AUDIT PROCEDURE CHAPTER 7 Flashcards
How many does audit evidence have ?
8
What is audit procedures ?
Specific acts that performed as the auditor gathers evidence to determine if specific audit objectives is met which is to collect the 8 types of audit evidence
Remember what we need to start to mention the audit procedures ?
VERB
State any types of audit procedures
Examine
Scan
Read
Compute
Recompute
Foot
Trace
Compare
Count
Observe
Inquire
Vouch
What are the types of test in FS statement ?
TOC
STOT
AP
TOAB
Define Test of control
These tests are designed to evaluate the effectiveness of a company’s internal controls
Example of Test Of Control
Segregation of Duties: Ensuring that no single person has control over all aspects of a financial transaction.
Example: Confirming that the person who processes payments is different from the person who approves them.
What is Substantive Test of Transactions
Focus on the financial transactions recorded by the company.
Example of Substantive Test of Transactions
Invoice Testing: Checking a sample of sales invoices to verify that they are recorded correctly in the sales ledger.
Example: Comparing the details on the sales invoice with the corresponding entry in the sales ledger.
Analytical Procedures
Evaluating financial information by studying relationships among financial and non-financial data. They help identify any unusual trends or variances that might indicate potential misstatements.
Example of Analytical Procedures
Ratio Analysis: Comparing current year financial ratios (like profit margin, current ratio) to prior years or industry averages.
Example: Noticing that the company’s current year profit margin is significantly lower than previous years.
Trend Analysis: Looking at trends over several periods, such as revenue growth or expense trends.
Example: Observing that monthly sales have unexpectedly dropped in the last quarter.
Test of Account Balances
Verifying the ending balances of significant accounts in the financial statements
Example of Test of Account Balances
Accounts Receivable Confirmation: Sending confirmation requests to customers to verify the amounts they owe to the company.
Example: Sending letters to customers asking them to confirm they owe the company $50,000 as recorded in accounts receivable.
Inventory Count: Physically counting inventory to verify the recorded inventory balance.
Example: Counting the number of items in the warehouse and comparing it to the inventory records.
Benefits of conducting ratio analysis for the analytical procedures
- Understanding Relationships
How different items in a company’s financial statements relate to each other
- Strengths and Weaknesses
Can highlight strengths (like strong profitability or efficient use of resources) and weaknesses (like high debt levels or low liquidity) in a company’s financial position
