INTRODUCTORY MATERIAL

• PREFACE
  • PEER REVIEW OF THIS GUIDE
  • HOW TO USE THIS GUIDE
• ACKNOWLEDGMENTS
  • ACKNOWLEDGMENT OF COPYRIGHTS
• ABOUT THE AUTHORS . . .
• LIST OF SUBSTANTIVE CHANGES AND ADDITIONS

CHAPTER 1: INTRODUCTION AND OVERVIEW

• 100 INTRODUCTION
• 101 AUTHORITATIVE LITERATURE
  • Generally Accepted Accounting Principles
  • FASB Codification Project
    • Resulting Changes.
    • Project Timing.
    • Changes to This Guide for the Codification.
  • Generally Accepted Auditing Standards
    • Auditing Standards.
    • Interpretive Publications.
    • Other Auditing Publications.
  • Clarity Project of the Auditing Standards Board
• 102 THE PPC AUDIT PROCESS
  • Practice Aids
• 103 ORGANIZATION OF THIS GUIDE
  • Chapter 2--Pre-engagement Activities
  • Chapter 3--Risk Assessment Procedures and Planning
  • Chapter 4--Assessing Risks and Developing the Detailed Audit Plan
  • Chapter 5--Substantive Procedures
  • Chapter 6--Testing Internal Control
  • Chapter 7--Sampling in an Audit Engagement
  • Chapter 8--Audit Documentation
  • Chapter 9--Special Audit Considerations
  • Chapters 10-17--Specific Audit Areas
  • Chapter 18--Concluding the Audit
  • Practice Aids
• 104 OVERVIEW OF THE RISK ASSESSMENT STANDARDS
  • Introduction
  • What Is Risk Assessment?
    • Planning Is the Key.
  • Risk Assessment Standards
    • Key Provisions of the Standards.
    • Key Provisions in the Risk Assessment Standards and How They Differ from Current Standards.
  • Terminology
    • Audit Strategy.
    • Audit Plan.
    • Relevant Assertions.
    • Significant Risks.
    • Risk Assessment Procedures.
    • Risk of Material Misstatement.
    • Further Audit Procedures.
    • Other Terms.
• APPENDIX 1A: Professional Pronouncements Recently Issued or Soon to Be Effective

CHAPTER 2: PRE-ENGAGEMENT ACTIVITIES

• 200 INTRODUCTION AND AUTHORITATIVE LITERATURE
  • Authoritative Literature
• 201 CLIENT ACCEPTANCE AND CONTINUANCE
  • Risk-based Perspective
  • Client Acceptance: A Step-by-step Process
  • Prospective Client's Reputation
    • Sources of Information.
    • Communication with a Predecessor.
  • Assessment of Required Services
  • Independence
    • Nonattest Services.
    • Should Proposing Journal Entries and Preparing Financial Statements in Connection with an Audit Be Viewed as Bookkeeping and, Therefore, Nonattest Services?
    • Additional Questions in Applying Interpretation 101-3.
    • Illustrative Examples.
    • Staff Members on Loan.
    • Unpaid Fees.
    • Client Employee.
    • Financial Interests.
    • Other Independence Requirements.
  • Meeting Other Professional Standards and Requirements
    • Technical Expertise and Available Resources.
    • Condition of the Financial Reporting System.
    • Integrity and Objectivity.
    • Adequacy of Fees.
    • Opportunity for Practice Development.
    • Specialized Procedures When Using the Work of Another Accountant.
  • Engagement Acceptance Forms
  • Annual Evaluation for Continuing Engagement
• 202 ESTABLISHING TERMS OF THE ENGAGEMENT
  • Documenting the Understanding with the Client
  • Reasons for an Engagement Letter
    • Overcoming Client Resistance.
  • Suggested Content of Engagement Letter
  • Using the Engagement Letter to Improve Client Assistance
  • Multi-year Engagement Letters
  • Sample Engagement Letter
  • Early Communication with Those Charged with Governance
• 203 USING THE ENGAGEMENT LETTER TO LIMIT LIABILITY
  • Legal Protection Clauses
    • Loss Limitation and Indemnification Clauses.
    • Time Limitation Clauses.
    • Undertaking-to-be-truthful Clause.
    • Statute of Limitations.
    • Collection of Fees Relating to Client Litigation When the Auditor Is Not a Party.
    • Reliance on Oral Advice or the Absence of Advice.
    • Obtaining a Retainer.
    • Compensation for Employees Hired by Clients.
    • Notification of Report Reproduction.
  • Alternative Dispute Resolution
    • Arbitration.
    • Mediation.
    • Other ADR Techniques.
    • Effect on Independence.
    • Potential Drawbacks.
• 204 SPECIAL PLANNING CONSIDERATIONS IN AN INITIAL ENGAGEMENT
  • Considerations Regarding Consistency of Application of Accounting Principles
  • Replacing Predecessor Auditors
  • Initial Audit of an Unaudited Business
  • Additional Guidance on Initial Audit
• 205 PRE-ENGAGEMENT FORMS RELATED TO INITIAL AUDIT

