Annual Audit Manual
COPYRIGHT NOTICE — This document is intended for internal use. It cannot be distributed to or reproduced by third parties without prior written permission from the Copyright Coordinator for the Office of the Auditor General of Canada. This includes email, fax, mail and hand delivery, or use of any other method of distribution or reproduction. CPA Canada Handbook sections and excerpts are reproduced herein for your non-commercial use with the permission of The Chartered Professional Accountants of Canada (“CPA Canada”). These may not be modified, copied or distributed in any form as this would infringe CPA Canada’s copyright. Reproduced, with permission, from the CPA Canada Handbook, The Chartered Professional Accountants of Canada, Toronto, Canada.
7041—Financial Audit Manual—Long Description
Nov-2011
This diagram is a flow chart that leads an auditor through the process involved in selecting the tests of details to perform. By asking a series of questions, and directing auditors to a series of actions depending upon the answers to those questions, the chart depicts the way auditors should test details required to obtain evidence to support a financial audit statement assertion.
The first question is Can we select items within an account or population based on a higher dollar value, higher risk, or other characteristic to address our test objective?
The chart gives an auditor two choices: Yes or No.
If the auditor answers Yes, then the second question is Can we efficiently test items? If the answer is Yes, then the next step is Perform Targeted Testing.
If the auditor answers No to the first question of whether or not he or she and efficiently test items, then the next question is Are we testing monetary values where it is possible and appropriate to project misstatements?
If the auditor answers No to the question of testing monetary values where it is possible and appropriate to project misstatements, then the next step is Perform Accept-Reject testing.
If the auditor answers Yes to the question of testing monetary values, then the next step is Perform Audit Sampling.
If an auditor has been directed to Perform Targeted Testing, then the next question is Are the items not subject to targeted testing above performance materiality?
If the answer is Yes to the question of performance materiality, then the next question is: Considering the results of tests of controls, substantive analytics and targeted testing, do we need more evidence with regard to the untested items?
If the auditor answers No to the question of performance materiality, then the next step is No further testing required, and document rationale/conclusion.
If the auditor answers Yes to the question of needing more evidence, then the next step is “Reconsider option to achieve a higher level of controls evidence or perform additional substantive analytical procedures. If sufficient evidence is not obtained, either expand targeted testing or perform audit sampling or accept-reject testing on the untested items.’’
There are two possible next steps: One possibility is to return to Perform Targeted Testing. The other possibility is to return to the question, Are we testing monetary values where it is possible and appropriate to project misstatements?
If the auditor answers No to the question of needing more evidence with regard to the untested items, then the next is No further testing required, document rationale/conclusion.
(Return)