The document outlines the audit process from start to finish. It begins with pre-engagement activities like client evaluation and drafting an engagement letter. Next is planning which involves identifying risks, linking them to accounts, and determining the audit strategy. Testing then occurs, including internal controls, accounts, and conclusions. The audit results in an opinion on whether the financial statements fairly represent the entity's position and an optional management letter with other observations. The document provides examples at each step to demonstrate the audit process.

1. Presented to
LUPANE STATE UNIVERSITY
AUDIT CLASS
Bekithemba Ndebele (ACCA*);
BBA-Accounting

2.  A process of gathering evidence that supports
Management Assertions.
 Carried out by Professional Accountants
registered with a regulatory board.
 To express an opinion whether the financial
statements of an entity are fairly stated.

3. C - Completeness
E - Existence/Occurrence
A- Accuracy
V - Validity
O - Rights and Obligations
P – Presentation and Disclosure
An audit is a test of these assertions

4. Step 1 •Pre-engagement Activities
Step 2 •Planning and Risk Assessment
Step 3 •Testing Internal Controls
Step 4 •Test of Detail
Step 5 •Concluding and Reporting

5. These are activities done before commencement of audit activities.
 Client evaluation process- usually done by Proposed Engagement Partner
 A client acceptance or continuance template is completed;
 Issues affecting acceptance or continuance of audit clients include:
1. consideration of independence and ethics
2. Firm’s capability to perform a qualitative engagement
3. Client related issues including risks associated with auditing the client and nature of business
of the client.
 Drafting a TERMS OF REFERENCE LETTER-engagement letter specifying the scope
of the engagement and audit fees and any other important issued to be highlighted.

6.  Accept or reject client
 Draft Engagement Letter, get it signed by both parties
 Send to client an Audit Planning Memorandum
 Send to client a Client Assistance Package

7. Identifying Matters
Linking Matters to
Account Balances
or classes of
transactions
Identifying
Inherent Risks
Identifying
Significant Risks
Document Audit
Strategy
Document Audit
Plan/Program

8.  Have a thorough understanding of the client’s business and its environment.
 You obtain this understanding from being a wide reader, research, past
experience etc.
 From your understanding of the entity and its environment, you can populate
all the matters.
 Examples of matters are:
1. The entity uses cash
2. The entity has one signatory to the bank account
3. The accountant does receipting, banking and performs bank reconciliations
4. The Minister proclaimed the writing off of accounts receivable from rates and
service charges

9.  Consider matters in the previous slide, what are the account balances associated to
each?
Matter Account Balance
1.The entity uses cash before it is banked 1. Cash and cash equivalents
2.The entity has one signatory to the bank account 2. Overall financial statements
3.The accountant does receipting, banking and
performs bank reconciliations
3. Cash and cash equivalents,
Operating expenditure
4.The Minister proclaimed the writing off of
accounts receivable from rates and service charges
4.Trade and Other receivables

10.  It is a RISK that assumes that there are no control.
 You are saying ‘What can possibly go wrong, assuming there were no controls’?
 Consider what can go wrong arising from the matters you identified
NB:Auditors are worried about Audit Risk, not Business Risk.
Audit risk is the Risk of Material Misstatement

11.  A significant risk is a risk that requires a specific audit procedure, because It cannot be
mitigated by ordinary audit procedures.
 The audit procedure is usually a procedure that would not ORDINARILLY be performed
An example would be circularisation of Creditors.
NB:Auditors are worried about Audit Risk, not Business Risk.
Audit risk is the Risk of Material Misstatement

12.  The Overall Audit Strategy looks at the TIMING
AND EXTENT of Audit Procedures and setting
planning and performance materiality.
 TIMING OF AN AUDIT PROCEDURE refers to
when a particular procedure is to be done.
e.g. When are we doing the Interim audit?;
when are doing the inventory count?
 EXTENT OF AN AUDIT TEST refers to the size
of the sample to test.

13.  A detailed audit plan outlines our response to each risk identified.
 A detailed Audit Plan is more of an audit program.
 An audit plan also includes staffing the assignment basing on experience,
personality, etc.
 It looks at each audit procedure on a step-by-step basis.

16. Client Bekithemba (Private) Limited
Year end 31 December 2012
Subject Materiality computation
Objective
Total Revenue
USD
Sales (Butchery) 1 525 024
Sales (Farm) 1 062 838
2 587 862
Total revenues 2 587 862
Benchmark (0.5%) 0.50%
Planning materiality 12 939
Tolerable error (60%) 7 764
Audit Notes
Done By : BN Date: 15 Feb 2014
Reviewed by : ST Date 15 Feb 2014
To determine planning materiality and
tolerable error
A benchmark of 0.5% was used basing on prior year audit findigs which indicated a weak control
environment over revenue and cash.
AA1

17.  Internal controls are used by the client to mitigate risks.
 Auditors take advantage of this and use internal controls to
determine the nature, timing and extent of substantive
procedures and also to identify those controls that the auditor
can rely on.
 Where there is a weak control environment, the auditor will
perform more work on substantive procedures either by:
 Increasing sample size; or
 Performing more procedures on the same sample.
 The auditor will test the design effectiveness of controls
through performing a test of controls to determine of controls
are designed effectively; if yes
 The auditor will then test the operating effectiveness of
controls to determine if they were applied properly throughout
the period under review.