CHAPTER 3: RISK ASSESSMENT PROCEDURES AND PLANNING

• 300 INTRODUCTION AND AUTHORITATIVE LITERATURE
  • Authoritative Literature
  • Objectives of Audit Planning
  • The Risk Assessment Process
    • Procedures Performed.
    • Understanding Obtained.
    • Decisions and Judgments Made.
    • Summary of Risk Assessment Process.
  • The Sequence of Audit Planning
  • Modifications Made to 2009 PPC Practice Aids
  • Organization of This Chapter
• 301 RISK ASSESSMENT AND OTHER PLANNING PROCEDURES
  • Types of Risk Assessment Procedures
    • Nature, Timing, and Extent--General Considerations.
    • Gathering Other Information Needed to Identify Fraud Risks.
    • Using the Results of Risk Assessment Procedures Performed in Prior Periods.
  • Inquiries of Management and Others
    • Matters and Parties of Inquiry.
    • Fraud-related Inquiries.
    • Documentation.
  • Preliminary Analytical Procedures
    • Using Analytical Procedures When Large Audit Adjustments Are Expected.
    • The Value of Preliminary Analytical Procedures in Risk Identification.
    • Analytical Procedures Related to Revenue.
    • Documentation.
  • Observation and Inspection
    • Documentation.
  • Discussion among the Engagement Team
    • Matters to be Discussed.
    • Impact on Significant Audit Areas.
    • Who Should Attend the Discussion?
    • When Should the Discussion Occur?
    • Other Matters That May Be Discussed.
    • Documentation.
• 302 UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT
  • Components of the Understanding
    • Documentation.
    • Purpose of This Section.
  • Industry, Regulatory, and Other External Factors
    • AICPA Audit Risk Alert.
    • Possible Risk Assessment Procedures and Factors to Consider.
  • Nature of the Entity
    • Risk Assessment Procedures and Factors to Consider.
  • Objectives, Strategies, and Related Business Risks
    • Risk Assessment Procedures and Factors to Consider.
    • Identifying Business Risks.
  • Measurement and Review of the Entity's Financial Performance
    • Risk Assessment Procedures and Factors to Consider.
    • Business and Other Risks.
  • Selection and Application of Accounting Policies
    • Risk Assessment Procedures.
  • Fraud Risk Factors
    • Examples of Fraud Risk Factors.
    • Auditor's Considerations of Fraud Risk Factors.
• 303 THE UNDERSTANDING OF INTERNAL CONTROL
  • Components of Internal Control
  • Nature of the Auditor's Understanding
  • Extent of the Auditor's Understanding
  • Understanding Controls Related to Significant Risks and Risks for Which Substantive Procedures Alone Are Not Sufficient
  • Effect of Information Technology (IT) on Internal Control
    • Benefits and Risks of IT.
    • Examples of How IT Affects Internal Control.
    • Considering Whether Specialized IT Skills Are Needed to Understand Internal Control.
  • How Are the Results of the Understanding Used?
  • A Practical Approach for Obtaining an Understanding of Internal Control
    • Develop an Overall Strategy for Understanding Internal Control.
    • Perform Scoping Activities.
    • Evaluate the Design and Implementation of Entity-level Controls.
    • Evaluate the Design and Implementation of Activity-level Controls.
    • Document the Understanding of Internal Control.
  • Considering Control Objectives and Key Controls
    • Control Objectives.
    • Key Controls.
    • Do Not Forget about Complementary Controls and Controls over Spreadsheets.
    • Consider Segregation of Duties.
• 304 UNDERSTANDING ENTITY-LEVEL CONTROLS
  • Control Environment
    • What Is the Control Environment?
    • Control Objectives.
    • Risk Assessment Procedures and Factors to Consider.
    • Considering Management Control Consciousness.
    • Small Business Considerations.
    • Impact of the Control Environment in Assessing Risk.
    • Effect of Information Technology on the Control Environment.
    • Documentation of the Control Environment.
  • Risk Assessment
    • The Entity's Fraud Risk Assessment and Monitoring.
    • Control Objectives.
    • Small Business Considerations.
    • Documentation of the Client's Risk Assessment Process.
  • Information and Communication
    • Information.
    • Communication.
    • Documentation of the Understanding of Information and Communication.
  • Monitoring
    • Small Business Considerations.
    • Risk Assessment Procedures and Factors to Consider.
    • Consideration of Internal Audit Function.
    • Documentation of the Client's Monitoring Process.
• 305 UNDERSTANDING ACTIVITY-LEVEL CONTROLS
  • Financial Reporting System
    • Identifying Significant Transaction Classes.
    • Understanding the Flow of Information for Significant Transaction Classes.
    • Understanding the Financial Close and Reporting Process.
    • Control Objectives.
    • Risk Assessment Procedures.
    • Walkthroughs.
    • Documentation of the Understanding of the Financial Reporting System.
  • IT Environment and General Computer Controls
    • IT Environment.
    • General Computer Controls.
    • Documentation of the IT Environment and General Computer Controls.
  • Control Activities
    • Small Business Considerations.
    • Obtaining an Understanding of Control Activities.
    • When Is an Additional Understanding of Control Activities Necessary?
    • Case Study on Extent of Understanding of Control Activities.
  • Documenting Activity-Level Controls
    • Documenting the Financial Reporting System and Walkthroughs.
    • Documenting the IT Environment and General Computer Controls.
    • Documenting Control Activities.
• 306 PLANNING DECISIONS AND JUDGMENTS
  • Determining Materiality at the Financial Statement Level
    • Quantifying Planning Materiality.
    • Desirability of a Single Benchmark.
    • Benchmarks.
    • Selecting a Percentage.
    • Audits of a Single Financial Statement.
    • Consideration of Industry Characteristics in Making a Preliminary Judgment.
    • Sources of Amounts for Worksheet.
  • Determining Materiality for Particular Items of Lesser Amounts
    • Documentation.
  • Determining Tolerable Misstatement
    • A Practical Approach to Determining Tolerable Misstatement.
    • Caution on Use of Planning Materiality for Evaluation.
  • Relating Planning Materiality and Tolerable Misstatement to Accounts and Transactions
  • Trivial Misstatements
  • Assessing Risks of Material Misstatement at the Financial Statement Level
    • Responding to Risks at the Financial Statement Level.
    • Documentation.
  • Establishing an Overall Audit Strategy
    • Small Business Considerations.
    • Effect of Information Technology (IT) on Audit Strategy.
    • Other Audit Strategy Considerations.
    • Timing of Developing the Audit Strategy.
    • Communicating with Those Charged with Governance.
    • Documentation.
• 307 CONSIDERATION OF FRAUD
  • Types of Misstatements Caused by Fraud
    • Misstatements Resulting from Fraudulent Financial Reporting.
    • Misstatements Resulting from Misappropriation of Assets.
  • The Auditor's Responsibility for Fraud Detection
    • Immaterial Misstatements Caused by Fraud.
  • The Importance of Exercising Professional Skepticism
  • The Auditor's Fraud Risk Assessment Process
    • Practice Aids for Documenting the Fraud Risk Assessment.
  • Detection of Illegal Acts
  • Fraud Consulting Services
• 308 TIMING OF SUBSTANTIVE PROCEDURES
• 309 GENERAL PLANNING PROCEDURES AND FORMS
• 310 PLANNING THE AUDIT TIME ESTIMATE
  • Managing Client Assistance to Improve Efficiency
    • Schedules Prepared by the Client.
• APPENDIX 3A: 2009 Form Modifications
  • APPENDIX 3A-1:

CHAPTER 4: ASSESSING RISKS AND DEVELOPING THE DETAILED AUDIT PLAN

• 400 INTRODUCTION
• 401 THE CONCEPT OF FINANCIAL STATEMENT ASSERTIONS
  • Assertions for Classes of Transactions
  • Assertions for Account Balances
  • Assertions for Presentation and Disclosure
  • Relevant Assertions
  • Implementation of Assertion Categories
    • Using the PPC Approach.
• 402 IDENTIFYING RISKS OF MATERIAL MISSTATEMENT AT THE RELEVANT ASSERTION LEVEL
  • Gathering Information from Risk Assessment and Other Planning Procedures
  • Synthesizing the Information
    • Why Is Synthesis Important?
    • Synthesis Considerations.
    • Considering the Type of Risk.
    • Considering Pervasiveness of the Risk.
    • Considering What Can Go Wrong at the Assertion Level.
    • Considering Fraud Conditions.
    • Considering Magnitude of the Risk.
    • Synthesis Questions.
  • Identifying Risks of Material Misstatement
    • Articulating Risks.
    • Examples of Synthesis.
  • Documenting Identified Risks
  • Assessing Identified Risks
• 403 ASSESSING RISKS OF MATERIAL MISSTATEMENT AT THE RELEVANT ASSERTION LEVEL
  • The Audit Risk Model
  • Risk of Material Misstatement
  • Assessing the Risk of Material Misstatement at the Relevant Assertion Level
    • PPC Approach.
    • General Risk Assessment Factors.
    • Determining Significant Audit Areas.
    • Describing Specific Risks of Material Misstatement.
    • Determining the Documentation Approach to Be Used When Assessing the Risk of Material Misstatement.
    • Assessing Inherent Risk.
    • Assessing Control Risk.
    • Assessing the Combined Risk of Material Misstatement.
    • Documenting the Risk of Material Misstatement.
    • Responding to the Risk Assessment.
• 404 CONSIDERING FRAUD RISKS
  • Fraud Risk Factors
  • Identifying Risks of Material Misstatement Due to Fraud
    • Considering Fraud Conditions.
    • The Synthesis Process.
    • Articulating Fraud Risks.
    • Presumption of Revenue Recognition as a Fraud Risk.
  • Assessing Risk of Material Misstatement Due to Fraud
    • Considering Mitigating Controls.
  • Responding to Fraud Risks
  • Documenting Risks of Material Misstatement Due to Fraud
• 405 RESPONDING TO THE RISK ASSESSMENT AND PREPARING THE DETAILED AUDIT PLAN
  • Determining the Audit Approach
    • Limited Procedures Approach.
    • Choosing between Core Audit Programs and Specified Risk Audit Programs.
    • Basic and Extended Approaches (Core).
    • Specified Risk Approach.
    • Documenting the Response.
  • Types of Substantive Procedures and Audit Strategies
    • Limited, Basic, and Extended Approaches.
    • Specified Risk Approach.
  • Tailoring the Audit Programs
    • Core and Specified Risk Programs Provide Starting Points.
    • Initial Audit Programs.
    • Electronic Tools.
    • Core Audit Programs.
    • Specified Risk Audit Programs.
    • Can the Auditor Use a Combination of Core Audit Programs and Specified Risk Audit Programs?
    • Initial Audit Programs.
  • Documentation Requirements

