1. Assurance and Attestation Services BA 427 Winter 2007 Substantive Procedures Glenn Lovett, Shareholder

2. What can Certified Public Accountants do that no one else can? Answer: Express an opinion on financial statements

3. Audit Report

4. Independent Auditors' Report Board of Directors Portland, Oregon We have audited the accompanying balance sheets of ABC Corporation as of December 31, 2006 and 2005, and the related statements of operations and shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. “Our responsibility is to express an opinion on these financial statements based on our audits.”

5. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we “plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.” An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

6. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. “An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management”, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

7. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Corporation as of December 31, 2006 and 2005, and the results of its operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

8. Significant Cycles

9. Revenue > Sales > Accounts Receivable Conversion > Cost of Sales > Purchases > Accounts Payable > Inventory Financial Management >Interest > Cash > Investments > Goodwill > Debt > Equity

10. Significant Cycles Payroll > Payroll Expenses > Accruals > Compensated Absences Expenditure > All other expenses > Prepaids > Accruals Other > Taxes

11. Assertions

12. Completeness whether all transactions and accounts that should be present in the financial statements are included. Rights and Obligations whether, at a given date, all assets are the rights of entity and all liabilities are the obligations of the entity. Valuation or Allocation whether the assets, liabilities, revenues, and expenses of an entity have been included in the financial statements at the appropriate amounts in conformity with GAAP. Existence or Occurrence whether assets/liabilities exist at a given date and whether recorded transactions have occurred during a given period. Statement Presentation and Disclosure whether financial statement components have been properly classified, described, and disclosed.

13. Risks - Overall and Direction

14. Management Industry Economic Governance Ownership Susceptibility to Misappropriation

15. Fraud Risk

16. Pressure Opportunity Rationalization

17. Glenn’s Insight #1 “You always trust the one that steals from you”

18. Internal Controls

19. Control Environment Risk Assessment Control Activities Information and Communication Monitoring

20. Glenn’s Insight #2 “You cannot audit financial statements that are unauditable”

21. Relationship Between Risk, Internal Control and Detection (Substantive) Procedures

22. Relationship Between Risk, Internal Control and Substantive Procedures Low Inherent Risk Low Analytic Risk Low Internal Control Risk None of the Above Moderate or High Substantive Risk Low or very low Substantive Risk

23. Low Control, Inherent and Analytic Risk High Substantive Risk

24. High Control (SAS) Inherent and Analytic Risk Low Substantive Risk

25. Types of Substantive Procedures

26. Initial understanding of the client Analytical procedures Tests of details Tests of balances Tests of accounting estimates Tests of Disclosures

27. Selecting the Appropriate Substantive Tests

28. Level of detection risk Timing of procedures Quality of Results (competence of evidential matter) Efficiency

29. Glenn’s Insight #3 “An audit workpaper should be designed to be read on an average computer screen in 10pt font.”

30. Level of Quality of Substantive Procedures

31. Personal Inspection/Observation Specialist report Third party corroboration Vouching to documents Analytical procedures Related party representation

32. Audit Procedures for Substantive Tests

33. Counting Tracing/Vouching Observing/Inspecting Confirming Analytical Procedures Inquiring Reperforming Experts

34. Glenn’s Insight #4 “Don’t put workpapers in the file that don’t have any audit procedures on them.”

35. Examples of Substantive Procedures Related to Cycles and Assertions

36. Conversion Completeness Counting Inventory Observation Vouching Experts Existence Inventory Observation Vouching Experts

37. Conversion Valuation Inventory Observation Reperformance Observation/Inspection Vouching Rights and Obligations Inventory Observation Vouching Disclosure Vouching/Tracing Reading Contracts

38. Revenue CompletenessVouching ExistenceConfirmation Vouching Inquiry

39. Revenue ValuationReperformance Analytical Procedures Rights and ObligationsVouching DisclosureInquiry Vouching

40. Glenn’s Insight #5 “Document all work outlined in the audit program and only do work outlined in the audit program.”