Welcome To Presentation By: Knowledge Seekers

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
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
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
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.

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

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

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Welcome

Zunaet Islam Bhuiyan

Enayet Hossen Imran

Md. Fakhrul Islam

Iftekhar Uddin Ahmed

Overall Audit Plan and Audit Program

Develop overall audit plan and audit

Develop overall audit plan and

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

Audit Risk Model and Types of Test

Procedures to obtain an understanding of internal

A closer look to Understanding of Internal

Links between them

(test to measure monetary accuracy of

Substantive tests of transactions

Test of Details of Balances (TDB)

Important things to know

A closer look to STOT and TDB

Selecting mix of tests to perform

Selection of mix of test depends

Procedures for internal control

Selection of test mix

Selection of proper combination

Test of detail of balances

Gather highest no. of

Could be applied with

Physical examination and

Variations in Evidence Mix

Design an Audit Program

Tests of Controls and Substantive Tests of Transaction

Tests of Details of Balances

A. Tests of Controls and Substantive

Assess control risk

Design tests of controls

A. Tests of Controls and Substantive Tests of

Apply transactionrelated audit objectives

Identify key controls

Design substantive tests

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

Methodology for Designing Tests of

Assess control risk for sales

Design and perform tests of

Methodology for Designing Tests of

Design tests of details of

Summary of the Audit Process

Plan and design

Summary of the Audit process

Summary of the Audit process

Summary of the Audit process

Perform tests of key items.

Perform analytical procedures.

Summary of the Audit Process

Anything more to know

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