Document ID: chunk:federal_register_of_legislation:F2021C01250:reg:27:p18
Version: federal_register_of_legislation:F2021C01250
Segment Type: reg
Provision Reference: reg 27 (pt 18/23)
Character Range: 57682–60800

supported by audit evidence from tests of controls.

           * Only tests of details are appropriate.

           * A combination of substantive analytical  procedures and tests of details are most responsive to the assessed risks.

A46.         Substantive analytical procedures are generally more applicable to large volumes of transactions that tend to be predictable over time.  ASA 520[8] establishes requirements and provides guidance on the application of analytical procedures during an audit.

A47.         The assessment of the risk or the nature of the assertion is relevant to the design of tests of details.  For example, tests of details related to the existence or occurrence assertion may involve selecting from items contained in a financial report amount and obtaining the relevant audit evidence.  On the other hand, tests of details related to the completeness assertion may involve selecting from items that are expected to be included in the relevant financial statement amount and investigating whether they are included.

A48.         Because the assessment of the risk of material misstatement takes account of controls that the auditor plans to test, the extent of substantive procedures may need to be increased when the results from tests of controls are unsatisfactory.  However, increasing the extent of an audit procedure is appropriate only if the audit procedure itself is relevant to the specific risk.

A49.         In designing tests of details, the extent of testing is ordinarily thought of in terms of the sample size.  However, other matters are also relevant, including whether it is more effective to use other selective means of testing.  See ASA 500.[9]

Considering Whether External Confirmation Procedures Are to Be Performed (Ref: Para. 19)

A50.         External confirmation procedures frequently are relevant when addressing assertions associated with account balances and their elements, but need not be restricted to these items.  For example, the auditor may request external confirmation of the terms of agreements, contracts, or transactions between an entity and other parties.  External confirmation procedures also may be performed to obtain audit evidence about the absence of certain conditions.  For example, a request may specifically seek confirmation that no "side agreement" exists that may be relevant to an entity's revenue cut-off assertion.  Other situations where external confirmation procedures may provide relevant audit evidence in responding to assessed risks of material misstatement include:

           * Bank balances and other information relevant to banking relationships.

           * Accounts receivable balances and terms.

           * Inventories held by third parties at bonded warehouses for processing or on consignment.

           * Property title deeds held by lawyers or financiers for safe custody or as security.

           * Investments held for safekeeping by third parties, or purchased from stockbrokers but not delivered at the balance sheet date.

           * Amounts due to lenders, including relevant terms of