Auditing: A Practical Approach

Cover......Page 1
Title page......Page 3
Copyright page......Page 4
Contents......Page 5
About the authors......Page 10
Preface......Page 11
CHAPTER 1 Introduction and overview of audit and assurance......Page 15
Audit process in focus......Page 18
1.2 Different assurance services......Page 19
1.3 Different levels of assurance......Page 27
1.4 Different audit opinions......Page 35
1.5 Preparers and auditors......Page 36
1.6 Demand for audit and assurance services......Page 39
1.7 The role of regulators and regulations......Page 43
1.8 The audit expectation gap......Page 48
CHAPTER 2 Ethics, legal liability and client acceptance......Page 59
2.1 The fundamental principles of professional ethics......Page 61
2.2 Independence......Page 64
2.3 The auditor’s relationships with others......Page 70
2.4 Legal liability......Page 74
2.5 Client acceptance and continuance decisions......Page 79
CHAPTER 3 Risk assessment I......Page 95
Audit process in focus......Page 97
3.1 Phases of an audit......Page 98
3.2 Gaining an understanding of the client......Page 100
3.3 Fraud risk......Page 104
3.4 Going concern......Page 107
3.5 Corporate governance......Page 109
3.6 Information technology......Page 114
3.7 Closing procedures......Page 115
CHAPTER 4 Risk assessment II......Page 130
4.1 Audit risk......Page 132
4.2 Materiality......Page 137
4.3 Audit strategy......Page 139
4.4 Client approaches to measuring performance......Page 143
4.5 Analytical procedures......Page 145
CHAPTER 5 Audit evidence......Page 165
Audit process in focus......Page 167
5.1 Assertions......Page 168
5.2 Types of audit evidence......Page 170
5.3 Persuasiveness of audit evidence......Page 184
5.4 Using the work of an expert......Page 185
5.5 Using the work of another auditor......Page 188
5.6 Evidence gathering procedures......Page 190
CHAPTER 6 Gaining an understanding of the client’s system of internal controls......Page 203
6.1 Internal control defined......Page 205
6.2 Objectives of internal controls......Page 206
6.3 Entity-level internal controls......Page 208
6.4 Transaction-level internal controls......Page 217
6.5 Documenting internal controls......Page 221
6.6 Identifying strengths and weaknesses in a system of internal controls......Page 224
6.7 Management letters......Page 225
CHAPTER 7 Sampling and overview of the risk response phase of the audit......Page 240
Audit process in focus......Page 242
7.2 Sampling and non-sampling risk......Page 243
7.3 Statistical and non-statistical sampling......Page 246
7.4 Sampling methods......Page 247
7.5 Factors that influence the sample size — testing controls......Page 250
7.6 Factors that influence the sample size — substantive testing......Page 252
7.7 Evaluating sample test results......Page 253
7.8 Tests of controls and substantive procedures......Page 255
7.9 Nature, timing and extent of audit testing......Page 259
7.10 Drawing conclusions......Page 261
7.11 Documentation — audit working papers......Page 262
CHAPTER 8 Execution of the audit — testing of controls......Page 281
Audit process in focus......Page 283
8.1 Types of controls......Page 284
8.2 Techniques for testing controls......Page 291
8.3 Selecting and designing tests of controls......Page 292
8.4 Results of the auditor’s testing......Page 297
8.5 Documenting conclusions......Page 299
CHAPTER 9 Execution of the audit — performing substantive procedures......Page 314
9.1 Overview of substantive procedures......Page 316
9.2 Relationship between risk assessment and the nature, timing and extent of substantive procedures......Page 321
9.3 Substantive audit procedures......Page 323
9.4 Levels of evidence......Page 328
9.5 Evaluating and documenting substantive analytical procedures results......Page 331
CHAPTER 10 Substantive testing and balance sheet accounts......Page 344
10.1 Relationship between risk assessment and substantive procedures......Page 346
10.2 Substantive testing of cash......Page 350
10.3 Substantive testing of trade receivables......Page 354
10.4 Substantive testing of inventory......Page 360
10.5 Substantive testing of property, plant and equipment......Page 367
10.6 Substantive testing of payables......Page 371
10.7 Special considerations for auditing other balance sheet accounts......Page 375
10.8 Assessing the results of substantive procedures......Page 376
CHAPTER 11 Substantive testing and income statement accounts......Page 391
11.1 Relationship between risk assessment and substantive procedures......Page 393
11.2 Substantive testing of revenue......Page 395
11.3 Substantive testing of cost of sales and other significant expenses......Page 401
11.4 Assessing the results of substantive procedures......Page 406
CHAPTER 12 Completing and reporting on the audit......Page 420
12.1 Engagement wrap-up......Page 423
12.2 Going concern......Page 427
12.3 Subsequent events......Page 428
12.4 Misstatements......Page 432
12.6 Components of the audit report......Page 435
12.7 Modifications to the audit report......Page 438
12.9 Management representation and communication with those charged with governance......Page 440
Appendix......Page 453
EULA......Page 466