[Anonymous]

Holding other planning considerations equal, a decrease in the number of misstatements in a class of transactions that an auditor could tolerate most likely would cause the auditor to

A. Apply the planned substantive tests prior to the balance sheet date.

B. Perform the planned auditing procedures closer to the balance sheet date.

C. Increase the assessed level of control risk for relevant financial statement assertions.

D. Decrease the extent of auditing procedures to be applied to the class of transactions.

Answer: B

When the level of tolerable misstatements decreases, the auditor will have to increase substantive testing to ensure that all material misstatements are detected. Performing the planned auditing procedures closer to the balance sheet date increases the effectiveness of substantive procedures and thus increases substantive testing.

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Soooooo, why does planning auditing procedures closer to the balance sheet date increase the effectiveness of substantive procedures?

[pkd1982]

This is the way I think about it. Imagine the kinds of misstatements that matter in an audit. For example, if I record May revenue in June, that's not as big a deal as if I record December 2012 revenue as January 2013 revenue.

REG: Pass
BEC: Pass
AUD: Pass
FAR: August 2013

[Anonymous]

Opinion on the material fairness of the financial statements as well as ICFR are as of a point in time. Yes, as of December 31, revenue is materially fairly stated. Yes, assets materially exist; yes, liabilities are completely recorded on the books. If you corroborate managements assertions closer to the balance sheet date, the substantive tests are more effective.

[Author]

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