What Is an Audit?

The audit process refers to the actions and steps taken by the auditor in the specific audit process. The broad audit process can generally be divided into three stages: audit preparation, audit implementation and audit termination stages, and each stage includes many specific contents. The narrow audit process refers to the steps and methods adopted by auditors in the process of obtaining audit evidence to complete audit objectives.

Audit process

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The audit process refers to the

The audit process refers to the actions and steps taken by the auditor in the specific audit process. The broader audit process refers to the

1. Determine the objectives of the audit

2. Understand

(I) Understand the basic situation of the audited unit

Understand the situation of the audited unit 1, the nature of the business, the scale of operations and the basic situation of the industry; 2, the operating conditions and operating risks;

Materiality refers to the severity of misstatements or omissions in the accounting statements of the audited entity. This degree may affect the judgment or decision of users of the accounting statements in specific circumstances. Note: 1. The concept of materiality is for the use of accounting statements; 2. The judgment of materiality is inseparable from a specific environment; 3. The relationship between materiality and tolerable errors: In fact, the account level Sexuality is the tolerable error of substantial testing.

First, the use of importance

1. General requirements: The assessment of materiality is a professional judgment of a certified public accountant. In determining the nature, time and scope of audit procedures and evaluating audit results, certified public accountants must apply the principle of materiality. The general requirements for its use can be understood from the following aspects: The assessment of materiality requires professional judgment. The two purposes of the materiality principle: CPAs should use the materiality principle in the audit process. The application of the importance principle in the audit process is based on such considerations: First, to improve audit efficiency. The second is to ensure audit quality. Two stages of applying the materiality principle: The situation where a certified public accountant should apply the materiality principle. First, when determining the nature, time and scope of audit procedures, the CPA needs to apply the materiality principle. The second is that the CPA needs to apply the materiality principle when evaluating the audit results.

2. Consider the two aspects of determining the level of importance: consideration of amount and nature. When applying the materiality principle, the CPA should consider the amount and nature of misstatement or omission. That is to say, importance is characterized by both quantity and quality. In general, a large amount of misstatement or omission is more important than a small amount of misstatement or omission. However, in many cases, a certain misstatement or omission is not important in terms of quantity, but may be important in terms of its nature. For example: Misreports or omissions involving fraud and illegal acts. It may cause misstatement or omission of performance of contract obligations. Misstatements or omissions that affect earnings trends. Unexpected misstatement or omission.

3. Consideration of the importance of two levels

The CPA should consider the importance of the level of the accounting report and the level of the relevant accounts and transactions. This means that the CPA must consider the importance from two levels in the audit process: the level of accounting statements; the determination method: the fixed ratio method and the variable ratio method. Account and transaction level. Determination method: allocation method and non-distribution method.

4. The relationship between materiality and audit risk

The CPA should consider the inverse relationship between materiality and audit risk, maintain due professional care, and reasonably determine the level of materiality. CPA should consider the relationship between materiality and audit risk. There is a reverse relationship between importance and audit risk. The CPA should maintain due professional care and reasonably determine the level of importance.

Evaluation of materiality when preparing an audit plan

Materiality is a very important factor affecting the adequacy of audit evidence. There is a reverse relationship between the level of materiality and audit evidence (audit evidence, audit risk, audit importance are pairwise reversed)

(I) Determination of the level of importance of accounting statements

1. Method: fixed ratio method and variable ratio method

2. Judgment basis: total assets, net assets, operating income, net profit, etc.

3. Select: For the statements in the same period, take the lowest level of importance as the level of importance of the accounting statement level.

(2) Level of importance at the account or transaction level

The CPA may assign the level of importance of the accounting statement level to each account or various types of transactions, or determine the importance level of each account or various types of transactions individually before formulating audit procedures for the accounts or transactions. For the level of importance at the account or transaction level, either the allocation method or the non-allocation method can be used. In practice, many CPAs choose balance sheet accounts as the basis for distribution. The importance of each account is called "tolerable error". For error-prone projects, a higher level of importance can be determined; for important projects or projects where errors are not expected to occur, the level of importance must be rigorously established.

Consideration of importance when evaluating audit results

(I) The importance level used by the certified public accountant in evaluating the audit results may be different from the initial judgment of the materiality level determined when preparing the audit plan. If the former is significantly lower than the latter, the certified public accountant should re-evaluate the audit performed Whether the procedures are adequate.