CHAPTER 5: SUBSTANTIVE PROCEDURES

• 500 INTRODUCTION AND AUTHORITATIVE LITERATURE
  • Introduction
  • Authoritative Literature
• 501 SUBSTANTIVE PROCEDURES REQUIRED IN EVERY AUDIT
  • Material Account Balance, Transaction Class, or Disclosure
    • Financial Statement Reporting System.
    • Significant Risks.
    • Other Required Audit Procedures.
• 502 CHOOSING SUBSTANTIVE PROCEDURES
  • Considering the Sufficiency and Appropriateness of Audit Evidence
  • Nature, Timing, and Extent of Substantive Procedures
  • Selecting Appropriate Substantive Procedures
    • Considering the Account Being Tested.
    • Considering the Financial Statement Assertion.
    • Considering the Nature of Risks Identified.
    • Considering the Degree of Risk.
    • Considering the Available Evidence.
    • Considering the Effectiveness and Efficiency of Substantive Procedures.
  • Choosing between Analytical Procedures and Substantive Tests of Details
• 503 TESTS OF DETAILS
  • Confusion about Tests of Details of Transactions
  • Required Documentation
• 504 SUBSTANTIVE ANALYTICAL PROCEDURES
  • Types and Purposes of Analytical Procedures
    • What Are Analytical Procedures?
    • Purposes of Analytical Procedures.
    • What Distinguishes Substantive Analytical Procedures?
  • How to Design Effective Substantive Analytical Procedures
    • First Ask Management.
    • Consider the Budgetary Process.
    • Identify Comparables.
    • Talk to Operating Personnel.
  • Consider Whether Circumstances Are Favorable to Substantive Analytical Procedures
    • Audit Area or Type of Account.
    • Likely Cause of Potential Misstatements.
    • Availability of Reliable Data.
    • Precision of Expectation.
    • Efficiency.
  • Using Computer Software to Help Perform the Analytical Procedures
    • Data Extraction Software (DES).
  • Analytical Procedures and Fraud Detection
    • Corroboration of Explanations.
  • Analytical Procedures and Interim Testing
  • Analytical Procedures and Accounting Estimates
  • How to Identify and Evaluate Significant Differences
    • Evaluation of the Significance of Differences.
    • Corroboration of the Explanation of the Difference.
  • How to Document Substantive Analytical Procedures
    • Documentation of Principal Substantive Tests of a Significant Financial Statement Assertion.
    • Documentation of Other Types of Analytical Procedures.
  • Practice Aids
• 505 OTHER ISSUES RELATED TO SUBSTANTIVE PROCEDURES
  • The Use of Audit Evidence from Prior Periods
  • Responding to Fraud Risks
    • Overall Responses.
    • Specific Responses.
    • Professional Skepticism.
    • Responding to the Risk of Misappropriation of Assets.
    • Cost of Goods Stolen.
    • Responses to Further Address the Risk of Management Override of Controls.
    • Examining Journal Entries.
    • Reviewing Accounting Estimates.
    • Evaluating Significant Unusual Transactions.
    • Effect on Audit Programs.
    • Documenting Fraud Risk Responses.
  • Completeness--the Elusive Assertion
    • Procedures Related to Completeness.
    • Observation and Inquiry.
    • Analytical Procedures.
    • Tests of Details of Transactions.
    • Management Representations.
• 506 TIMING OF SUBSTANTIVE PROCEDURES
  • Interim Audit Procedures
    • Evaluating the Practicality of Performing Interim Audit Procedures.
    • Choosing an Interim Date.
    • Audit Risk Considerations.
    • Account Considerations.
    • Financial Reporting System Considerations.
    • Testing the Remaining Period.
    • Evaluating Audit Results.
• 507 RISK ASSESSMENT STANDARDS SUBSTANTIVE PROCEDURES REQUIREMENTS

CHAPTER 6: TESTING INTERNAL CONTROL

• 600 INTRODUCTION
  • Authoritative Literature
• 601 INTERNAL CONTROL TESTING--AN OVERVIEW
  • Practical Considerations Related to Tests of Controls
  • Basic Approach to Tests of Controls
• 602 DECIDING WHETHER TO TEST CONTROLS
  • The Risk Assessment Includes an Expectation of Operating Effectiveness
    • Materiality and Inherent Risk Considerations.
    • Feasibility of Performing Tests.
    • Audit Efficiency Considerations.
  • Substantive Procedures Alone Do Not Provide Sufficient Audit Evidence
    • Examples of When Testing Controls May Be Necessary.
• 603 DECIDING WHICH CONTROLS TO TEST
  • Improperly Designed Controls or Controls Not Implemented
  • Tests of Controls versus Processes
  • Controls Relevant to Identified Risks
  • Key Controls
  • Control Activities and Complementary Controls
  • Easy-to-test Controls
• 604 SELECTING APPROPRIATE PROCEDURES
  • Nature and Types of Tests of Controls
    • Inquiry and Observation.
    • Inspection of Documents, Reports, or Electronic Files.
    • Walkthroughs.
    • Reviews of Reconciliations and Similar Bookkeeping Routines.
    • Reperformance of the Control Activity.
• 605 PERFORMING TESTS OF CONTROLS
  • Timing of Tests of Controls
    • Interim Testing of Controls.
    • Using Audit Evidence Obtained in Prior Audits.
  • Extent of Tests of Controls
    • Use of Audit Sampling in Tests of Controls.
  • Concurrent Tests of Controls and Substantive Procedures
  • Efficiency Opportunities in Testing Controls
• 606 TESTING IT RELATED CONTROLS
  • How a Client's Computer Affects Internal Control
  • Types of Computer Control Activities
    • Application Controls.
    • General Controls.
  • Approaches to Testing Computer Controls
    • Test Manual User Controls.
    • Test Automated Application Controls and Manual Follow-up Activities.
    • Test General Controls and Manual Follow-up Activities.
    • Need for a Specialist to Test Computer Controls.
  • Testing Procedures
    • Testing Procedures for Manual Follow-up Activities.
    • Testing Procedures Using CAATs.
• 607 EVALUATING TESTS OF CONTROLS AND ASSESSING CONTROL RISK
  • Evaluating the Evidence about Operating Effectiveness
    • Sampling in Tests of Controls.
    • Evaluating the Operating Effectiveness of Controls at a Service Organization.
    • Considering Evidence from Substantive Procedures.
    • Communicating Control Deficiencies.
  • Considering the Amount of Audit Evidence Necessary to Support a Control Risk Assessment
    • Type of Evidence.
    • Source of Evidence.
    • Assessing Control Risk at Reduced Levels Based on Risk Assessment Procedures.
  • Effect of the Control Risk Assessment on Substantive Procedures
    • Using the PPC Approach.
• 608 DOCUMENTING TESTS OF CONTROLS AND THE CONTROL RISK ASSESSMENT
  • Practice Aids
    • "Test of Controls Form."
    • "Activity and Entity-level Control Forms."
    • Memo.

CHAPTER 7: SAMPLING IN AN AUDIT ENGAGEMENT

• 700 INTRODUCTION AND AUTHORITATIVE LITERATURE
  • Authoritative Literature
  • Small Business Considerations
  • Definition and Uses of Audit Sampling
  • Relation of Types of Audit Procedures to Audit Sampling
    • Substantive Tests of Account Balances.
    • Substantive Tests of Transactions.
    • Tests of Controls.
• 701 PLANNING THE EXTENT OF SUBSTANTIVE PROCEDURES
  • STEP 1 Assess the Appropriate Level of Tolerable Misstatement
  • STEP 2 Determine an Amount for Individually Significant Dollar Items
    • Case Study--Identifying Individually Significant Dollar Items.
  • STEP 3 Identify Unusual Items
    • Prior Experience.
    • Results of Analytical Procedures.
    • Unusual Characteristics.
  • STEPS 4 and 5 Considering the Remaining Balance
    • Comparing the Remaining Balance to Tolerable Misstatement.
    • Considering the Need to Apply Additional Audit Procedures to the Remaining Balance.
  • Worksheet for Planning the Extent of Substantive Procedures
  • The Importance of Identifying Individually Significant Items
• 702 REQUIREMENTS THAT APPLY TO ALL SUBSTANTIVE SAMPLES
  • The Basic Requirements
  • Defining Population and Sampling Unit
    • Defining the Population.
    • Defining the Sampling Unit.
  • Representative Selection
    • Selecting Sample Items.
    • Choosing a Method.
    • Random Selection Using Random Numbers.
  • Evaluation and Other Requirements
    • Projecting Sample Results.
    • Additional Requirements.
• 703 SAMPLING IN SUBSTANTIVE TESTS OF DETAILS
  • Planning Considerations
    • Assessing Risk of Incorrect Acceptance.
    • Assessing Tolerable Misstatement.
    • Assessing Expected Misstatement.
    • Considering Population Size.
    • Relating Factors to Determine Sample Size.
  • A Practical Approach to Nonstatistical Sampling
  • Selecting the Sample
    • Using Data Extraction Software to Select the Sample.
  • Projecting the Misstatement
  • Considering Sampling Risk
  • Considering Qualitative Characteristics
  • Practice Issues in Evaluation of Sample Results
    • Netting Misstatements in Projection.
    • Unacceptable Sampling Risk.
  • Documentation of Substantive Sampling Applications
  • Alternative Approach for Substantive Tests of Transactions
  • Reminder--Avoid Unnecessary Sampling
• 704 TESTS OF CONTROLS USING AUDIT SAMPLING
  • Terminology for Sampling in Tests of Controls
  • STEP 1 Identifying Controls and Related Substantive Procedures
  • STEP 2 Considering Whether Testing Controls Is Practical
  • STEPS 3 and 4 Selecting and Performing Tests of Controls
    • Define the Population and Deviations.
    • Determine the Tolerable Rate.
    • Determine the Allowable Risk of Assessing Control Risk Too Low (Risk of Overreliance).
    • Determine the Expected Rate of Deviations.
    • Determine Sample Size.
    • Statistical versus Nonstatistical Approaches.
  • A Recommended Approach for Sampling for Tests of Controls
    • Determining the Sample Selection Method.
  • STEP 5 Evaluating the Results of Tests of Controls Involving Sampling
  • STEP 6 Assessing Control Risk
  • STEP 7 Documenting Tests of Controls Involving Sampling
  • Using Data Extraction Software for Sampling in Tests of Controls
  • Case Study on Tests of Controls
• 705 AN EFFICIENT APPROACH TO SUBSTANTIVE TESTS OF TRANSACTIONS
  • Conditions for Using Approach
    • Other Related Procedures.
    • Low Rate of Monetary Misstatement.
  • Sample Size for Substantive Tests of Transactions
    • A Sample of 25.
    • A Sample of 60.
  • Documentation of Alternative Approach to Substantive Tests of Transactions

