controls, substantive tests of transactions, analytical procedures, and tests of details of balances.

Q: What is the purpose of risk assessment procedures?

• A: To obtain an understanding of internal control and assess risks.

Q: What are the four common procedures used in tests of controls?

• A: Inquiries, examining documents, observing controls, and reperformance.

Q: What do control test deviations indicate?

• A: A likelihood of misstatement due to weak controls.

Q: What is the purpose of substantive tests of transactions?

• A: To detect monetary misstatements in transactions.

Q: What do exceptions in substantive transaction tests indicate?

• A: Financial statement misstatements.

Q: Why are analytical procedures important?

• A: They are the least expensive method of gathering evidence and help identify unusual relationships or misstatements.

Q: When are analytical procedures required?

• A: During audit planning and completion, and often during fieldwork.

Q: What are examples of tests of details of balances?

• A: Confirmations, inventory examination, and cutoff tests.

Q: Why are tests of details of balances expensive?

• A: They require significant auditor time and travel.

Q: What are Audit Data Analytics (ADAs)?

• A: Automated tools and visualizations used to identify unusual fluctuations and communicate findings.

Q: How does risk assessment affect the evidence mix?

• A: Weak controls require more balance testing; strong controls may reduce balance testing.

Q: Why might auditors skip testing controls?

• A: If they believe the controls are weak and unreliable.

Q: What is an audit program?

• A: A list of audit procedures to be performed.

Q: What are the three parts of an audit program?

• A: Tests of controls/substantive transaction tests, analytical procedures, and tests of details of balances.

Q: What are the four steps in designing tests of controls and substantive transaction tests?

• A: Apply objectives, identify key controls, develop control tests, and design substantive tests.

Q: What influences the design of tests of details of balances?

• A: Materiality, control risk, business risk, and results of transaction testing.

Q: Which balance-related objectives cannot be reduced even with strong controls?

• A: Realizable value, rights and obligations, and presentation/disclosure.

Q: When can auditors reduce tests of balances?

• A: When controls are effective and transactions are properly recorded.

Q: What are the four phases of the audit process?

1. A: Planning/design, tests of controls and transactions, analytical procedures and balance tests, and completing the audit/report issuance.A: Planning/design, tests of controls and transactions, analytical procedures and balance tests, and completing the audit/report issuance.