(2) When evaluating the audit results, the certified public accountant shall summarize the misstatements or omissions that have been discovered but not adjusted to consider whether the amount and nature of the statements have a significant impact on the reflection of the accounting statements. When the certified public accountant summarizes the misstatements or omissions that have not yet been adjusted, it shall include the discovered and inferred misstatements or omissions, and consider whether the post-period and contingent matters have been properly handled.

(3) If the total number of misstatements or omissions that have not been adjusted exceeds the materiality level, the CPA should consider expanding the scope of the substantive test or asking the audited entity to adjust the accounting statements to reduce audit risks. If the audited unit refuses to adjust the accounting statements or expand the scope of substantial testing, the total number of misstatements or omissions that have not been adjusted still exceeds the materiality level, the certified public accountant shall issue a qualified opinion or a negative opinion.

(4) If the total number of misstatements or omissions that have not been adjusted is close to the materiality level, since the total number of misstatements or omissions that have not been found may exceed the materiality level, the CPA should implement additional audit procedures, or request the The auditing unit further adjusted the misstatements or omissions found to reduce audit risks. In addition to the misstatements or omissions found in the accounting statements of the audited entity, other misstatements or omissions may exist in addition to those found or inferred. When the total number is close to the level of importance, if it is considered that the number of such misstatements or omissions may exceed the level of importance, the audit risk will increase. To reduce the audit risk, the CPA should implement additional audit procedures or ask the audited entity Further adjust the accounting statements.

Use of materiality levels at all stages of the audit

Practical substance

Initially judge the level of materiality in the audit planning phase and determine the amount of required audit evidence. The materiality level is considered as the limit of possible or potential undetected misstatements and omissions allowed by the audit.

If the CPA accepts a lower level of importance during the audit implementation phase, the following methods should be adopted to control the audit risk to an acceptable level. 1. Expand the control test to reduce the level of preliminary judgment on the control risk. 2. Modify the nature, time, and nature of the substantial test. Scope to reduce inspection risk to acceptable levels

In the audit report stage, if the level of materiality of the evaluation audit results is significantly lower than the materiality level determined when preparing the audit plan, the CPA should re-evaluate whether the audit procedures performed are sufficient (1) exceeded; (2) close to the materiality level is considered as Is a sign of a misstatement or omission or summary misstatement or omission, and whether it affects the judgment and decision of users of accounting statements

1. The concept of materiality is for decision-making by users of accounting statements.

2. In determining the nature, time, and scope of the audit process, materiality refers to the range of errors allowed by a certified public accountant when applying audit procedures to check misstatements in accounting statements.

3. The audit evidence required for a materiality level of 2,000 yuan is more than the audit evidence required for a materiality level of 4,000 yuan.

4. The misstatement of each account or transaction detected in the audit is directly compared with the importance of each account and transaction to determine whether to adjust; the unadjusted items are summarized and compared to the importance of the statement level to determine whether to adjust.

(V) Analysis of audit risks

1. Concept: Audit risk refers to the possibility of significant misstatement or omission of accounting statements, and the auditors may issue inappropriate audit opinions after auditing.

2. Components: Including inherent risks, control risks, and inspection risks.

(1) Inherent risk: IR

a. Meaning: Inherent risk refers to the possibility of a material misstatement or omission of an account or transaction type alone or in conjunction with other accounts or transaction types when there is no relevant internal control;

b. Nature: Auditors can only assess the actual level of inherent risks but cannot change them.

(2) Control risk: CR

a. Meaning: Control risk refers to the possibility that an account or transaction category, either alone or in combination with other accounts or transaction categories, will cause a misstatement or omission and cannot be prevented, detected or corrected by internal control;

b. Nature: Auditors can only evaluate the level of control risks through certain procedures, but cannot change their actual level.

(3) Inspection risk: DR

a. Meaning: Inspection risk refers to the possibility that a certain account or transaction type alone or in combination with other accounts or transaction types will cause a material misstatement or omission, and will not be detected by substantial testing;

b. Nature: Auditors can change the level of inspection risk by designing substantive testing procedures.

Expanding knowledge on audit risks

Audit risk = inherent risk * control risk * inspection risk

Inherent risk: Accounting error. Factors to be considered in evaluating inherent risks: The first type of factors is related to the level of accounting statements; the second type is related to the level of account balances or transaction categories.

Risk control: Failure of internal control.

Inspection risk: no errors found

The certified public accountant shall conduct a comprehensive evaluation of the inherent risks and the control risks, and use them as the basis for evaluating the inspection risks. Regardless of the results of the evaluation of the inherent risks and control risks, the CPA should conduct substantive tests on each important account or transaction category. However, the determination of the nature, time and scope of the substantive tests performed by a certified public accountant ultimately depends on the acceptable inspection risks determined based on the comprehensive level of inherent risks and control risks. The acceptable level of inspection risk varies inversely with the number of substantive tests.

