Audit process
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Audit process

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Audit process Audit process Document Transcript

  • Audit processWhat is the process of audit?An audit that focuses on processes and not a specific person or product. A process audit examines theeffectiveness of company procedures.DefinitionAn examination of a companys activities or products to determine if a company is doing what it says it isdoing.SIX PHASES OF THE AUDIT PROCESSPhase 1 - Preliminary PlanningPhase 2 - Pre-Survey
  • Phase 3 - Survey .
  • Phase 4 - Data Collection and Analysis
  • Phase 5 - Reporting
  • Phase 6 - Postaudit Evaluation
  • SCOPE:Scope of audit means the audit procedures deemed necessary to achieve the objective of an audit.Scope of Audit1. Legal RequirementsThe auditor can determine the scope of an audit of financial statements in accordance with the requirements oflegislation, regulations or relevant professional bodies. The state can frame rules for determining the scope of auditwork. In the same way professional bodies can make rules to conduct the audit. The auditor can follow all theapplicable on the audit work while checking the accounts of a business concern.2. Entity AspectsThe audit should be organized to cover all aspects of the entity as far as they are relevant to the financial statementbeing audited. A business entity has many areas of working. A small entity may have few functions while a largeconcern has many functions. The auditor has duty to go through all the functions of a business. The audit reportshould cover all function so that the reader may known about all the working of a concern.3‫ ۔‬Reliable InformationThe auditor should obtain reasonable assurance as to whether the information contained in the underlying accountingrecord and other source data is reliable and sufficient as the basis for preparation of the financial statements. Theauditor can use various techniques to test the validity of data. All auditors while doing the auditor work usually applythe compliance test and substance test. The auditor can show such information in the report.
  • 4. Proper CommunicationThe auditor should decide whether the relevant information is properly communicated in the financial statements.Accounting is an information system so facts and figures must be so presented that reader can get information aboutthe business entity. The auditor can mention this fact in his report. The principles of accounting can be applied todecide about the disclosure of financial information in the statements.5. EvaluationThe auditor assesses the reliability and sufficiency of the information contained in the underlying accounting recordsand other source date by making a study and evaluation of accounting system and internal controls to determine thenature, the nature, extent and timing of other auditing procedures.6. TestThe auditing assesses the reliability and sufficiency of the information contained in the underlying accounting recordand other source data by carrying out other tests, enquiries and other verification procedures of accountingtransaction and account balance as he considers appropriate in the particular circumstances. There are compliancetest and substantive test in order to examine the date. The vouching, verification and valuation technique are alsoused.7. ComparisonThe auditor determines whether the relevant information is properly communicated by comparing the financialstatement with the underlying accounting records and other source data to see whether they properly summarizedthe transaction and events recorded therein. The auditor can compare the accounting record with financial statementin order to check that same has been processed for preparing the final accounts of a business concern.8. JudgementsThe auditor determines whether the relevant information is properly communicated by consideration the judgementthat management has made in preparing the financial statements, accordingly, the auditor assesses the selection andconsistent application of accounting policies, the manner in which the information has been classified and theadequacy of disclosure.The auditor must have the quality of judgement when accounting books to not provide true data.9. WorkJudgement permeates the auditor’s work. for example, in determining the extent of audit procedures and in assessingthe reasonable of the judgments and estimates made by management in preparing financial statements. Theaccounting data is based on personal judgment of accountant and managers in preparing final accounts. Suchjudgment also affect the working of an auditor. He is also bound to make guess work on the basis of available data.10. EvidenceThe audit evidence available to auditor is persuasive rather than conclusive in nature. Due to judgment andpersuasive evidence absolute certainty in auditing is really attainable. That is why the auditor can express an opinionas true and fair instead of exact and cent percent correct. The personal judgments affect the value of many items.The value of such items becomes an opinion so cent percent accuracy is not there.11. Mis-StatementThe auditor carries out procedures designed to obtain reasonable assurance that financial statement are properlystated in all material respects. Because of test nature and other inherent limitations of an audit, together with inherent
  • limitations of any system of internal control, there is an unavoidable risk that even some material misstatement mayremain undiscovered. The statements show true and fair view instead of exact view of operations.12. ErrorsThe auditor may get an indication that some fraud or error may have occurred which could result in materialmisstatement would curse the auditor to extend his procedures to confirm or dispel his suspicion. It is the duty ofauditor to check cent percent items in order to discover the error in accounting books and other records when hesmells any doubt. He should clear the doubt or confirm it while going through the record.13. OpinionConstraints on the scope of the audit of financial statement that impair the auditor’s ability to express an unqualifiedopinion on such financial statements should be seen out in his report and a qualified opinion or disclaimer of opinionshould be expressed as a appropriate.OBJECTIVE:The objective of an audit of financial statements is to enable the auditor to express an opinionwhether the financial statements are prepared, in all material respects, in accordance with anapplicable financial reporting framework.
