Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8 th Edition

1. Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8th Edition William C. Boynton California Polytechnic State University at San Luis Obispo Raymond N. Johnson Portland State University Chapter 5 – Overview of the Financial Statement Audit

2. Chapter 5 Overview

3. Overview of the Audit Process

4. Overview of the Audit Process (cont.)

5. Phase I - Perform Risk Assessment Procedures • Identify Relevant Financial Statement Assertions • Existence or Occurrence • Completeness • Rights and Obligations • Valuation or Allocation • Presentation and Disclosure

6. Phase I - Perform Risk Assessment Procedures • Understand the Entity and its Environment • Industry, Regulatory Environment, and Other External Factors • Nature of Entity, Including Accounting Policies • Objectives, Strategies, and Business Risks • Management and Review of Financial Performance

7. Phase I - Perform Risk Assessment Procedures • Make Decisions About Materiality • Based on professional judgment • Guides auditor in evaluation • Perform Preliminary Analytical Procedures • Study of plausible relationships • Identification of potential misstatements

8. Phase I - Perform Risk Assessment Procedures • Identify Risks – Audit Risk Model

9. Phase I - Perform Risk Assessment Procedures • Identify Risk – Risk of Fraud

10. Phase I - Perform Risk Assessment Procedures • Develop Preliminary Audit Strategies • Understand Internal Control • Identify types of potential misstatements • Consider factors that affect risk of material misstatement • Design audit procedures

11. Phase II – Assess the Risk of Material Misstatement • Relate Risk to Potential Misstatements • Assertion Level Risks • Financial Statement Level Risks • Determining the Magnitude of Potential Misstatements • Considering the Likelihood of Material Misstatements • Significant Inherent Risks

12. Study Break 1. This assertion deal with whether the accounts have been included in the financial statements at the appropriate amount. • Existence or Occurrence • Completeness • Rights and Obligations • Valuation or Allocation D. Valuation or Allocation

13. Study Break 2. ________ is defined as the susceptibility of an assertion to a material misstatement assuming there are no internal controls. • Inherent risk • Control risk • Detection risk • Audit risk A. Inherent risk

14. Phase III – Respond to Assessed Risks • Staffing and Supervision • Nature of Audit Tests • Risk Assessment Procedures • Tests of Control • Substantive Tests

15. Substantive Tests • Initial Procedures • Substantive Analytic Procedures • Tests of Details of Transactions • Tests of Details of Balances • Tests of Details of Accounting Estimates • Tests of Details of Disclosures

16. Phase III – Respond to Assessed Risks • Timing of Audit Tests • Extent of Audit Tests • Responding to Significant Inherent Risks

17. Phase IV – Perform Further Audit Procedures • Further Risk Assessment Procedures • Tests of Controls • Substantive Tests

18. Phase V – Evaluate Evidence • Reevaluate Risk Assessment Procedures • Determine the Significance of Findings • Form and Document Conclusions

19. Phase VI – Communicate Audit Findings • The Auditor’s Opinion • Other Required Communications • Other Assurance Service Findings

20. Study Break 3. Responding to assessed risks includes all of the following except: • Staffing and Supervision • Timing of Audit Tests • Evaluating Evidence • Extent of Audit Tests C. Evaluating Evidence

21. Study Break 4. Other required communications include all of the following except: • Disagreements with management • Significant audit adjustments • Consultation with other accountants • Assessment of management performance D. Assessment of management performance