Examine the relationship between risk and the nature, time, and scope of the substantive test

Substantive test acceptable inspection risk nature time frame

High-analytical review and audit before trading test day are mainly small samples with less evidence

Analytical review, transaction testing, and balance testing combined with the use of day-to-day audits, balance sheet day audits, and future audits to combine appropriate samples and appropriate evidence

Low balance test is mainly based on the daily audit of balance sheet and future audits is based on larger samples and more evidence

If, after undergoing substantial testing, the CPA still believes that the inspection risk related to the determination of an important account or transaction category cannot be reduced to an acceptable level, he should express a qualified opinion or cannot express an opinion depending on the severity of the impact on the accounting statements. Because this shows that the scope of the audit is limited.

Example problem recommendation: When a certified public accountant evaluates the audit risk of the audited unit, the following four scenarios are designed to help determine the acceptable level of risk:

Risk category Situation 1 Situation 2 Situation 3 Situation 4

Acceptable audit risk 4% 4% 2% 2%

Inherent risk 100% 80% 100% 80%

Controlling risk 100% 50% 100% 50%

(1) What are the inspection risk levels in the above four cases?

(2) Under what circumstances does the auditor need to obtain the most audit evidence? why?

Answer tips: (1) Audit risk = inherent risk * control risk * inspection risk

Case 1: Check the risk level = 4% / (100% * 100%) = 4%

Case 2: Check the risk level = 4% / (80% * 50%) = 10%

Case 3: Check the risk level = 2% / (100% * 100%) = 2%

Case 4: Check the risk level = 2% / (80% * 50%) = 5%

(2) In the third case, the auditor needs to obtain the most audit evidence, because the lower the inspection risk, the more detailed the audit procedures that need to be performed, and a larger sample and more evidence should be required. Therefore, the inspection risk control must be strengthened within 2%. audit.

(6) Preparation of audit plan

The audit plan can usually be divided into two parts: the overall audit plan and the specific audit plan.

Overall audit plan

The overall audit plan is a plan for the expected scope and implementation of the audit, and is a comprehensive plan for the basic work content of the entire process from the audit commission to the audit report issuance. The basic contents include: the basic situation of the audited unit. Audit purpose, audit scope and audit strategy. Important accounting issues and key audit areas. Audit work progress, time and cost budget. Composition of audit team and division of labor. Determination of audit importance and evaluation of audit risk. Use of the work of experts, internal auditors and other auditors. Other relevant content.

Specific audit plan

The specific audit plan is based on the overall audit plan, and detailed planning and description of the nature, time and scope of the audit procedures required to implement the overall audit plan. The basic contents of a specific audit plan include: audit objectives; audit procedures; the performer and date; the index number of the audit work paper; other

The audit plan shall be prepared by the person in charge of the audit project. The audit plan shall be documented and recorded in the working paper. The completed audit plan shall be reviewed and approved by the person in charge of the relevant business.

Third, the implementation phase

(A) compliance test

The compliance test is a test of the status of the internal control system and whether it has been implemented on the basis of a preliminary understanding and evaluation of internal control. The purpose of the compliance test is to determine whether the business process of the audited unit conforms to the requirements of the internal control system. The degree of compliance of internal control determines the extent to which the internal control system can be relied on. Therefore, the compliance test is actually a further evaluation based on the preliminary understanding and evaluation of internal control.

When one of the following situations occurs, the auditor may not perform the compliance test and directly implement the substantive testing process: 1. The relevant internal control does not exist. 2. Although related internal controls exist, the auditors found out that they did not operate effectively. 3. The workload of compliance testing may be greater than the substantial testing workload reduced by compliance testing.

(B) substantial test

The so-called substantive test refers to a more in-depth inspection conducted by collecting direct evidence. The purpose of the substantive test is to provide sufficient audit evidence for the auditors to reach an audit conclusion. The substantive test is usually carried out by sampling. Auditors should do the following main tasks in the substantive test:

1. Physical inventory: The auditor shall conduct physical inventory of the contents recorded in the tangible asset account, including cash in stock, marketable securities, materials, fixed assets, work in progress and finished products, etc., to determine the actual situation of property and materials through inventory.

2 Check the vouchers: Auditors should check the vouchers to determine the authenticity of the data recorded in the books and the rationality and legality of the economic business.

