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13-17
13-32 (continued)
Parts 7, 9, and 1 are all a part of planning and are therefore
done early. These are in the sequence shown in Chapter 8. As
part of planning the audit, the auditor obtains an understanding of
Ideally, most substantive analytical procedures are
performed after the client has prepared financial statements, but
Confirmation of accounts payable should be done as early
c. The time line shows that 7, 9, 1, and 4 are frequently done before
the balance sheet date.
13-33 a. Google 12/31
Boeing 12/31
Microsoft 6/30
on a timely basis.
b. For the fiscal year ended in 2014, the days between each
company’s year end and the audit report date are as follows:
Google 37 days
13-18
13-33 (continued)
manufactured inventory. Auditors likely placed greater
emphasis on tests of details of balances for this audit.
Cases
occurrence are:
1. The change in the accounting system to computerize the
to conclude that the internal controls were effective.
2. Reduction in the scope of the inventory work based on the lack
balance was higher.
3. The new division should have been audited more thoroughly. It
different operating characteristics and internal controls.
4. The determination that the errors in the sample were
also considering sampling risk. The obsolescence problem
inventory.
5. Given the new personnel on the engagement, Brewer
work of assistants.
6. There was an apparent lack of the use of analytical
13-19
13-34 (continued)
b. Brewer should have been aware that the inventory internal controls
and the personnel in that department were new, that the interim
tests revealed more errors than normal, and that the inventory
tests revealed more errors than normal despite the reduction in
c. The likelihood of Brewer losing the suit is high. The auditors appear
not to have followed several of the principles in the clarified audit
standards related to the auditors responsibilities and performance.
13-35 – Part I
(2) Obtain an understanding of internal control. This would be
done under both approaches; however, it may be more
(3) Perform tests of controls. This would be done only under
(4) Perform substantive analytical procedures. This would be
b. The “reducing control risk” approach has several advantages:
1. It should result in lower overall audit cost. This will occur
where the client’s business activity is complex and its
than full-scale substantive tests of balances would require.
13-20
13-35 (continued)
2. For very large audits, it would be impossible to complete
fiscal year end. These large companies generally have
many locations, including worldwide operations. Controls
3. The more detailed investigation of controls that is required
creates more opportunities to make useful recommendations
to the client.
4. Performance of detailed tests of transactions creates the
opportunity to reveal employee defalcations that would
defalcation in the first place.
c. The primary advantage of the “substantive” approach is one of
by going into the client’s office at one point in time and doing the
13-35 – Part II
don’t indicate any misstatements exceeding performance
13-21
13-35 – Part II (continued)
substantive analytical procedures to the extent otherwise planned,
and may believe some other detailed tests are appropriate.
13-35 Part III
misstatement that must be subjected to measurement. The staff person
should independently evaluate whether the increase in control risk
requires an increase in substantive tests. The auditor must also
evaluate whether the control exceptions represent material
control over financial reporting.
