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 12 – Audit Procedures in Response to Assessed

Risks: Substantive Tests
Chapter Overview
Steps for Assessing the Risk of
Material Misstatement
 Determining Detection Risk
• Detection Risk Model

• If, AR = IR x CR x DR, and

• DR = AP x TD so,

• DR = AR / (IR x CR)
 Preliminary Audit Strategy, Planned
Detection Risk, and Planned Emphasis on
Audit Tests
Tests of Controls and
Substantive Tests
 Using IT to Support Substantive
Tests
• Generalized Audit Software

• Reconcile Detail Audit Data with the General

Ledger

• Selecting and Printing Audit Samples

• Testing Calculations and Making Computations

• Testing the Entire Population

• Summarizing Data and Performing Analyses

 Audit Choices in the Design of
Substantive Tests
• Nature

• Timing

• Extent

• Staffing
Nature of Substantive Tests
 Timing of Substantive Tests
• Prior to Balance Sheet Date
– Interim Date Risks
– Importance of Internal Controls

• At the Balance Sheet Date

– Comparison of Account Balances
– Investigate Unusual Amounts
– Other Analytical Procedures
Extent of Substantive Tests
Summary of Relationships
 Special Considerations
• Balance Sheet and Income
Statement Accounts

• Related Party Transactions

General Framework for Developing an
Audit Program for Substantive Tests
• Nature of Procedures to be
Performed
– Outline of the work to be done
– Basis for coordinating, supervising,
and controlling the audit
– A record of the work performed

• Addressing All Assertions

Audit Program Example
Audit Objectives Example