Audit Bab1

1. PA603
AUDITING & ASSURANCE
Bab 1: AUDIT APPROACH
NAME NO.MATRIK
SITI NADIRAH BINTI MOHD NIZAM 10DAT11F2004
SITI NURWAHIDA BT ABU BAKAR 10DAT11F1012
NUR AMALINA BINTI IZAHAR 10DAT11F2021
SHANMUGAPRIYA A/P HARIRAM 10DAT11F1023

2. 1.1 Understanding The Nature of Audit Approach
1.1.1 Discuss the Audit Approach step
1.1.2 Differentiate the types of audit approch
a. Interim Audit
b. Financial Audit
c. Compliance Audit
1.1.3 Determine The used of each type of
Audit Approach
1.1.4 Explain The uses of flowchart In Audit
Approch

3. STEP1
• Adequately plan, control and record his work.
STEP2
• Ascertain the entity’s system for recording and processing transactions
and assess the adequacy and reliability of the system.
STEP3
• Obtain relevant and reliable audit evidence.
STEP4
• If the auditor wish to rely on any internal controls, he should ascertain
and evaluate the internal controls and performs.(internal control..eg:
filing, punch card)
STEP
5
• Carry out a substantive review of the financial statements, and in
conjunction with the conclusion drawn from other audit evidence
obtained, to give him a reasonable basis for his opinion on the financial
statements.

4. INTERIM AUDIT
• To establish prove
the reliability and
completeness of the
accounting books
and records as a
basis for the
preparation of the
financial statement.
• Risk assessment
procedure and
planning analytical
procedure.
FINANCIAL AUDIT
• Substantive
procedure on the
financial statement
so as to enable the
auditor to give an
opinion on the
financial statements.
( True and Fairview)
• Determine whether
the overall financial
statement are
prepared in
accordance with
specific financial
reporting
framework.
COMPLIANCE AUDIT
• Audit to conform
whether a firm is
following the terms
of an agreement.
• Determine the extent
to which rules,
policies, laws,
covenants or
government
regulations are
followed by the
entity being audited.

5. INTERIM AUDIT
• To establish the
reliability and
completeness of the
accounting books
and records.
COMPLIANCE
AUDIT
• To confirm whether
a firm following the
term of an
agreement.
FINANCIAL AUDIT
• To carry out
substantive
procedures on the
financial statement
so as to enable the
auditor to given an
opinion on the
financial statement.

6. Flowcharts are a
great tool to use to
visualize complex
systems involved in
an organization and
are easier and less
time consuming for
someone to
understand than a
narrative. By placing
everything in a visual
manner it will be
easier for an auditor
to see the
redundancies and an
organization's
system of internal
accounting control.
EXAMPLE OF
FLOWCHART

7. 1.2 Know The Types of Audit Test
1.2.1 Discuss each type of audit test
a. Vouching
b. Verifications
c. Test of Control
d. Substantive Test
e. Walk-through Test
f. Depth Test
g. Weakness test
h.Rotational test
1.2.2 Explain the uses and purpose of each
type
of audit test

8. Audit Test
A procedure performed by either an external
or internal auditor in oder to assess the
accurancy of various fianancial statement
assertions.
2 common catergorizations of audit tests
are :
a) substantive test
b) test internal control

9. Type of Audit Test
Vouchin
g
 Vouching is a technical term, which
refers to the inspection of documentary
evidence supporting & substantiating a
transactions, by an auditor. It is the
essence of Auditing
 It is the practice followed in an audit, with
the objective of establishing the
authenticity of the transactions recorded
in the primary books of account.

10.  As for verifications , auditors are
normally required to see that the
supporting document are verified
while auditing.
Verification
s Is normally done by nominated person in the company which
involves reviewing, inspecting & checking to ensure that the
documents conform to specific requirements. On the other hand,
there’s another physical verifications which is done by the
auditors themselves. This is an auditing procedure whereby an
auditor inspects the actual assets of the company to make sure
that they are the same with the written records.
Test of control
 Are audit procedures performed to
test the operating effectiveness of
control in preventing or detecting
material misstatements at the
relevant assertion level.
 An auditor might use inspections of documents, observations of
specific control, re- performance of the control, or other audit
procedures to gather evidence about control.