  • What Is an Audit Program?An audit program is a set of polices and procedures that dictate how an evaluation of a business isdone. This generally involves specific instructions as to what, and how much, evidence must becollected and evaluated, as well as who will collect and analyze the data and when this should bedone. These types of programs are used to check up on things like a business performance,finances, economy, and efficiency, and are generally tailored to a specific business or purpose.PurposeAudit programs are important because they standardize the data collection and evaluation process.By setting out a specific list of steps to be followed and data to be collected, the program ensuresthat auditors collect all the information they need in an efficient manner while under appropriatesupervision. Keeping the process standardized also means that all the data collected can be used tomake useful comparisons between businesses, departments, and previous years inspections, sincethe same set of data is collected each time. Additionally, having a program like this in place makessure that any problems are discovered promptly and reported to the correct person.TypesThere are many different types of audits, which can be categorized according to frequency orpurpose. The program for each one is slightly different, and is usually tailored to fit the purpose ofthe inspection. For example, an audit program for an annual business-wide audit would be a lot
  • broader and more in-depth than one for a project evaluation. Likewise, the program for a businessprocess review, which is focused specifically on the efficiency of administrative departments in anorganization, would be different from an integrated internal control framework review, which isfocused on business risks. Organizations sometimes use audit program templates, but many alsocreate their own programs based on the findings from previous inspections.Common ElementsMost audit programs include instructions for risk assessment, the frequency of inspections,evaluation planning, a reporting structure, and security measures. Risk assessment is used toidentify and analyze potential dangers for specific areas of the business, like failure to comply withlaws or regulations, threats to a business reputation, or financial fraud. This is usually done on aconsistent basis to keep pace with changes to internal control and work processes. The level of riskfound in an assessment is also used in choosing the frequency of the audit cycle, which is how oftenevaluations are done. Other factors that affect the frequency of reviews include the time people in abusiness have to perform them, as well as the number of staff a business can spare or hire to dothem.Audit programs also commonly include a reporting structure. This includes information about who areviewer reports to if he or she finds a problem, how the report is to be made, and how long reportsare kept on file. This ensures that problems dont get swept under the rug or lost in filing. Securitymeasures are another important part of a program, since much of the data collected duringevaluations is sensitive. Computer software used in this process is usually limited to auditingdepartments, and is almost always password protected. Businesses also review their auditsoftware regularly to determine its reliability and overall efficiency, and change to another one ifneeded.Another essential component of an audit program is planning. Although strategies are generallydevised with respect to individual organizations, a well-rounded plan generally covers scheduling,staff needs, reporting, and the overall goals of the audit. Many organizations find that this planning ismost efficient when the results of risk assessment are combined with the resources needed todetermine the timing and frequency of inspections. Planning is generally the final step that takesplace before the audit actually occurs.AUDIT EVIDENCE ANDWORKING PAPERS