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 Performing Audit Procedures and Evaluating Evidence Explained

2 Performing Audit Procedures and Evaluating Evidence Explained

Key Concepts

Audit Procedures

Audit procedures are the specific actions taken by the auditor 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.

Example: An auditor may perform a physical inventory count to verify the accuracy of inventory balances reported in the financial statements.

Audit Evidence

Audit evidence is the information used by the auditor to determine whether the financial statements are prepared in accordance with the applicable financial reporting framework. This includes both documentary evidence (e.g., invoices, contracts) and corroborative evidence (e.g., confirmations from third parties).

Example: An auditor may request bank statements and confirmation letters from a company's bank to verify the accuracy of cash balances reported in the financial statements.

Substantive Procedures

Substantive procedures are audit procedures designed to detect material misstatements in the financial statements. These procedures include tests of details and analytical procedures that focus on the financial information itself.

Example: An auditor may perform a detailed test of accounts receivable by selecting a sample of customer invoices and verifying them against the company's records.

Analytical Procedures

Analytical procedures involve comparing financial information with expected results based on the auditor's understanding of the entity's business and industry. These procedures help identify unusual or unexpected relationships that may indicate material misstatements.

Example: An auditor may compare the current year's sales revenue with the previous year's revenue to identify any significant variances that require further investigation.

Tests of Controls

Tests of controls are audit procedures designed to evaluate the effectiveness of the entity's internal controls. These procedures help the auditor determine the reliance they can place on the controls to reduce audit risk.

Example: An auditor may observe employees processing cash receipts to assess the effectiveness of the company's cash handling procedures.

Evaluation of Evidence

Evaluation of evidence involves assessing the relevance, reliability, and sufficiency of the audit evidence gathered. The auditor must ensure that the evidence supports the conclusions reached and the opinion expressed in the audit report.

Example: An auditor may evaluate the reliability of bank confirmation letters by comparing them with the company's bank statements to ensure they are consistent and accurate.

Examples and Analogies

Consider audit procedures as "tools in a toolbox," where each tool (procedure) is used to gather specific evidence. Audit evidence is like "building blocks" that help the auditor construct a complete picture of the financial statements.

Substantive procedures are akin to "detective work," where the auditor investigates the details of financial information to uncover any discrepancies. Analytical procedures are like "trend analysis," where the auditor looks for patterns and anomalies in the data.

Tests of controls are similar to "quality checks" in a manufacturing process, ensuring that internal controls are functioning as intended. Evaluation of evidence is like "quality assurance," where the auditor ensures that the gathered evidence is reliable and sufficient to support their conclusions.

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