11. Substantive test
 Are those activities performed by the
auditor to detect material
misstatements or fraud at the
assertions level.
 A procedure used during accounting audits to check for errors in
the balance sheets & other financial documentations. A
substantive test might involve checking a random sample of
transactions for errors, comparing acc. balance to find
discrepancies,or analysis and review of procedures used to
execute and record transactions.
Walk- through test
 Is a procedure used during an audit of an entity’s accounting
system to gouge its reliability. Walk- though tests trace the
transactions step-by-step through the accounting system from its
inception to the final disposition.
 Also known as a combination of observation, documentation and
inquiry in the form of a transactions walkthrough.
 Involve the tracing of a few transactions through the accounting
system.

12. Depth test
 Involve the examinations of books of
accounts in depth. Such a system of
checking is adopted in big business houses,
where detailed examination of all the records
in not possible. This system of checking is
undertaken with a view to check the
incidence of error and frauds in the books of
accounts.
 Also known as
“cardle-to-grave”
Weakness test
 Once the depth test is completed, the
auditor will be able to form a view
regarding the number of errors or
weaknesses noted in the depth test
and take the necessary action to
ensure that an adequate level of
assurance is attained
 Also known as
“additional test”

13. Rotational Test
 An idea of the adequacy of the client’s internal control system can
be obtained from the previous year’s audit. The auditor needs to
consider whether there is a need to carry out rotational test and
whether they should be performed on selected areas only
 This technique is useful when the client company has a large
number of departments or branches.
 This test may be applied as long as the controls identified have not
changed since they were last tested and the assessed risk of
material misstatement as the assertion level is not significant.

14. The used & purposes of
Each Type of Audit Test

15. Purposes & uses of Vouching
Proper Evidence
The purpose vouching is to note that proper evidence is available for every
entry. This signatures, initials and rubber stamp are evidence that
document has been authorized and checked
Proper Authority
The purpose of vouching is to note that there is proper authority behind
every transactions. In the absence of any signature of manager the
transaction are not acceptable at all
Right Period
The purpose of vouching is to check that date of the vouchers relate to
accounting period. This adjustments in books are made on the basis of current
year record of transactions.
Correct Amount
The purpose of vouching to check that correct amounts have been recorded
in the entry. The vouching is useful to record only correct amount in the
books or accounts.

16. Purposes & uses of
Verifications The general objective to be achieved by audit verifications
work is to establish whether the financial statements present a
true and fair view
 Verification means to obtain and examine evidence in respect
of an item assets that:
o The asset exists on a given date.
o The asset is legally owned by the concern.
o There are no unrecorded assets.
o The asset are disclosed, classified, and presented in
accordance with recognized accounting policies and the
requirement of law Audit techniques that may be used physical inspection,
observation and confirmation.

17. Purposes & uses of Test of control
 The objective : to obtain evidence about the effectiveness of control to
support the auditor’s opinion on the company’s internal control over
financial report
 Test of controls are usually “dual purpose”
[1] to test compliance with an entity’s designed internal controls,
formal or informal
[2] to “re-performed” certain accounting systems and internal control
procedures
Purposes & uses of Substantive test
 To reveal monetary errors or misstatements in the recording or
reporting of transactions and balances.
 To determine whether transactions-related audit objectives have
been satisfied
 Inspect supporting documents like invoices to confirm that sales did
occur.
 Arrange for suppliers to confirm in writing the details of the amount
owing at balance date as evidence that accounts payable is a liability
(right & obligations)
 Make inquiries of management about the collectability of customers

18. Purposes & uses of Walk-Through test
PURPOSE: to establish reliability of client’s accounting & internal
control procedures & to reveal system deficiencies & material
weakness that need to be rectified at the earliest
USE:
 The auditors selects one or a few documents for the initiation of a
transaction type & traces them step by step through the entire
accounting process. The auditor is required to performs at least
one walk through for each major class or transactions.
 The walk through procedure, documentation of the internal
control in flow charts or internal control questionnaires, reading
the general ledger and consideration of the prior years control
risk assessment may permit an assessment of control risk in the
current period that is less then high.

