Lesson: The Combined Approach to Auditing
This lesson covers the concept of the combined approach in auditing, which involves combining substantive procedures with analytical procedures. The lesson explains that substantive procedures are used to obtain evidence about specific assertions, while analytical procedures are used to obtain evidence about overall relationships between account balances. The combined approach is used when the auditor has a moderate level of assessed risk, and its use reduces the risk of reaching an incorrect conclusion, provides better assurance, and enables auditors to tell a more complete story. The lesson also discusses the effect of a combined approach on substantive procedures, the impact of control risk on detection risk, and the inverse relationship between detection risk and assurance required from substantive tests. Additionally, the lesson highlights considerations of costs and liability for auditors when choosing the appropriate level of testing.
Updated: June 22, 2023 Create an accountThis lesson covers the concept of the combined approach in auditing, which involves combining substantive procedures with analytical procedures. The lesson explains that substantive procedures are used to obtain evidence about specific assertions, while analytical procedures are used to obtain evidence about overall relationships between account balances. The combined approach is used when the auditor has a moderate level of assessed risk, and its use reduces the risk of reaching an incorrect conclusion, provides better assurance, and enables auditors to tell a more complete story. The lesson also discusses the effect of a combined approach on substantive procedures, the impact of control risk on detection risk, and the inverse relationship between detection risk and assurance required from substantive tests. Additionally, the lesson highlights considerations of costs and liability for auditors when choosing the appropriate level of testing.
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Let's address this concept of the combined approach. Introduce you to it here. This concept is going to be when the auditor combines the use of substantive procedures with analytical procedures. As we know, analytical procedures are the process of the auditor going through and using ratios and comparing account balances from period to period. Substantive procedures are actual actions you're going to take, like sending confirmations, confirming balances, observing, examining. Doing things like that. So the auditor can do both of these. Whenever you see the term combined approach, that's what it's talking about here. We're doing both of these. It says substantive procedures are used to obtain evidence about specific assertions. And we will see all of this if you want to see that. I'm going to jump to that. This is going to be in our revenue cycle, expenditure cycle, payroll cycle, all those cycles we've got waiting for you. Analytical procedures are used to obtain evidence about overall relationships between the account balances. We want to make sure that, okay, does everything make sense? Right. Does this revenue, did revenue spike this year, but they don't report, they didn't have a lot more sales, right? Does anything seem weird? Are there weird variances between what you're seeing? The combined approach is used when the auditor has a moderate level of assessed risk. See any questions asking that? Now you're quite awake. Using a combined approach will reduce the risk of reaching an incorrect conclusion. I mean, inherently, you're just doing double, right? Not double, you're just adding another layer of assessing. You're doing, just doing more to assess what could be happening. You provide better assurance and it enables auditors to tell a more complete story. Just in general, just one more point here. I mean,