Lesson: Designing Audit Procedures

In this lesson, Nick Palazzolo, CPA, discusses the process of designing audit procedures in response to the assessed risk of material misstatement at the relevant assertion level. He explains the factors to consider when determining the nature, timing, and extent of audit procedures, such as the significance of the risk, characteristics of the class of transactions, and the effectiveness of the entity's controls. The lesson provides insights into the different audit approaches that can be used depending on the circumstances, including the combined approach and the substantive-only approach. Nick further emphasizes the importance of performing audit procedures for all relevant assertions in material classes of transactions and account balances, and notes that effective internal controls can reduce, but not eliminate, the risk of material misstatement and the need for substantive procedures.