What does nature, timing, and extent mean on the CPA exam?
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Nature, timing, and extent. The three dials on any audit procedure: what kind of test, when it is run, and how much of the population it covers. A higher assessed risk turns all three.
Defined against AU-C 330.06.
Worked example
A distributor's controller left in November, and the auditor now treats revenue cutoff at the December 31 year end as a high-risk area, up from low. A year ago the cutoff work consisted of an inquiry of the controller about late shipments, made at the interim visit in early November, and a review of five sales on each side of the year end.
How should the cutoff test change this year?
- Nature: replace the inquiry with evidence from outside the sales system, matching carrier documents and shipping records to invoices, because a higher risk calls for more persuasive evidence and inquiry alone is the weakest kind.
- Timing: do the work at and after the year end rather than leaning on what was learned at the November visit, so it covers the days where a cutoff error would actually sit.
- Extent: widen the window and the sample, for example every sale in the last ten days of December and the first ten days of January.
Answer: All three dials move together. The auditor gathers more reliable evidence, tests it at the period end, and covers more transactions.
The trap: Answering with extent alone. A larger sample of a weak procedure, such as more conversations with staff, does not make the evidence more persuasive. Changing what kind of test is run usually does more than adding volume to the old one.
Based on AU-C 330.06; AU-C 330.07.
Which CPA exam sections use nature, timing, and extent?
Nature, timing, and extent appears in the AUD section of the CPA exam.
Other terms defined against AU-C 330
- dual-purpose test: One procedure that tests a control and substantively tests the transaction at the same time, on the same sample.
- further audit procedures: The work done in response to assessed risk: tests of controls and substantive procedures.
- operating effectiveness: Whether a control actually worked across the period, as opposed to whether it was well designed.
- selecting specific items: Choosing particular items to examine because of what they are, such as large or unusual ones, rather than at random.
- substantive procedures: Work aimed directly at detecting misstatement in a balance or disclosure, as opposed to testing whether a control operated.
- tests of controls: Procedures that check whether a control actually operated as described throughout the period.
- tests of details: Substantive procedures aimed at individual transactions, balances or disclosures, rather than at the relationships between numbers that analytical procedures examine.
Related terms
- assessed risk: The auditor's judgment about the risk of material misstatement at the assertion level, combining inherent and control risk.
- analytical procedures: Evaluations of financial information by studying plausible relationships among financial and nonfinancial data.
- tolerable misstatement: A monetary amount set so that the risk of the actual misstatement in the population exceeding it is acceptably low.
- audit sampling: Selecting and evaluating less than 100% of a population of audit relevance so the sample is expected to be representative, giving a reasonable basis for conclusions about the whole population.
- control risk: The risk that the entity's own controls will not prevent, or detect and correct, a material misstatement on a timely basis.
- inherent risk: The susceptibility of an assertion to material misstatement before any control is considered.