20. The auditor needs to obtain SUFFICIENT APPROPRIATE audit evidence.
To express an opinion…
Sufficient
Quantitative
Appropriate
Qualitative
Opinion
The Audit Opinion Depends on the Sufficiency and Appropriateness of the Evidence
Obtained

21.  It is the risk that the auditor will not detect a material misstatement in
the audit of financial statements whether due to fraud or error.
 It emanates from the following:
 The Auditor will apply an inappropriate audit procedure
 Omission of critical audit procedures
 The Auditor will apply an appropriate audit procedure on a wrong
population
 The auditor will select a sample that is not representative of the
population
 The auditor applying an appropriate audit procedure at the wrong timing

22. Auditors apply the following Audit Procedures depending on the audit plan.
Enquiry
Confirmations
Analytical Procedures
Observation
Recalculation
Re-performance
NB:You cannot have sufficient poor quality audit evidence

23. Remember…
 Application of an inappropriate audit procedure; or
 Applying an appropriate audit procedure at the wrong time;
 Applying an appropriate audit procedure on the wrong sample
Will make the auditor fail to detect material misstatements due to error or
fraud.

24.  Direction of testing is very important…it is influenced by the primary risk.
 Depending on whether it’s a Balance Sheet Item or a Statement of Profit
or Loss and Other Comprehensive Income item.
Testing
Nature of Balance Primary risk Primary Assertion
Debit Balances Overstatement Existence/Occurrence
Credit Balances Understatement Completeness

25. Financial Statement
Item
Primary Risk Primary Assertion Direction ofTesting
Revenue Understatement Completeness Source Document to
Accounting System
Cost of Sales/
Expenditure
Overstatement Occurrence Accounting System
to Source Document
Non-current Assets Overstatement Existence Accounting System
to Source Document
Current Assets Overstatement Existence Accounting System
to Source Document
Non-current
Liabilities
Understatement Completeness Source Document to
Accounting System
Current Liabilities Understatement Completeness Source Document to
Accounting System
NB: Where a Significant risk is identified, then procedures will be tailored to reduce
it to an acceptably low level.

26. 1. Nature of Balance Credit
2. Primary risk Understatement
3. Primary Assertion Completeness
4. Direction of testing Source document to accounting record

27. 1. Nature of Balance Debit
2. Primary risk Overstatement
3. Primary Assertion Occurrence
4. Direction of testing Accounting records to source document

28. 1. Nature of Balance Debit
2. Primary risk Overstatement
3. Primary Assertion Existence
4. Direction of testing Accounting records to source document

29. 1. Nature of Balance Debit
2. Primary risk Overstatement
3. Primary Assertion Existence
4. Direction of testing Accounting records to source document

30. 1. Nature of Balance Debit
2. Primary risk Overstatement
3. Primary Assertion Existence
4. Direction of testing Accounting records to source document

31. 1. Nature of Balance Debit
2. Primary risk Overstatement
3. Primary Assertion Existence
4. Direction of testing Accounting records to source document

32. 1. Nature of Balance Credit
2. Primary risk Understatement
3. Primary Assertion Completeness
4. Direction of testing Source document to accounting record

33. 1. Nature of Balance Credit
2. Primary risk Understatement
3. Primary Assertion Completeness
4. Direction of testing Source document to accounting record

34. 1. Nature of Balance Debit/ Credit
2. Primary risk Overstatement and Understatement
3. Primary Assertion Validity and Completeness
4. Direction of testing Accounting records to source document

36. Concluding activities include:
 A review of the Going Concern of the client
 A review of Subsequent Events
 Determining whether all identified risks were mitigated
 Preparing Audit Opinion

37. An audit is done for the sole purpose of expressing an opinion, however, we
also provided a Management Letter (Report to Management).
An Audit will normally have two deliverables:
1. Auditor’s opinion on the Audited Financial Statements
2. Management Letter (Report to Management)

38. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Opinion
In our opinion, the financial statements present fairly, in all material
respects, the financial position of Bekithemba (Private) Limited as at 31
December 2013 and its financial performance and cash flows for the year
then ended in accordance with International Financial Reporting Standards.
Other Matter
We would like to draw the attention of the shareholders to the fact that
Bekithemba (Private) Limited uses a fixed exchange rate to translate foreign
currency transactions into the functional currency. This has resulted in a
large foreign currency exchange gain.