Audit and Assurance Essentials: For Professional Accountancy Exams, + Website

Section essentials: what you need to remember

• Auditors always evaluate the design of controls and determine whether they have been implemented, regardless of whether they intend to test them.
• Tests of control effectiveness are needed if auditors want to rely on them and thereby reduce the level of substantive testing.
• The difference between substantive procedures and tests of control effectiveness.
• Examiners are looking for good quality examples of tests of control effectiveness and substantive procedures.

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SECTION 4.3, QUESTION

Required:

(a) Explain how analytical procedures are used in risk assessments and describe their limitations when they are performed before the period-end. (8 marks)

You have been asked unexpectedly to act as audit manager for the audit of Tonco. You are aware that Tonco specialises in the development of computer software and the sale of hardware for use in schools. Tonco is growing rapidly but is operating in an increasingly competitive market. The audit is due to commence tomorrow but the existing audit manager, who has worked on the audit for many years, has suddenly been taken ill and is due to go into hospital tomorrow. A planning meeting took place between Tonco and the existing audit manager a week ago but no notes have been written up.

You have been provided with a small amount of information relating to the year ended 31 December 200X. This has been produced quickly from management accounts.