CHAPTER 8: AUDIT DOCUMENTATION

• 800 INTRODUCTION AND AUTHORITATIVE LITERATURE
  • Authoritative Literature
• 801 PURPOSES AND BASIC REQUIREMENTS OF WORKPAPERS
  • Support for Auditor's Report
  • Other Purposes of Workpapers
  • Basic Requirements for Content
  • Documenting Specific Items Tested and Other Procedures
  • Documenting the Identification of Preparer and Reviewer
  • Documenting Significant Findings or Issues
  • Documenting Revisions after the Date of the Auditor's Report
    • Audit Report Date.
    • Report Release Date.
    • Documentation Completion Date.
    • Assembling and Completing the Audit File.
    • Making Changes to the Workpapers.
    • Audit Documentation Recommendations.
    • Summary Memoranda.
  • Additional Purposes of Workpapers
• 802 TYPES OF WORKPAPER SCHEDULES
• 803 WORKPAPER ORGANIZATION AND ARRANGEMENT
  • The Trial Balance--Backbone of the Workpapers
    • Unclassified.
    • Detailed Classified.
    • Condensed Classified.
    • A Suggested Trial Balance Approach.
  • Indexing and Organization of the Workpapers
    • The Permanent File.
    • The General File.
    • The Account Balance Files.
    • Location of Audit Programs.
    • Use of Tickmarks.
  • Workpaper Dimension and Binding
• 804 OTHER WORKPAPER CONSIDERATIONS
  • Ownership, Confidentiality, and Retention
    • Ownership.
    • Client Access.
    • Confidentiality.
    • Retention.
  • Review
  • Ensuring the Integrity of Workpapers
  • Loss or Destruction of Audit Documentation
  • Access by Regulators to Workpapers
• 805 WORKPAPER EFFICIENCIES
• 806 ELECTRONIC (PAPERLESS) WORKPAPERS
  • Determining Which Documents to Keep in Hardcopy Form
    • Professional Standards.
    • Legal Considerations.
    • Determining What Works Best for the Firm.
    • Scanned Documents.
  • Signatures and Sign-offs
  • Printing Electronic Workpapers
    • Complete and Review Workpapers Electronically.
    • Complete and Review Workpapers Electronically, Print Selected Workpapers for Review as Needed, and Then Destroy All Printed Versions.
    • Making a Practical Transition from Print to Electronic Form.
  • Backing up and Archiving
    • Saving Changes to Documents.
    • Backing up Engagements.
    • Archiving Engagements.
    • Software Applications.
  • Retention of Electronic Workpapers
• 807 LEGAL LIABILITY CONSIDERATIONS FOR AUDIT DOCUMENTATION
  • Audit Documentation
    • Preparation.
    • Retention.
    • Storing and Disposing of Electronic Files.
  • Other Documentation
    • Correspondence Files.
    • Email Communications.
    • Time Sheets.

CHAPTER 9: SPECIAL AUDIT CONSIDERATIONS

• 900 INTRODUCTION AND AUTHORITATIVE LITERATURE
  • Authoritative Literature
• 901 AUDITING CONSOLIDATED OR COMBINED FINANCIAL STATEMENTS
  • Accounting Considerations for Consolidated and Combined Financial Statements
    • Combined Financial Statements.
  • Factors Affecting Procedures
    • Scope of the Auditor's Report.
    • Number, Size, and Nature of Subsidiaries.
    • Client Expectations.
  • Determining Materiality
    • Consolidated Planning Materiality.
    • Adjusted Consolidated Planning Materiality.
    • Individual Subsidiary Planning Materiality.
  • Intercompany Transactions and Balances
    • Intercompany Profit.
    • One-sided Entries.
    • Audit Considerations.
• 902 AUDITS OF BRANCHES OR DIVISIONS
  • Other Considerations for a Separate Audit of a Branch or Affiliate
    • Related Party Considerations.
    • Financial Statement Disclosures.
    • Audit Procedures.
  • Multiple Inventory Locations
• 903 USE OF SERVICE ORGANIZATIONS
  • Use of Service Organizations
    • Types of Service Auditor's Reports.
    • Using a Service Auditor's Report.
• 904 USE OF A SPECIALIST
• 905 USING THE WORK OF OTHER AUDITORS
  • Definitions
  • Authoritative Literature
  • Decision Not to Make Reference
  • When Other Auditors Have Ceased Operations
  • Financial Statements That Include Investments Accounted for by the Equity Method
  • Procedures Performed by Other Auditors with Respect to Elements, Accounts, or Items of Financial Statements
  • Using the Work of Predecessor Auditors
• 906 USE OF INTERNAL AUDITORS
  • Assessing the Competence and Objectivity of Internal Auditors
  • Using Internal Auditors Directly
  • Using Internal Auditors Indirectly
    • Coordination with Internal Audit.
  • Documentation
  • Caution about Overusing the Work of Internal Auditors
• 907 AUDITING SUPPLEMENTARY INFORMATION
• 908 USING COMPUTERIZED DATA EXTRACTION TECHNIQUES
  • Introduction
  • Overview
    • Improved Audit Efficiency.
    • Better Quality Audits.
    • Increased Opportunities to Offer New Consulting Services.
    • Cautions for Using DES.
  • Process of Using DES
    • Planning for the Use of DES.
    • Obtaining Data from the Client.
    • Corroboration of Client Data.
    • Processing of Data.
    • Documentation of DES Procedures.
  • Case Study--Receivables Existence Testing
    • Receivables Existence Testing.
  • Examples of Opportunities to Use DES
  • Requirements of DES
    • DES Requirements.
• 909 INITIAL ENGAGEMENTS
  • Audit Objectives in an Initial Engagement
    • Preliminary Knowledge of Client.
    • Reasonableness of Opening Balances.
    • Consistency.
    • Balance Sheet Only Initial Audit.
  • Client Relations in an Initial Engagement
  • Replacing a Predecessor Auditor
    • Consideration of Predecessor's Reputation and Independence.
    • Review of the Predecessor's Workpapers.
    • Consideration of Reporting Options.
  • No Reliance on a Predecessor Auditor
    • Previous Audit by a Predecessor.
    • Previous Accounting Services.
    • No Previous Accounting or Auditing Services.
    • A New Business.
    • Audit Reporting.
    • Special Considerations for Observation of Inventory.
  • Audits of Financial Statements Previously Audited
    • Communications with the Predecessor Auditor.
    • Reliance on the Work of the Predecessor.
    • Effect on the Successor's Audit Report.
    • Providing Access to Workpapers in a Reaudit Situation.
• 910 SPECIAL CLIENT CONSIDERATIONS
  • Suing for Fees
  • Rejection Letters
  • Withdrawing from an Engagement
  • Fraud Consulting Services
  • Maintaining Positive Client Relationships

CHAPTER 10: CASH BALANCES

• 1000 INTRODUCTION
  • General
  • Accounting Standards
• 1001 AUDIT PROCEDURES FOR OBTAINING AUDIT EVIDENCE
  • Relevant Assertions for Cash
  • Substantive Audit Procedures for Cash
• 1002 WORKPAPER CONSIDERATIONS
  • Bank Confirmations
    • Special Considerations on the Use of Electronic Bank Confirmations.
  • Bank Reconciliations
  • Other Workpaper Considerations
• 1003 COMMON OVER (UNDER) AUDITING TENDENCIES
  • Overauditing Tendencies
  • Underauditing Tendencies
• 1004 CASE STUDIES AND OTHER CONSIDERATIONS
  • Case Studies
    • Proof of a Bank Statement.
    • Held Checks.
    • Surprise Cash Count.
    • Bank Charge for Processing Confirmation.
    • Bank Does Not Return Canceled Checks with Bank Statements.
• 1005 AUDIT PROGRAM
• 1006 RESPONDING TO FRAUD RISK

