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Audit Tests & Internal Control

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1) What are the two types of audit tests? What are some examples of each of these two types of tests? How will the auditor use the data gathered from these tests?

2) Why do auditors have to consider the internal controls of an organization? What are some key elements of internal control? Which are the most important? How will the auditor have to modify the audit program if the internal controls are deemed inadequate to support management assertions?

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1) The two types of audit tests are analytical procedures and substantive tests.
Analytical procedures are tests where we analyze data. Performing a trend analysis (vertical and horizontal), and then performing a ratio analysis to determine if changes based on the trend and ratio analysis are in agreement with the current financial statements would be an analytical procedure.
A substantive test would be testing the A/R population to determine if the number of old accounts, as identified by the last date of entry on the accounts, coincides with the days' sales outstanding or the accounts receivables turnover, and the current A/R balance. If they do not agree based upon further analysis, further testing would be ...

Solution Summary

This solution thoroughly discusses the types of audit tests, examples of audit tests, and how the information obtained from the tests is used. This solution also discusses why internal controls must be considered by the auditor, key elements of internal control, and how the audit program must be modified when internal controls are weak.