【正文】 res the use of analytical procedures during the planning stage and the final review stage, but not in substantive procedure. The approach is: 1. Develop an expectation for the account balance and expectation may derive from: 2. Determine the amount of difference from the expectation that can be accepted without investigation 3. Compare the pany’s account balance (or ratio) with the expected account balance 4. investigate significant differences from the expected account balance B. EvidenceSpecific (Substantive Procedures) 17 Copyright 高才國際教育集團(tuán) Module 2: Internal Control 1. Types of Substantive Procedures 3 rules governing prediction of a relationship: 1) relationships in a dynamic or unstable environment are less predictable than those in a stable environment。 4)Accounting differences hinder parisons between firms 5) Analytical procedures present only circumstantial evidence in that a significant difference will lead to additional audit procedures as opposed to direct detection of a misstatement. B. EvidenceSpecific (Substantive Procedures) 18 Copyright 高才國際教育集團(tuán) Module 2: Internal Control 1. Types of Substantive Procedures b. Tests of details of transactions balances and disclosure Tests are used to exam the actual details marking up the various account balances and disclosures. Considering an accounts receivable ledger of $2,000,000, can be made up of 1,000 debtors accounts with balances ranging from $1m – as little as $10! Remember in gathering sufficient appropriate audit evidence, auditors seek an efficient and effective bination of 1) tests of controls, 2) analytical procedures and 3) tests of details to afford a reasonable basis for an opinion. B. EvidenceSpecific (Substantive Procedures) 19 Copyright 高才國際教育集團(tuán) 2. Substantive Procedure Audit Programs Audit program is a list of detailed procedures to be performed during an audit. How a developed audit program relates to an audit! B. EvidenceSpecific (Substantive Procedures) 20 Financial Statements Audit Objectives Assertions Audit Procedures Audit Program Module 3: Evidence Copyright 高才國際教育集團(tuán) 2. Substantive Procedure Audit Programs Two approaches for auditing an account Direct test of ending balance (“test of balance”): used to test high volume accounts, . cash, accounts receivables and accounts payables (. confirming yearend balance) Tests of inputs and outputs during the year (“tests of details of transactions”): most extensively used for lower turnover accounts, . fixed assets and long term debts. A bination of approaches with an emphasis of one approach over other is generally used in an audit. B. EvidenceSpecific (Substantive Procedures) 21 Module 3: Evidence Copyright 高才國際教育集團(tuán) 2. Substantive Procedure Audit Programs Overall: typical procedures included in a substantive audit program Presentation and disclosures: Review disclosure / Inquires about disclosures Existence or Occurrence: Confirmation/observation/trace*vouch transaction Rights and Obligations: Authorization Completeness and Cutoff: Analytical procedures/Omissions/Cutoff Valuation, allocation and Accuracy: Foot schedules/agree schedules balances to general ledger balances/agree financial statement balance to schedules/consider valuation method of account/consider related account ? Cutoffs also apply directly to the existence/occurrence and pleteness assertions. ? Page 201 onwards provide summary audit procedures for financial statement accounts! B. EvidenceSpecific (Substantive Procedures) 22 Module 3: Evidence Copyright 高才國際教育集團(tuán) 2. Substantive Procedure Audit Programs Audit Objectives relating to a financials statement account： Long term debt: 1. Determine whether longterm debt disclosures ply with GAAP。 5. Determine whether all longterm debt has been properly valued at yearend. Which assertions do the above objectives relate to? B. EvidenceSpecific (Substantive Procedures) 23 Module 3: Evidence Copyright 高才國際教育集團(tuán) 2. Substantive Procedure Audit Programs Areas in which a SAS prescribes procedures. B. EvidenceSpecific (Substantive Procedures) 24 Specific types of transactions Illegal Acts AU317 Related Parties AU334 Litigation (Loss Contingencies) AU337 Information with which “l(fā)imited” procedures are required Other information in documents containing audited statements AU550 Interim Reviews AU722 Compilations AR100 Reviews AR100 Module 3: Evidence Copyright 高才國際教育集團(tuán) 2. Substantive Procedure Audit Programs *Do not attempt to memorize the procedures for each of the areas! B. EvidenceSpecific (Substantive Procedures) 25 Supplemental information required by FASB General Procedures AU558 Areas in which “audit” procedures are required Receivables AU330 Inventories AU331 Investment Securities AU332 Subsequent Events AU560 Others Other Auditors Involved AU543 Warehouses AU901, AU331 Module 3: Evidence Copyright 高才國際教育集團(tuán) 2. Substantive Procedure Audit Programs Material reading: page 201203. 15 minutes to have a general understanding. We will cover them in greater detail in section C. B. EvidenceSpe