Audit Programme Audit Assertions As part of the
- Slides: 17
Audit Programme
Audit Assertions As part of the planning stage, auditors need to prepare audit tests to test the account areas. Ø To assist the auditors there are 5 audit assertions for the income and expenditure and 5 audit assertions for the balance sheet. Ø Transactions are to be tested in audit with reference to the audit assertions. Assertions will be different for different Ø
Audit Assertions (Contd. ) Ø In respect of Income and Expenditure Accounts, the assertions are: Ø Ø Ø Completeness, i. e. All relevant transactions have been recorded. Occurrence, i. e. All transactions are stated accurately. Measurement, i. e. All recorded transactions actually occurred. Regularity, i. e. All transactions accord with relevant laws and regulations. Disclosure, i. e. All transaction are classified and described in line with relevant regulations.
Audit Assertions in respect of Income. Expenditure Accounts Assertion Questions Completeness Has the transaction been recorded in the accounting records? Measurement Is the transaction recorded at the correct value? Is the transaction recorded as expenditure in correct year of account? Occurrence Regularity Is the transaction legal and regular? Disclosure Is the transaction correctly coded and disclosed?
Audit Assertions in respect of Balance Sheet Items Ø In respect of Balance Sheet items, the assertions are: Ø Ø Ø Completeness : All assets and liabilities relating to the period have been recorded. Ownership: The assets and liabilities recorded pertain to the entity. Valuation: The asset or liability is valued in line with appropriate accounting policies, consistently applied. Existence: The assets or liabilities represented in the statements exist at the Balance Sheet date. Disclosure: All assets and liabilities are disclosed, classified and described in line with the applicable reporting framework
Audit Assertions in respect of Balance Sheet Items Assertion Questions Completeness Have assets been recorded in the accounts? Ownership Is the asset/item the property of the entity? Is the item recorded at the correct value? Valuation Existence Disclosure Was the item still in existence at the balance sheet date? Is the item correctly summarized or disclosed?
A detailed audit program An audit program consists of an appropriate audit procedure to achieve these audit objectives. Ø Audit programmes are prepared while planning the audit. At the planning stage, auditors will need to prepare audit tests to test the account areas. Ø
Audit Programme The audit programmes set out what the auditor will test in relation to each audit assertion Ø The auditor should set out in the audit programme: Ø the objective of the test; Ø what constitutes an error; Ø the population to be covered. Ø
Functions of audit programme Audit program Ø Links planning and execution Ø Provides framework for supervision and accountability Ø Helps transfer expertise to junior staff Ø Facilitates Administrative control
Advantages of an effective audit programme Ø Ø Ø Efficiency and consistency Clear instructins for staff Avoids overlooking or duplicating work Evidence of work done Basis for future audits Quality work results
Methods of Obtaining Audit Evidence Ø Inspection Ø Observation Ø Inquiry Ø Confirmation Ø Computation Ø Analytical procedures Ø Surveys Ø Interviews Ø Physical verification
Inspection Ø Examination of records, documents or tangible assets. Ø Generally, an audit team places considerable reliance on this for both tests of control and substantive tests.
Observation Watching a process as it takes place. Ø Useful in testing controls that leave no audit trail. Ø But, its reliability is limited because the presence of the audit team may influence the way in which the process in carried out. Ø
Enquiry and confirmation Obtaining information from knowledgeable people inside or outside the auditee entity. Ø Used for both testing of controls and substantive testing. Ø Confirmation is a response to an enquiry which corroborates information contained in the accounting records. Ø
Computation Ø Checking the arithmetical accuracy of source documents and accounting records. Ø Central feature of substantive testing. Ø It is reliable, as the evidence is created by the audit team itself.
Analytical procedures The analysis of the relationship between items of financial data or between items of both financial and non-financial data. Ø Its reliability depends on the plausibility of the relationship examined and the controls operated over the data used. Ø
Surveys and interviews Ø Using carefully designed questionnaires. Independent consultancy firms may be outsourced for conducting surveys. Ø Interviews with concerned officers.
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