3Verify the balance of account records

4 check the relevant records

5 Correspondence of the closing balance of relevant assets and liabilities

6 Recalculation of calculation results: Auditors shall recalculate the calculation results of the audited unit to determine whether the audited unit has intentionally distorted the calculation results or there are errors in the calculation, including the total recalculation, such as wages. Reconciliation of summary tables; reconciliation of adjustments and allocations, such as recalculation of the distribution of production costs; recalculation of calculation tables,

7 Inquiries to relevant personnel: In the course of the audit, the auditors may inquire about the relevant issues to the relevant parties.

8 other necessary work.

Other issues to note:

1. Substantive testing is an essential part of the implementation phase. Although compliance testing has been performed during the implementation process, it cannot replace substantive testing.

2. The results of the substantive and compliance tests are complementary.

3. Substantive and compliance tests sometimes overlap in execution time.

4. Substantive testing and compliance testing are all stages of the whole.

Example question recommendation: Why can a certified public accountant not omit the substantive testing procedure even if the audited unit is found to have very sound internal control through compliance testing?

Answers: (1) Internal control is established and implemented by the audited unit in order to achieve its management objectives. The most stringent internal control also has its own inherent limitations: First, the cost of control is limited. The audited unit often considers costs and The sacrifice of the benefits that internal control may bring; the second is artificial restrictions, including the failure of the relevant personnel to understand or misunderstand the internal control, the collusion of related personnel to destroy the internal control, etc. These inherent restrictions may cause important statements of accounting statements to be misleading.

(2) Whether the internal control is truly effective needs to be verified by performing compliance tests, but the compliance test can only confirm whether the internal control is effective and has been followed consistently. It cannot reflect the legality, fairness and consistency of the accounting statements. Sexuality is confirmed.

(3) The results of the conformance test may reduce the procedure for the substantive test. However, when the cost of the conformance test is higher than the reduced cost of the substantive test, the CPA must choose to perform the substantive test directly.

Example problem recommendation: Modern auditing is a sampling audit based on testing the internal control system. When auditing, the CPA must first study and evaluate the internal control of the audited unit. Please answer: (1) Why do CPAs conduct compliance tests on internal controls? (2) Under what circumstances can a certified public accountant perform a substantial test without performing a compliance test?

Answer tips: (1) The CPA conducts compliance testing to review the effectiveness of the design and implementation of the internal control system to determine the impact on the nature, time and scope of the substantive testing; (2) When one of the following conditions occurs, The certified public accountant may directly perform the substantive test without performing the compliance test: A. The relevant internal control does not exist. B. Although relevant internal controls exist, the CPA found out that they did not operate effectively; C. The workload of compliance testing may be greater than the workload of substantial testing reduced by compliance testing.

Fourth, the end stage

The audit closing phase refers to the whole process of preparing the audit report according to the audit working paper after the implementation phase ends, and organizing and filing relevant documents.

(1) Preparation of audit report

After completing the field audit workbench, auditors have begun to enter the stage of preparing audit reports. The main tasks at this stage are: collating and evaluating the audit evidence collected during the execution of the audit business; reviewing the audit work papers; matters after the audit period; For audit differences, the audited unit is requested to adjust or make appropriate disclosure; form audit opinions and write audit reports. Only those representative and typical audit evidence are selected to be reflected in the audit report.

The selection criteria for audit evidence are: (1) the amount of the amount; (2) the severity of the nature of the problem.

(2) Making audit conclusions and decisions

Audit conclusions and processing decisions have legal effect, and once issued, the audited unit must implement them.

(3) Sorting and filing of audit data

The auditor shall return all the materials accessed to the audited unit to the audited unit.

V. Continuation of the audit process

Review and follow-up audits are mainly applicable to compulsory audits such as national audits and departmental audits.

(I) Review

The re-examination is the whole or partial re-examination of the original audit by the auditing agency to determine the correctness of the original audit conclusions. The reasons for the review can be summarized into the following three aspects:

1 The audited entity disputes the audit conclusion.

2 The auditing organization shall check the work of the audit team and conduct a review to ensure the quality of the audit.

3 The legal proceedings caused a review.

If you are not satisfied with the audit conclusions and decisions made by the audit institution, you may apply for a review to the audit institution at a higher level within 15 days from the date of receiving the audit conclusions and decisions. The audit institution at the next higher level shall make a review conclusion and decision within 30 days from the date of receiving the review application.

(2) Follow-up audit

Whether or not the audited unit conducts follow-up audits shall be determined by the auditing agency according to the relevant decision. The time for the follow-up audits is not clearly specified. The auditing agency may conduct the audits when it considers appropriate.