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