CHAPTER 11: ACCOUNTS RECEIVABLE AND SALES

• 1100 INTRODUCTION
  • General
  • Accounting Standards
• 1101 AUDIT PROCEDURES FOR OBTAINING AUDIT EVIDENCE
  • Relevant Assertions for Accounts Receivable and Sales
  • Substantive Audit Procedures for Accounts Receivable and Sales
  • Completeness Procedures
  • Confirmation Procedures
    • Examining Subsequent Cash Collections.
    • Types of Confirmations.
    • Confirmation Design.
    • Electronic Confirmations.
    • Timing of Confirmation Procedures.
    • Selecting the Accounts to Be Confirmed.
    • Client Requests Not to Confirm.
    • Sampling Considerations.
    • Alternative Procedures.
    • Evaluating Confirmation Results.
    • Nontraditional Confirmations.
    • Using Client Personnel to Clear Confirmation Exceptions.
  • Doubtful Accounts Procedures
  • Using Data Extraction Software
  • Sales or Revenue Procedures
    • Revenue Recognition Issues.
    • Designing Effective Analytical Procedures.
    • Transaction Tests.
  • Other Considerations
• 1102 WORKPAPER CONSIDERATIONS
  • Completeness Documentation
  • Aged Accounts Receivable Trial Balance
  • Confirmation Workpapers
  • Analysis of Collectibility
  • Other Considerations for Accounts Receivable Workpapers
  • Sales Workpapers
• 1103 COMMON OVER (UNDER) AUDITING TENDENCIES
  • Overauditing Tendencies
  • Underauditing Tendencies
• 1104 CASE STUDIES
  • Nonsampling Application for a Manufacturer
  • Accounts Receivable Audit Procedures for a Service Company
  • Sampling Application for a Newspaper
  • Predictive Test of Sales
• 1105 AUDIT PROGRAM
• 1106 RESPONDING TO THE FRAUD RISK ASSESSMENT

CHAPTER 12: INVENTORY AND COST OF SALES

• 1200 GENERAL
  • Accounting Standards
• 1201 AUDIT PROCEDURES FOR OBTAINING AUDIT EVIDENCE
  • Relevant Assertions for Inventory and Costs of Sales
  • Substantive Audit Procedures for Inventory and Costs of Sales
  • The Role of Sampling
    • Valuation Tests.
    • Inventory Observation.
  • The Inventory Observation
    • Count Instructions.
    • Test Counts.
    • Work in Process.
    • Cutoff.
    • Retail Inventory Count.
    • Cycle Counts.
    • Make Inventory Count Time Efficient.
    • Initial Audits.
  • Use of an Outside Inventory Firm
  • Using Data Extraction Software
  • Cost of Sales
  • Other Audit Considerations for Inventory and Cost of Sales
• 1202 WORKPAPER CONSIDERATIONS
  • Inventory Count
  • Inventory Cutoff
  • Final Inventory Summary
  • Inventory Costs and Market Value
  • Summary Memorandum
  • Costs of Sales Workpapers
• 1203 AUDITING INVENTORY VALUATION
  • First-in, First-out
  • Last-in, First-out
  • Average Cost
  • Standard Cost
  • Lower of Cost or Market
• 1204 COMMON OVER (UNDER) AUDITING TENDENCIES
  • Overauditing Tendencies
  • Underauditing Tendencies
• 1205 CASE STUDIES
  • Inventory Observation and Price Tests
  • Alternatives to a 100% Observation
  • Valuation Tests Using Sampling
  • Deciding Whether to Sample Inventory Costs
  • Cost of Sales Analysis
• 1206 AUDIT PROGRAM
• 1207 RESPONDING TO THE FRAUD RISK ASSESSMENT

CHAPTER 13: PROPERTY

• 1300 INTRODUCTION
  • General
  • Accounting Standards
• 1301 AUDIT PROCEDURES FOR OBTAINING AUDIT EVIDENCE
  • Relevant Assertions for Property
  • Substantive Audit Procedures for Property
• 1302 WORKPAPER CONSIDERATIONS
  • Detailed Property Records
    • Summary Schedule.
    • Test of Depreciation.
    • Repairs and Maintenance.
    • Additions and Retirements.
    • Other Workpaper Considerations.
• 1303 COMMON OVER (UNDER) AUDITING TENDENCIES
  • Overauditing Tendencies
  • Underauditing Tendencies
• 1304 CASE STUDY
  • Trade-ins
• 1305 AUDIT PROGRAM
• 1306 RESPONDING TO FRAUD RISK

CHAPTER 14: OTHER ASSETS

• 1400 INTRODUCTION
  • General
  • Accounting Standards
    • Fair Value.
• 1401 AUDIT PROCEDURES FOR OBTAINING AUDIT EVIDENCE
  • Relevant Assertions for Other Assets
  • Substantive Audit Procedures for Prepaids, Investments, and Other Assets
  • Prepaids
  • Cash Surrender Value of Life Insurance
  • Investment Securities
  • Investments in Closely Held Companies
    • Audit Requirements.
    • Accounting Methods.
    • Deferred Taxes.
    • Basis of Accounting.
    • Date of the Investee's Financial Statements.
    • Losses That Exceed the Original Investment.
    • Differences between Cost and Underlying Equity in Net Assets of Investee.
  • Business Combinations
    • Accounting Requirements.
    • Audit Considerations.
  • Derivatives
    • What Is a Derivative?
    • Accounting for Derivatives.
    • Common Uses of Derivatives.
    • Interest Rate Swap.
    • Auditing Considerations.
  • Barter Credits
    • Accounting Considerations.
    • Auditing Considerations.
  • Evaluating Impairment
• 1402 WORKPAPER CONSIDERATIONS
  • Prepaid Insurance
  • Investment Securities and Derivatives
  • Investments in Closely Held Companies
• 1403 COMMON OVER (UNDER) AUDITING TENDENCIES
  • Overauditing Tendencies
  • Underauditing Tendencies
• 1404 CASE STUDIES
  • Financial Statement Dates of Investor and Investee Are Different
  • Losses in a Real Estate Limited Partnership Investment
  • Losses in an Oil and Gas Tax Shelter Investment
• 1405 AUDIT PROGRAMS
• 1406 RESPONDING TO FRAUD RISK

CHAPTER 15: LIABILITIES AND EQUITY

• 1500 INTRODUCTION
  • General
  • Accounting Standards
    • Liabilities Other Than Debt.
    • Debt Obligations.
    • Equity.
• 1501 AUDIT PROCEDURES FOR OBTAINING AUDIT EVIDENCE
  • Relevant Assertions for Liabilities and Equity
  • Substantive Audit Procedures for Liabilities and Equity
    • Accounts Payable.
    • Accrued Liabilities.
    • Debt.
    • Equity.
    • Financial Statement Disclosures.
  • The Role of Sampling in Substantive Tests
  • Confirmation Considerations
    • Type of Confirmation Request.
    • Timing of Confirmations.
    • Selection of Specific Accounts for Confirmation.
    • Reconciliation of Confirmation Responses.
  • Search for Unrecorded Liabilities
  • Accrued Liabilities
  • Other Considerations for and Other Accrued Liabilities
  • Notes Payable and Debt Obligations
  • Equity Accounts
    • Other Audit Considerations for Equity.
• 1502 WORKPAPER CONSIDERATIONS
  • Schedule of Trade Accounts Payable
  • Analysis of Notes Payable
  • Capital Lease Amortization Schedule
  • Analysis of Accrued Expenses
  • Summary Schedule of Equity Accounts
• 1503 COMMON OVER (UNDER) AUDITING TENDENCIES
  • Overauditing Tendencies
  • Underauditing Tendencies
• 1504 CASE STUDY
  • Audit Sampling and the Search for Unrecorded Liabilities
• 1505 AUDIT PROGRAM
• 1506 RESPONDING TO THE FRAUD RISK ASSESSMENT

