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Chapter 7 Basic Audit concepts

introduction to financial control course and introducing audit steps and Materiality

samar gad

on 16 February 2013

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Transcript of Chapter 7 Basic Audit concepts

CH 7:
Basic Auditing Concepts Conclusion is here Audit Steps " Audit Assertions"
Assurance provided by the auditors
Materiality usage in planning and evaluating evidence
Audit risk usage in planning and evaluating evidence 1.Plan the audit
2.Study and test internal control
3.Perform substantive tests
4.Issue audit report CH 7:Key Points Audit Steps Plan the audit Study & Test Internal Control Perform Substantive tests Issue Audit Report Assurance provided
by the Auditors Reasonable Assurance Material Aspects Test Basis Scope paragraph “perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatements” Opinion paragraph” in our opinion, the financial statements referred to above present fairly in all material respects Reasonable
Assurance Audit Risk how? Audit Risk is the risk that auditor may unknowingly issue an unqualified opinion on financial statements that are materially misstated Audit Risk Materiality ... small FASB definition
the magnitude of an omission or misstatement of accounting information to influence or change reasonable person decision Quantitative factors Qualitative Factors gross profit Total assets illegal
or fraud Provisions in loan agreement Trend interruption pre-tax income Materiality in Individual Accounts Important accounts Experience in prior audit Cost considerations Materiality in Total Financial Statemnts Relationship The wider the materiality border, the less the audit effort and the higher the audit risk

The narrower the materiality border, the more the audit effort and the less the audit risk Materiality Qualitative Factors Bank provision to maintain current ratio= 2 The Use of Audit risk in planning an audit Set at a low level
Expressed quantitatively
or qualitatively
Negatively related to audit effort Audit Risk Inherent
Risk Control
Risk Components of Audit Risk How do misstatements happen? if any Assertions " things you have to make sure of" is invalid • Existence or occurrence بيتأكد ان كل حاجة متسجلة فى معادها
• Completeness بيتأكد ان كل المعاملات بتاعت الحسابات كاملة
• Rights and obligations كل حاجة باينة هيا من حق مين
• Valuation or allocation مفيش حاجة متقدرة أقل او أكتر من قيمتها
• Presentation and disclosure How to assess audit risk? Inherent Control Risk Detection Risk Detection Risk Audit Risk Model DR= AAR / IR X CR AAR= IR X CR X DR
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