19. Purposes & uses of Depth Test
 To provide audit evidence to assist the auditor in arriving at his opinion
where the auditor is still unable to form an opinion from the results of the
walkthrough test and to confirm the accuracy client’s accounting system
that involve only a small number of transactions.
 To confirm the accuracy of clients accounting system (walk through
checks)- involve only a small number of transactions.
 To perform compliance test( the auditor may use a number of transactions,
testing the control in depth at each stage). Such test will provide evidence
as to whether or not he may rely upon that control in planning later audit
work.
 To provide evidence of a substantive nature (to check that transactions
have been properly recorded in the accounting records or in the financial
statements.

20. Purposes & uses of Weakness TestPURPOSE: Is to establish whether material errors have in fact accrued ( if
they have an extended program of work on the verifications of associated
asset will be carried out)
USE:
 Additional test are done in view of the number of errors or weaknesses
noted in the depth test.
 Necessary in order to support conclusions drawn in a test of control that
the level of confidence or assurance required has been obtained.
Purposes & uses of Rotational TestPURPOSE: is to improve audit approach efficiency, some firms rely to
varying degrees on controls tested in previous engagements. Controls are
therefore tested on a rotations basis.
USE:
 Where the system of internal control is known from past experience to be
sound, it is considered a useful technique to apply by carrying out tests
on selected only.
 Where there is a large number of departments or branches, it is
impractical to test procedures at all departments or branches.

21. 1.3 Perform The Audit Procedures And Techniques
1.3.1 Explain the need of audit procedures
and audit techniques
1.3.2 Elaborate the audit procedures through :
a. Test of control
b. Analytical procedures
c. Substantive Procedures

22. The need of audit procedure and
audit techniques is to obtain an
audit evidence

23. Ascertainment the arithmetical
accuracy of the books of
account by checking posting,
casting, cross casting, carry
forwards, opening and closing
balances etc.
Examining the documentary
evidences and the authority in
support of the transaction
Ensuring that information
disclosure is adequate in
annual financial statements
and that it conveys the real
picture about the asset,
liabilities and operation
results.
Verification of existence,
owernership and title and
value of the assets and
determination of the extent
and nature of liabilities.
Audit Procedures

24. Posting
checking
Casting
checking
Confirmation
Physical
verification
Audit techniques

26. Analytical Procedures
Analytical procedures are a form of audit evidence.
Analytical procedures are an important type of evidence on an audit. They
involve a comparison of recorded values with expectations developed by the
auditor. They consists of evaluations of financial information made by a study
of plausible relationships among both financial and nonfinancial data. For
example, the current-year accounts receivable balance can be compared to
the prior-years' balances after adjusting for any increase or decrease in sales
and other economic factors.
There are three types of analytical procedures:
1. Preliminary analytical procedures
2. Substantive analytical procedures
3. Final analytical procedures
Auditing standards require that the auditor conduct analytical procedures in
planning the audit. Analytical procedures can be helpful in identifying the
existence of unusual transactions or events and amounts, ratios, and trends
that might have implications for audit planning.

27. Substantive procedure
Substantive procedures are intended to create evidence that an auditor assembles
to support the assertion that there are no material misstatements in regard to the
completeness, validity, and accuracy of the financial records of an entity. Thus,
substantive procedures are performed by an auditor to detect whether there are
any material misstatements in accounting transactions.
Example of substantive procedure is
Bank confirmation
Accounts receivable confirmation
Inquire of management regarding the collectibility of customer accounts
Match customer orders to invoices billed
Match collected funds to invoices billed
Observe a physical inventory count
Confirm inventories not on-site
Match purchasing records to inventory on hand or sold
Confirm the calculations on an inventory valuation report
Observe fixed assets

28. The End