CHAPTER 16: INCOME TAXES

• 1600 INTRODUCTION
  • General
  • Characteristics of Income Taxes
  • Accounting Standards
    • Interperiod Tax Allocation--Measurement of Income Tax Expense and Deferred Taxes.
    • Presentation and Disclosure of Income Tax Expense and Deferred Taxes.
    • Investment Tax Credits--Measurement and Disclosure.
    • Operating Losses--Measurement and Disclosure.
    • Special Areas.
    • How FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FASB ASC 740), Affects Accounting for Income Taxes.
• 1601 AUDIT PROCEDURES FOR OBTAINING AUDIT EVIDENCE
  • Relevant Assertions for Income Taxes
  • Substantive Audit Procedures for Income Taxes
  • Preliminary Scanning
  • Tax Return Preparation
  • Assessing the Adequacy of the Current Tax Liability Prior to FIN 48
    • The Tax Cushion.
    • IRS Access to Workpapers.
    • Suggested Guidance.
  • Reconciliation of Taxable and Accounting Income
    • Identifying Permanent and Temporary Differences.
  • Calculating the Deferred Tax Provision
    • Categorizing Temporary Differences.
    • Applicable Tax Rates.
  • Considering the Need for a Valuation Allowance
    • Positive and Negative Evidence.
    • Other Negative Evidence.
    • Character of the Income.
    • Positive Evidence Only.
    • Sources of Taxable Income.
    • Evaluating the Evidence.
    • An Efficient Approach.
    • Other Approaches.
    • Tax Planning Strategies.
    • Audit Representations.
    • The Need for Scheduling.
  • Presentation and Disclosure
  • Tax Department Review
  • IRC Section 7525 Confidentiality Privilege
• 1602 EFFECT OF IMPLEMENTING FASB INTERPRETATION NO. 48, ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES
  • How FIN 48 Affects the Calculation of the Current Tax Provision
  • How FIN 48 Affects Deferred Taxes
  • Uncertain Tax Positions Related to State Nexus
  • Interest and Penalties
  • Financial Statement Disclosures
  • IRS Access to Workpapers
  • Audit Considerations
• 1603 WORKPAPER CONSIDERATIONS
  • Adjusted Before-tax Net Income
  • Use of Tax Return Forms and Schedules
  • Listing of Temporary Differences
  • Documentation Requirements
• 1604 COMMON OVER (UNDER) AUDITING TENDENCIES
  • Overauditing Tendencies
  • Underauditing Tendencies
• 1605 CASE STUDY
  • Deferred Tax Calculation
  • Valuation Allowance Calculation
• 1606 AUDIT PROGRAM

CHAPTER 17: INCOME AND EXPENSES

• 1700 INTRODUCTION
  • General
  • Accounting Standards
    • Revenue and Expense Recognition.
    • Reporting Results of Operations.
    • Relationship of Presentation to Assertions.
• 1701 AUDIT PROCEDURES FOR OBTAINING AUDIT EVIDENCE
  • Relevant Assertions for Revenue and Expense Transactions
  • Substantive Audit Procedures for Income and Expense Transactions
    • Balance Sheet Related Objectives.
    • Tax Return Preparation.
    • Relationship of Balance Sheet and Income Statement Accounts.
    • Transaction Tests.
    • Consideration of Other Audit Evidence.
  • Unusual Items
  • Investigating Significant Unexpected Differences
  • Individually Significant Items
    • Substantive Tests of Transactions Using Sampling.
    • Other Audit Considerations for Income and Expense.
• 1702 WORKPAPER CONSIDERATIONS
  • Expense Account Analyses
  • Comparison Schedule
  • Documentation of Analytical Procedures
• 1703 COMMON OVERAUDITING AND UNDERAUDITING TENDENCIES
  • Overauditing Tendencies
  • Underauditing Tendencies
• 1704 CASE STUDIES
  • Investment Income
  • Predictive Payroll Test
• 1705 AUDIT PROGRAM
• 1706 RESPONDING TO FRAUD RISK

CHAPTER 18: CONCLUDING THE AUDIT

• 1800 INTRODUCTION AND AUTHORITATIVE LITERATURE
  • Authoritative Literature
  • Limited Guidance on Reporting
• 1801 COMMITMENTS AND CONTINGENCIES
  • Accounting Standards
  • Audit Procedures
• 1802 ENVIRONMENTAL REMEDIATION LIABILITIES
  • Accounting Standards
  • Audit Procedures
    • Auditing the Estimated Liability.
    • Auditing Potential Recoveries.
• 1803 LAWYERS' LETTERS
  • Litigation
  • Unasserted Claims
  • Client Has Not Consulted a Lawyer
  • Evaluation of Lawyers' Responses
    • Dating of Lawyer's Response.
• 1804 MANAGEMENT REPRESENTATION LETTER
  • Reasons for Obtaining Letter
  • Written Representations to Be Obtained
  • Audit Adjustments
  • Modifications for a Small Business Engagement
    • Additional Representations.
    • Alternative Wording.
    • Other Actions.
  • Materiality
  • Periods Covered by the Letter
  • Dating of the Letter and Updating Letters
    • Updating Letters.
  • Reliance on Management's Representations
• 1805 SUBSEQUENT EVENTS REVIEW
  • Types of Subsequent Events
  • Subsequent Events Review Procedures
  • Proposed SFAS on Subsequent Events
• 1806 RELATED PARTIES
  • Accounting Standards
  • Audit Procedures
    • At Start of Audit.
    • In Connection with Other Procedures.
    • Final Review.
    • Substantiating Material Related Party Transactions.
    • Related Party Transactions and Fraud.
• 1807 GOING CONCERN CONSIDERATIONS
  • Evaluating the Entity's Ability to Continue as a Going Concern
    • Assessing Results of Audit Procedures.
    • Conditions and Events.
    • Consideration of Management Plans.
    • Procedures When There Is Substantial Doubt.
    • Documentation Requirements.
  • Audit Procedures When Reissuing a Report to Eliminate a Going Concern Uncertainty Paragraph
  • Proposed SFAS on Going Concern
• 1808 RISKS AND UNCERTAINTIES
  • Scope and Applicability
    • OCBOA Financial Statements.
    • Excluded Items.
  • Disclosures about Risks and Uncertainties
    • Nature of Operations.
    • Use of Estimates.
    • Certain Significant Estimates.
    • Current Vulnerability Due to Concentrations.
    • Summary of Disclosure Requirements.
  • Audit Procedures
    • Risk-reduction Techniques.
    • Lawyers' Letters.
    • Current Vulnerability Due to Concentrations.
    • Wording the Disclosures.
• 1809 ACCOUNTING ESTIMATES AND FAIR VALUE
  • Auditing Accounting Estimates
  • Auditing Fair Value Measurements and Disclosures
    • Fair Value Measurements and Disclosures.
    • Auditing Fair Value Measurements and Disclosures.
• 1810 CONSIDERING THE ACCUMULATED RESULTS OF AUDIT PROCEDURES
  • Reevaluating Risk Assessments
  • Evaluating the Existence of Fraud
    • Fraud Risk Assessment Is a Cumulative Process.
    • Required Procedures.
  • Evaluating Significant Unusual Transactions
  • Considering the Application of Significant Accounting Principles for Bias
  • Documentation Requirements
• 1811 ANALYTICAL REVIEW AND REVIEW OF WORKPAPERS
  • Analytical Review
  • Review of Workpapers
    • Detailed Review of Audit Work.
    • Supervisory Review.
    • Review Checklists.
    • Sole Practitioners.
    • Tax Department Review.
    • Engagement Quality Control Review.
    • Is Workpaper Review Required before Dating the Auditor's Report?
• 1812 SUMMARIZATION AND EVALUATION
  • Categories for Evaluation
  • Audit Differences
    • Known and Likely Misstatements.
    • Communication of Misstatements to Management.
  • Evaluating Audit Differences
    • Offsetting of Misstatements.
    • Trivial Misstatements.
    • Evaluating Estimates.
    • Different Levels for Different Amounts, Subtotals, or Totals.
    • Qualitative Considerations.
    • Overall Evaluation.
  • Evaluating the Existence of Fraud
  • Documentation Requirements
  • Summary of Audit Differences
    • Treatment of Prior-year Waived Adjustments.
    • Applying the Rollover and Iron Curtain Methods.
    • Illustration.
  • Evaluation of Overall Materiality
  • Analysis of Audit Time
  • Consultation on Technical Issues
• 1813 DRAFTING FINANCIAL STATEMENTS AND THE AUDITOR'S REPORT
  • Drafting Financial Statements
    • Statement of Cash Flows.
    • Notes to Financial Statements.
    • Summary of Accounting Policies.
    • Disclosure Checklists.
  • Preparing the Draft Auditor's Report
    • Reference to PCAOB Standards in an Audit Report of a Nonissuer.
    • Optional Additional Language Related to Internal Control.
    • Reporting When the Audit Is Performed in Accordance with International Standards on Auditing.
    • Reporting on Financial Statements Prepared in Conformity with International Financial Reporting Standards.
• 1814 REPORT ISSUANCE AND CLIENT COMMUNICATIONS
  • Discussion with Management
    • Unresolved Issues.
    • Internal Control Related Matters, Errors, and Fraud.
    • Other Matters.
  • Communicating Internal Control Related Matters
    • Definitions.
    • Examples of Deficiencies.
    • Identifying Control Deficiencies.
    • Evaluating Control Deficiencies.
    • Aggregation of Deficiencies.
    • Mitigating Effects of Compensating Controls.
    • Qualitative Considerations.
    • Prudent Official Test.
    • Control Deficiency Evaluation and Aggregation Worksheet.
    • Control Deficiency Comment and Management Point Development Worksheet.
    • Practice Issue #1--Can the Auditor Draft the Financial Statements?
    • Practice Issue #2--Auditor Identifies a Material Misstatement.
    • Communication Requirements.
    • Contents of the Communication.
    • Reporting When There Are No Significant Deficiencies.
    • Reporting When There Are No Material Weaknesses.
    • Illustrative Communications.
    • Management's Response.
    • Management Letter Comments.
    • Additional Guidance on SAS No. 115.
  • Communication with Those Charged with Governance
    • Matters to Be Communicated.
    • The Auditor's Responsibilities under GAAS.
    • Planned Scope and Timing of the Audit.
    • Significant Findings from the Audit.
    • Timing of the Communication.
    • Forms of Communication.
    • Evaluation of the Adequacy of the Auditor's Communication.
    • Documentation of Communications.
  • Fraud and Illegal Acts
    • Communications about Possible Fraud or Illegal Acts.
  • Communication about the Entity's Ability to Continue as a Going Concern
• 1815 ENGAGEMENT SUMMARY MEMORANDUM (ESM)
  • Content of the ESM
    • Background Information.
    • Recap of Risk Assessments.
    • Summary of Operating Results.
    • Significant Accounting and Auditing Issues.
    • Review Performed by the Engagement Partner.
    • Summary of Audit Differences.
    • Summary of Significant Deficiencies and Material Weaknesses.
    • Opinion.
    • Report Release Date and the Documentation Completion Date.
    • Subsequent Revisions to Workpapers.
    • Signing the ESM.
• 1816 SUBSEQUENT DISCOVERY OF FACTS EXISTING AT DATE OF REPORT
  • Consideration of Omitted Procedures
  • Documentation Requirements
• 1817 WORKPAPER FINALIZATION AND RETENTION
  • Documentation Completion Date
  • Workpaper Retention

