What is the Hot Audit topic for 2020? i-75 students ask me what they should study just before their Audit exam. Evidence gathering is a highly testable topic. The evidence gathering questions regarding Auditing involve transaction cycles, assertions, two directional testing, and analytical procedures used as substantive tests. The video below explains in “dream detail” how analytical procedures used as substantive tests could impact an auditor’s decision as to whether more evidence gathering is needed. The combination of analytical procedures and materiality have long been tested on the CPA Audit exam but I am hearing more and more about them being asked as a Simulation in 2020.
I hope you enjoyed the video above on analytical procedures and materiality and found it easy to follow and learn from. Evidence gathering is tested in both multiple choice and simulation. In addition to analytical procedures, the AICPA blueprint includes audit transaction cycles. The “must know” transaction cycles are the revenue cycle, expenditure cycle, inventory cycle, and cash cycle. In the revenue cycle, the audit candidate must know the role of the sales department, the credit department, the warehouse department, the shipping department, the billings department and accounts receivable. Audit candidates must know the role of each department, documents, and the controls including segregation of duties in each cycle. NASBA’s Prometric testing center will ask you questions regarding the two directional testing, vouching and tracing, within each cycle. In the expenditures cycle, the auditor needs to get familiar with the purchasing, receiving, vouchers payable, cash disbursements departments. It’s important to know the documents, departments and controls including segregation of duties within each department in order to assess risk of material misstatement of the financial statements and also to assess risk at the relevant assertion level. For example, the auditor would test for understatement of accounts payable differently than for rights and obligations with regard to accounts payable.