Overall Audit Plan

How to plan an effective audit response

to assessed risks

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 Developing The Responsive Audit Plan
Objective
To obtain sufficient appropriate audit evidence regarding the
assessed risks.
• The auditor should develop an overall audit strategy
describing the scope and conduct of the audit in order to
reduce audit risk to an acceptably low level.
• The starting point for designing an overall audit strategy is
the listing of assessed risks that was developed at the
conclusion of the risk assessment phase of the audit:
✓ Assessed risks at financial statement level
✓ Assessed risks at assertion level

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 Effect of Risk Assessment on Risk Response

Low Assessed RMM High Assessed RMM

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 Risk Response Process

1 RMM = Risks of material misstatement

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 Steps of Risk Response

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 Assessed Risks

The types of response

Sufficient appropiate audit evidence to reduce audit

risk to an acceptably low level
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 Overall Response
Areas that the auditor would address in developing an overall
response include determining:
• The extent that the audit team needs to be reminded about the
use of professional skepticism;
• Which staff to assign, including those with special skills, or
whether to use experts;
• The extent of supervision required throughout the audit;
• The need for incorporating some elements of unpredictability in
the selection of further audit procedures to be performed;

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 Overall Response
Risk Assessment Possible Overall Response
An Effective Allows the auditor to have more convidence in
Control Environment internal control and the reliability of audit evidence
generated internally within the entity
An overall response could include some audit
procedures being performed at interim date rather
than at the period-end.
An Ineffective Likely require the auditor to perform some additional
Control Environment work such as:
• Assigning more experience audit staff
• Conducting more audit procedures at the period-
end rather than at an interim date
• Obtaining more extensive audit evidence from
substantive procedures
• Making changes the nature, timing or extent
of audit procedures to be performed

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 Nature, Timing, and Extent of Audit Procedures
• Nature of Audit Procedures
- Purpose : Test of controls and substantive procedures
- Types : Inspection, observation, confirmation, inquiry,
recalculation, reperformance, analytical procedures
• Timing : When audit procedures are performed.
- Interim
- Period-end
• Extent : The quantity of an audit procedure to be performed
(e.g. the size of an audit sample).
- Determined by the assessed risks.

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 Further Audit Procedures
Types of Tests – Based on the purpose

Further Audit Procedures

Tests of Control Substantive Procedures

Tests of Analytical
Detail Procedures

Tests of Tests of
Transactions Balances

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 Tests of Control
Tests of controls are audit procedures designed to test the
effectiveness of control policies and procedures in support of
a reduced control risk.
• If the assessed CR is low, then the auditor shall perform audit
procedures to obtain evidence that support the level of CR.
• What the auditor should do if the level of CR is high ?

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 Tests of Control
The Four Steps Process of Evaluating IC

Indentify what risks

require mitigation

Assess Perform procedures to identify controls (by

control design design) – assess CR

Perform procedures to obtain evidence

Asses control whether the design controls are implemented
implementation (support the level of assessed CR) – test of
controls

Document
relevant controls

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 Tests of Control
• Types of Evidence-Gathering Techniques (Procedures)

Inspection
(documents)
Inquiry

Observation

Reperformance

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 Tests of Control
• Timing of Tests of Controls
• Interim period tests
• Prior period tests

• Extent of Tests of Control

The more reliance the auditor puts on controls in his
audit (low CR), the greater the extent (amount) of the
auditor’s tests of controls

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 Substantive Procedures
Substantive procedures are tests performed to obtain audit
evidence to detect material misstatements in the financial
statements.
• Substantive procedures are responses to the auditor’s
assessment of the RMM.
• The higher the assessed risk, the more likely the extent of
the substantive procedures will increase and the timing of
procedures will be performed close to the period.

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 Substantive Tests
• Types of Substantive Procedures

Tests of
Transactions
Analytical
Procedures
Tests of
Balances

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 Analytical Procedures
Analytical procedures entail the use of comparisons and
relationships to determine whether account balances or
other data appear reasonable.
• The procedures allow the auditor to look at things in
overview and answer the question: Do the numbers make
sense?
• Include :
• trend analysis,
• ratio analysis,
• statistical and data mining analysis, and
• reasonableness tests

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 Substantive Tests of Transactions
Tests of transactions are audit procedures related to
examining the processing of particular classes of
transactions through the accounting system.
• Address to obtain evidence whether all transactions meet
the transaction-related audit objectives :
✓ Occurrence
✓ Completeness
✓ Accuracy
✓ Posting & Summarization
✓ Classification
✓ Cut-off

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 Tests of Details of Balances
Tests of balances are substantive tests that provide either
reasonable assurance of the validity of a general ledger
balance or identify a misstatement in the account.
• Tests of balances are important because the auditor’s ultimate
objective is to express an opinion on financial statements that
are made up of account balances.
• The auditor is concerned with overstatement or understatement
of the line item in the financial statements.

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 Tests of Details of Balances
• Types of Evidence-Gathering Techniques (audit procedures)
• Inquiry of client personnel,
• Observation,
• Confirmation,
• Inspection (examination of documents & of tangible assets),
• Reperformance
• Recalculation.

• Timing of Tests
• Mostly at period-end

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 Further Audit Procedures and the Audit Risk Model

Audit risk AAR

model = PDR
IR × CR

Sufficient
Substantive Tests of
Tests of Analytical appropriate
+ tests of + procedures + details of = evidence
controls
transactions balances
per ISA

Further audit procedures

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 Role of All Audit Tests in the Sales and
Collection Cycle

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 Review
Latihan : Arens 15th Ed, ch. 13
Review questions : 13 – 1 sd 13 – 21
Discussion questions & problems :
• 13 – 24
• 13 – 25
• 13 – 26
• 13 – 29
• 13 – 34

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 Types of Audit Tests
Risk Assessment Procedures

Further Audit Procedures

Tests of Control Substantive Procedures

Tests of Analytical
Detail Procedures

Tests of Tests of
Transactions Balances

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 End

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