FIRM POLICIES (ASB-FP)

• ASB-FP-1: Audit Team Members

CHECKLISTS AND PRACTICE AIDS (ASB-CX)

ASB-CX-0.1: Application of Practice Aids to Engagements

• ASB-CX-1: Planning and Preliminary Engagement Activities
  • ASB-CX-1.1: Engagement Acceptance Form
  • ASB-CX-1.2: Engagement Continuance Form
  • ASB-CX-1.3: ET Interpretation 101-3 Documentation Form
• ASB-CX-2: Financial Statement Materiality Worksheet for Planning Purposes
• ASB-CX-3: Understanding the Entity
  • ASB-CX-3.1: Understanding the Entity and Identifying Risks
  • ASB-CX-3.2: Engagement Team Discussion
  • ASB-CX-3.3: Fraud Risk Inquiries Form
  • ASB-CX-3.4: Audit Inquiries Summary Form
• ASB-CX-4: Understanding Internal Control
  • ASB-CX-4.1: Understanding the Design and Implementation of Internal Control
  • ASB-CX-4.2: Financial Reporting System Documentation Forms
    • ASB-CX-4.2.1: Financial Reporting System Documentation Form--Significant Transaction Classes
    • ASB-CX-4.2.2: Financial Reporting System Documentation Form--IT Environment and General Computer Controls
  • ASB-CX-4.3: Walkthrough Documentation Table
• ASB-CX-5: Activity and Entity-level Control Forms
  • ASB-CX-5.1: Entity-level Control Form for Control Environment
  • ASB-CX-5.2: Entity-level Control Form for Risk Assessment
  • ASB-CX-5.3: Entity-level Control Form for Information and Communication
  • ASB-CX-5.4: Entity-level Control Form for Monitoring
  • ASB-CX-5.5: Control Activities Form for General Computer Controls
  • ASB-CX-5.6: Control Activities Form for Financial Close and Reporting
  • ASB-CX-5.7: Control Activities Form for Cash
  • ASB-CX-5.8: Control Activities Form for Accounts Receivable and Sales
  • ASB-CX-5.9: Control Activities Form for Inventory and Cost of Sales
  • ASB-CX-5.10: Control Activities Form for Property
  • ASB-CX-5.11: Control Activities Form for Investments and Derivatives
  • ASB-CX-5.12: Control Activities Form for Other Assets
  • ASB-CX-5.13: Control Activities Form for Accounts Payable and Other Liabilities
  • ASB-CX-5.14: Control Activities Form for Notes Payable and Long-term Debt
  • ASB-CX-5.15: Control Activities Form for Income Taxes
  • ASB-CX-5.16: Control Activities Form for Equity
  • ASB-CX-5.17: Control Activities Form for Income and Expenses
  • ASB-CX-5.18: Common Control Objectives by Audit Area and Transaction Class
• ASB-CX-6: Identifying Risk
  • ASB-CX-6.1: Entity Risk Factors
  • ASB-CX-6.2: Fraud Risk Factors
• ASB-CX-7: Risk Assessment
  • ASB-CX-7.1: Risk Assessment Summary Form
  • ASB-CX-7.2: Inherent Risk Assessment Form
• ASB-CX-8: Planning Substantive Procedures
  • ASB-CX-8.1: Planning Worksheet to Determine Extent of Substantive Procedures
  • ASB-CX-8.2: Sampling Planning and Evaluation Form--Substantive Procedures
  • ASB-CX-8.3: Sampling Worksheet for Testing Account Coding and Classifications
• ASB-CX-9: Analytical Procedures
  • ASB-CX-9.1: Substantive Analytical Procedures Worksheet
  • ASB-CX-9.2: Ratio Analysis Worksheet
• ASB-CX-10: Tests of Controls
  • ASB-CX-10.1: Test of Controls Form
  • ASB-CX-10.2: Tests of Controls Sampling Planning and Evaluation Form
• ASB-CX-11: Other Checklists for Performing Further Audit Procedures
  • ASB-CX-11.1: Inventory Counting Procedures
  • ASB-CX-11.2: Confirmation Summary Form
  • ASB-CX-11.3: Accounts Receivable Statistics Form
  • ASB-CX-11.4: Confirmation Reconciliation Form
  • ASB-CX-11.5: Checklist for Determining the Applicability of SFAS No. 133 (FASB ASC 815) to a Contract
  • ASB-CX-11.6: Data Extraction Software Analysis Documentation Form
• ASB-CX-12: Evaluating Audit Differences
  • ASB-CX-12.1: Closing Entry and Audit Adjustment Form
  • ASB-CX-12.2: Audit Difference Evaluation Form
• ASB-CX-13: Disclosure Requirements for Financial Statements of Nonpublic Businesses (Long-form Disclosure Checklist)
• ASB-CX-14: Review and Wrap-up
  • ASB-CX-14.1: Supervision, Review, and Approval Form
  • ASB-CX-14.2: Audit Documentation Checklist
• ASB-CX-15: Evaluating Internal Control Deficiencies
  • ASB-CX-15.1: Control Deficiency Evaluation and Aggregation Worksheet
  • ASB-CX-15.2: Control Deficiency Comment and Management Point Development Worksheet
• ASB-CX-16: Other Checklists for Concluding the Audit
  • ASB-CX-16.1: Going-concern Checklist
  • ASB-CX-16.2: Significant Estimates Identification Checklist
  • ASB-CX-16.3: Concentrations Identification Checklist
  • ASB-CX-16.4: Accounting and Engagement Issues
• ASB-CX-17: Engagement Administration
  • ASB-CX-17.1: Client Billing Information
  • ASB-CX-17.2: Engagement Status Report
  • ASB-CX-17.3: Audit Time Summary
  • ASB-CX-17.4: Confirmation and Correspondence Control

CONFIRMATION AND CORRESPONDENCE LETTERS (ASB-CL)

