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PrinciplesAudit procedures are designed by the auditor, in order to:
InstructionsElements to considerAudit procedures, which aim to obtain the required assurance in the most cost-effective way, are designed on the basis of the knowledge acquired by the auditor and should take into account important aspects, such as materiality and risk . Contents of an audit procedureAn audit procedure should include the following elements:
How to design audit proceduresWhen designing audit procedures, the auditor should determine 1. Audit approachThe audit approach may consist of: [a-glossary term="Discharge%20authority"]discharge authority[/a-glossary] [link new-window title="Financial%20Regulation" link="https%3A%2F%2Feur-lex.europa.eu%2Flegal-content%2FEN%2FTXT%2F%3Furi%3DCELEX%3A32018R1046%23258" icon="external-link" /] , make it difficult to follow the traditional audit process. In this context, the same transactions may be used for both tests of controls and tests of details ("dual purpose tests"). In such cases, the auditor considers whether the audit results are consistent with the audit hypothesis and whether additional audit procedures need to be performed.2. Level of assurance to be derived from audit proceduresThe 95% assurance generally required from ECA's audit tests may be derived mostly from controls, or mostly or entirely from substantive procedures, depending on the auditor's assessment of both inherent and control risk. 3. Nature of audit procedures (how and where to obtain required evidence)The nature of audit procedures refers to their: The auditor selects the audit procedure that is most appropriate in order to reduce the assessed audit risk to an acceptably low level. The auditor should exercise his professional judgement to select the procedures, by considering the objectives of the test (i.e. the assertions to cover), the nature of the population, the assessed risk and the level of reliance on internal controls. 4. Timing of audit proceduresTiming refers to time at which the audit procedures are performed or the period or date to which the audit evidence applies. When considering the timing of audit procedures, the auditor also considers the following elements: The auditor may perform tests of control or substantive procedures at a certain date or period (interim date) or at period end. Certain audit procedures can be performed only at or after period end, e.g. agreeing the financial statements to the accounting records for reliability audits. The higher the risk, the more effective it is to perform substantive procedures nearer to, or at, period end rather than at an earlier date. Performing audit procedures before period end may help to identify significant matters at an early stage of the audit, and consequently resolve them with the assistance of management or develop an effective audit approach to address them. If the auditor performs tests of controls or substantive procedures prior to period end, (s)he should obtain additional evidence for the remaining period. 5. Extent of audit proceduresThe auditor decides on the extent of an audit procedure, i.e. the quantity to test, based on: The auditor usually increases the extent of an audit procedure as the risk of material misstatement or non-compliance increases. Minimum sample sizes for 2% materiality and 95% assurance are set out in the assurance model. 6. Design efficient audit proceduresThe auditor ensures that there is a clear link between the risk assessment, the evaluation of internal control, and the nature, timing and extent of audit procedures. Audit procedures, which should be derived from the audit approach and thus be consistent with it, reflect the decision taken by the auditor as to whether or not to rely on internal controls and the extent of substantive procedures. The auditor should design mutually exclusive and collectively exhaustive audit steps and audit procedures. The audit steps within an audit procedure must be mutually exclusive, meaning that the objectives are different from one another and do not overlap. At the same time, the full range of relevant objectives for the audited area must together be comprehensive in order to gather the evidence needed and cover the related assertion. In this sense, they are collectively exhaustive. Lastly, audit procedures should be specific. In order to maximise efficiency, the auditor can coordinate similar audit procedures. For audit procedures that involve sampling, the auditor can perform numerous tests on the same sample (multipurpose testing), including testing controls, e.g. the auditor can test the amount and test the controls for that area/account. All auditors performing audit procedures should understand how each individual section links to the overall audit approach and contributes to the overall audit assurance to be reached for the audit. [/toc-this] Which risk will increase when an auditor performs substantive analytical procedures for financial statement accounts at an interim date as opposed to year end testing )?Timing of Substantive Procedures
However, performing substantive procedures at an interim date without performing procedures at a later date increases the risk that a material misstatement could exist in the year-end financial statements that would not be detected by the auditor.
What do you do when you perform substantive analytical procedures during your audits?The primary purpose of substantive analytical procedures is to obtain assurance, in combination with other audit testing (such as tests of controls and substantive tests of details), with respect to financial statement assertions for one or more audit areas.
Which of the following situations would most likely preclude an auditor from performing substantive procedures during an interim period?Which of the following situations would most likely preclude an auditor from performing substantive procedures during an interim period? Internal controls are weak and the risk of material misstatement is high.
When analytical procedures are performed during substantive testing?. 04 Analytical procedures are used as a substantive test to obtain evidential matter about particular assertions related to account balances or classes of transactions. In some cases, analytical procedures can be more effective or efficient than tests of details for achieving particular substantive testing objectives.
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