About Me
CPA
1 Regulation (REG)
1.1 Ethics, Professional Responsibilities, and Federal Tax Procedures
1.1 1 Professional ethics and responsibilities
1.1 2 Federal tax procedures and practices
1.1 3 Circular 230
1.2 Business Law
1.2 1 Legal rights, duties, and liabilities of entities
1.2 2 Contracts and sales
1.2 3 Property and bailments
1.2 4 Agency and employment
1.2 5 Business organizations
1.2 6 Bankruptcy
1.2 7 Secured transactions
1.3 Federal Taxation of Property Transactions
1.3 1 Basis determination and adjustments
1.3 2 Gains and losses from property transactions
1.3 3 Like-kind exchanges
1.3 4 Depreciation, amortization, and depletion
1.3 5 Installment sales
1.3 6 Capital gains and losses
1.3 7 Nontaxable exchanges
1.4 Federal Taxation of Individuals
1.4 1 Gross income inclusions and exclusions
1.4 2 Adjustments to income
1.4 3 Itemized deductions and standard deduction
1.4 4 Personal and dependency exemptions
1.4 5 Tax credits
1.4 6 Taxation of individuals with multiple jobs
1.4 7 Taxation of nonresident aliens
1.4 8 Alternative minimum tax
1.5 Federal Taxation of Entities
1.5 1 Taxation of C corporations
1.5 2 Taxation of S corporations
1.5 3 Taxation of partnerships
1.5 4 Taxation of trusts and estates
1.5 5 Taxation of international transactions
2 Financial Accounting and Reporting (FAR)
2.1 Conceptual Framework, Standard-Setting, and Financial Reporting
2.1 1 Financial reporting framework
2.1 2 Financial statement elements
2.1 3 Financial statement presentation
2.1 4 Accounting standards and standard-setting
2.2 Select Financial Statement Accounts
2.2 1 Revenue recognition
2.2 2 Inventory
2.2 3 Property, plant, and equipment
2.2 4 Intangible assets
2.2 5 Liabilities
2.2 6 Equity
2.2 7 Compensation and benefits
2.3 Specific Transactions, Events, and Disclosures
2.3 1 Leases
2.3 2 Income taxes
2.3 3 Pensions and other post-retirement benefits
2.3 4 Derivatives and hedging
2.3 5 Business combinations and consolidations
2.3 6 Foreign currency transactions and translations
2.3 7 Interim financial reporting
2.4 Governmental Accounting and Not-for-Profit Accounting
2.4 1 Governmental accounting principles
2.4 2 Governmental financial statements
2.4 3 Not-for-profit accounting principles
2.4 4 Not-for-profit financial statements
3 Auditing and Attestation (AUD)
3.1 Engagement Planning and Risk Assessment
3.1 1 Engagement acceptance and continuance
3.1 2 Understanding the entity and its environment
3.1 3 Risk assessment procedures
3.1 4 Internal control
3.2 Performing Audit Procedures and Evaluating Evidence
3.2 1 Audit evidence
3.2 2 Audit procedures
3.2 3 Analytical procedures
3.2 4 Substantive tests of transactions
3.2 5 Tests of details of balances
3.3 Reporting on Financial Statements
3.3 1 Audit report content
3.3 2 Types of audit reports
3.3 3 Other information in documents containing audited financial statements
3.4 Other Attestation and Assurance Engagements
3.4 1 Types of attestation engagements
3.4 2 Standards for attestation engagements
3.4 3 Reporting on attestation engagements
4 Business Environment and Concepts (BEC)
4.1 Corporate Governance
4.1 1 Internal controls and risk assessment
4.1 2 Code of conduct and ethics
4.1 3 Corporate governance frameworks
4.2 Economic Concepts
4.2 1 Microeconomics
4.2 2 Macroeconomics
4.2 3 Financial risk management
4.3 Financial Management
4.3 1 Capital budgeting
4.3 2 Cost measurement and allocation
4.3 3 Working capital management
4.3 4 Financial statement analysis
4.4 Information Technology
4.4 1 IT controls and security
4.4 2 Data analytics
4.4 3 Enterprise resource planning (ERP) systems
4.5 Operations Management
4.5 1 Strategic planning
4.5 2 Project management
4.5 3 Quality management
4.5 4 Supply chain management
3 2 2 Audit Procedures Explained

2 2 Audit Procedures Explained

Key Concepts

Audit Procedures

Audit procedures are the specific actions taken by auditors to gather evidence and evaluate the assertions made in the financial statements. These procedures are designed to ensure that the financial statements are free from material misstatement and present a true and fair view of the entity's financial position.

Tests of Controls

Tests of Controls are audit procedures used to evaluate the effectiveness of an entity's internal controls. These tests help auditors assess the reliability of the controls and determine the extent to which they can rely on these controls to reduce the need for substantive tests.

Example: An auditor may observe the segregation of duties in a company's accounting department to assess whether the internal control over cash disbursements is effective.

Substantive Tests of Transactions

Substantive Tests of Transactions are audit procedures used to detect material misstatements in the financial statements by examining individual transactions. These tests are performed to verify that the transactions recorded in the financial statements are accurate and complete.

Example: An auditor may review sales invoices and shipping documents to verify that all sales transactions have been recorded in the correct period and at the correct amount.

Analytical Procedures

Analytical Procedures involve the comparison of financial data to expectations derived from ratios, trends, and other analytical methods. These procedures help auditors identify unusual or unexpected relationships that may indicate potential material misstatements.

Example: An auditor may compare the current year's gross profit margin to the previous year's and industry averages to identify any significant deviations that may require further investigation.

Tests of Details of Balances

Tests of Details of Balances are audit procedures used to verify the accuracy and completeness of account balances. These tests are performed to ensure that the balances reported in the financial statements are correct and supported by appropriate evidence.

Example: An auditor may perform a physical count of inventory and compare the results to the inventory records to verify the accuracy of the inventory balance reported in the financial statements.

Sampling

Sampling is the process of selecting a subset of items from a population to test. Auditors use sampling to gather evidence about the population as a whole. There are two main types of sampling: statistical sampling and non-statistical sampling.

Example: An auditor may select a sample of sales transactions from the general ledger and trace them to the corresponding sales invoices to verify the accuracy of the sales records.

Examples and Analogies

Consider audit procedures as "tools in a toolbox" that auditors use to inspect and verify the financial statements. Tests of Controls are like "safety checks" to ensure the internal controls are functioning properly.

Substantive Tests of Transactions are akin to "spot checks" on individual transactions to ensure they are recorded accurately. Analytical Procedures are like "trend analysis" that helps identify any unusual patterns.

Tests of Details of Balances are similar to "inventory counts" that verify the accuracy of reported balances. Sampling is like "random sampling" in a quality control process, where a subset of items is tested to draw conclusions about the entire population.

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