• ASB-CL-1: Engagement Letters
  • ASB-CL-1.1: Audit Engagement Letter
  • ASB-CL-1.2: Engagement Letter Change Order Form
  • ASB-CL-1.3: Resignation Letter--Drafting Form
• ASB-CL-2: Legal Letters
  • ASB-CL-2.1: Request for Legal Representation--Lawyer Is Requested to Provide Information
  • ASB-CL-2.2: Request for Legal Representation--Lawyer Is Requested to Confirm Information Provided by Client
• ASB-CL-3: Management Representations
  • ASB-CL-3.1: Management Representation Letter
  • ASB-CL-3.2: Management Representation Letter When the Current Year Financial Statements Have Been Audited and the Prior Year Financial Statements Have Been Reviewed
  • ASB-CL-3.3: Summary of Audit Differences
  • ASB-CL-3.4: Updating Management Representation Lette
• ASB-CL-4: Internal Control Communications
  • ASB-CL-4.1: Communication of Significant Deficiencies
  • ASB-CL-4.2: Communication of Significant Deficiencies and Material Weaknesses
  • ASB-CL-4.3: Communication of No Material Weaknesses in a Separate Report
• ASB-CL-5: Communication with Those Charged with Governance under SAS No. 114
  • ASB-CL-5.1: Communication with Those Charged with Governance during Planning
  • ASB-CL-5.2: Communication with Those Charged with Governance at or Near the Conclusion of the Audit
• ASB-CL-6: Cash Confirmations and Letters
  • ASB-CL-6.1: Standard Form to Confirm Account Balance Information with Financial Institutions
  • ASB-CL-6.2: Request for Subsequent Bank Statements
  • ASB-CL-6.3: Receipt for Cash Counted by Auditor
• ASB-CL-7: Receivables Confirmations and Letters
  • ASB-CL-7.1: Positive Accounts Receivable Confirmation Request--Itemized Statement Enclosed
  • ASB-CL-7.2: Positive Accounts Receivable Confirmation Request--Open Item
  • ASB-CL-7.3: Positive Accounts Receivable Confirmation Request--without a Statement
  • ASB-CL-7.4: Negative Accounts Receivable Confirmation Request
  • ASB-CL-7.5: Blind Accounts Receivable Confirmation Request
  • ASB-CL-7.6: Confirmation Request for a Bill-and-hold Transaction
  • ASB-CL-7.7: Confirmation of Note Receivable
• ASB-CL-8: Investments and Securities Confirmations and Letters
  • ASB-CL-8.1: Receipt for Securities Counted by Auditor
  • ASB-CL-8.2: Confirmation of Securities Held by Brokers
  • ASB-CL-8.3: Confirmation of Securities Held by a Third Party
• ASB-CL-9: Inventory Confirmations and Letters
  • ASB-CL-9.1: Confirmation of Inventories Held by a Third Party--Listing of Inventories Not Enclosed
  • ASB-CL-9.2: Confirmation of Inventories Held by a Third Party--Listing of Inventories Enclosed
• ASB-CL-10: Payables and Debt Confirmations and Letters
  • ASB-CL-10.1: Accounts Payable Confirmation
  • ASB-CL-10.2: Note Payable Confirmation
  • ASB-CL-10.3: Confirmation of Debt for Which No Written Loan Agreement Exists
  • ASB-CL-10.4: Confirmation of Mortgage Debt
  • ASB-CL-10.5: Confirmation of Compensating Balances
  • ASB-CL-10.6: Confirmation of Line of Credit
  • ASB-CL-10.7: Confirmation of Contingent Liabilities with Financial Institutions
• ASB-CL-11: Benefit Plan Confirmations and Letters
  • ASB-CL-11.1: Request for Defined Benefit Plan Information
  • ASB-CL-11.2: Request for Plan Asset Information--Defined Benefit Pension and Other Postretirement Benefit Plans
• ASB-CL-12: Other Confirmations and Letters
  • ASB-CL-12.1: Standard Confirmation Inquiry for Life Insurance Policies
  • ASB-CL-12.2: Confirmation of Insurance Coverage (Except Life Insurance)
  • ASB-CL-12.3: Confirmation of Lease Agreement
  • ASB-CL-12.4: Related Party Confirmation
  • ASB-CL-12.5: Data Request Letter
• ASB-CL-13: Predecessor/Successor Communications
  • ASB-CL-13.1: Request for Predecessor Auditor to Release Information to Successor Auditor
  • ASB-CL-13.2: Letter Granting Successor Auditors Access to Workpapers
  • ASB-CL-13.3: Client Consent and Acknowledgment Letter
  • ASB-CL-13.4: Communication with Predecessor Auditor Prior to Final Engagement Acceptance
  • ASB-CL-13.5: Communication with Predecessor Auditor Prior to Engagement Proposal
  • ASB-CL-13.6: Request for Representation from Successor Auditor to Predecessor Auditor--Predecessor's Report Is Reissued
• ASB-CL-14: Principal and Other Auditor Communications
  • ASB-CL-14.1: Request for Representations from Other Auditor Who Audits the Financial Statements of a Subsidiary, Division, or Branch
  • ASB-CL-14.2: Request for Representations from Other Auditor Who Performs Audit Procedures on Certain Elements, Accounts, or Items in Financial Statements
  • ASB-CL-14.3: Inquiry of Principal Auditor by Other Auditor
  • ASB-CL-14.4: Principal Auditor's Response to Inquiries from Other Auditor
  • ASB-CL-14.5: Letter from Principal Auditor to Other Auditors Regarding Related Parties

AUDIT PROGRAMS--CORE (ASB-AP)

• ASB-AP-1: Audit Program for General Planning Procedures
  • Other General Planning Procedures
• ASB-AP-2: Audit Program for General Auditing and Completion Procedures
  • Other General Auditing and Completion Procedures
• ASB-AP-3: Audit Program for Cash
• ASB-AP-4: Audit Program for Accounts Receivable and Sales
  • Other Audit Procedures for Accounts Receivable and Sales
• ASB-AP-5: Audit Program for Inventory and Cost of Sales
  • Other Audit Procedures for Inventory and Cost of Sales
• ASB-AP-6: Audit Program for Inventory Observation
  • Other Audit Procedures for Inventory Observation
• ASB-AP-7: Audit Program for Property
  • Other Audit Procedures for Property
• ASB-AP-8: Audit Program for Investments and Derivatives
  • Other Audit Procedures for Investments and Derivatives
• ASB-AP-9: Audit Program for Other Assets
  • Other Audit Procedures for Other Assets
• ASB-AP-10: Audit Program for Accounts Payable and Other Liabilities
  • Other Audit Procedures for Accounts Payable and Other Liabilities
• ASB-AP-11: Audit Program for Notes Payable and Long-term Debt
• ASB-AP-12: Audit Program for Income Taxes
• ASB-AP-13: Audit Program for Equity
  • Other Audit Procedures for Equity
• ASB-AP-14: Audit Program for Income and Expenses
  • Other Audit Procedures for Income and Expenses

AUDIT PROGRAMS--SPECIFIED RISK (AP-S)

• ASB-AP-1-S: Audit Program for General Planning Procedures--Specified Risk
• ASB-AP-2-S: Audit Program for General Auditing and Completion Procedures--Specified Risk
• ASB-AP-3-S: Audit Program for Cash--Specified Risk
• ASB-AP-4-S: Audit Program for Accounts Receivable and Sales--Specified Risk
• ASB-AP-5-S: Audit Program for Inventory and Cost of Sales--Specified Risk
• ASB-AP-6-S: Audit Program for Inventory Observation--Specified Risk
• ASB-AP-7-S: Audit Program for Property--Specified Risk
• ASB-AP-8-S: Audit Program for Investments and Derivatives--Specified Risk
• ASB-AP-9-S: Audit Program for Other Assets--Specified Risk
• ASB-AP-10-S: Audit Program for Accounts Payable and Other Liabilities--Specified Risk
• ASB-AP-11-S: Audit Program for Notes Payable and Long-term Debt--Specified Risk
• ASB-AP-12-S: Audit Program for Income Taxes--Specified Risk
• ASB-AP-13-S: Audit Program for Equity--Specified Risk
• ASB-AP-14-S: Audit Program for Income and Expenses--Specified Risk

INITIAL AUDIT PROGRAMS (ASB-IA)

• ASB-IA-1: Additional General Planning Procedures for an Initial Audit
• ASB-IA-2: Additional General Auditing and Completion Procedures for an Initial Audit
• ASB-IA-3: Additional Audit Procedures for Cash Beginning Balance in Initial Audit
• ASB-IA-4: Additional Audit Procedures for Accounts Receivable Beginning Balance in Initial Audit
• ASB-IA-5: Additional Audit Procedures for Inventory Beginning Balance in Initial Audit
• ASB-IA-6: Not Used
• ASB-IA-7: Additional Audit Procedures for Property Beginning Balance in Initial Audit
• ASB-IA-8: Additional Audit Procedures for Investments and Derivatives Beginning Balance in Initial Audit
• ASB-IA-9: Additional Audit Procedures for Other Assets Beginning Balance in Initial Audit
• ASB-IA-10: Additional Audit Procedures for Accounts Payable and Other Liabilities Beginning Balance in Initial Audit
• ASB-IA-11: Additional Audit Procedures for Notes Payable and Long-term Debt Beginning Balance in Initial Audit
• ASB-IA-12: Additional Audit Procedures for Income Taxes Beginning Balance in Initial Audit
• ASB-IA-13: Additional Audit Procedures for Equity Beginning Balance in Initial Audit

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INDEX