W12 Audit Procedures

Question 1

What are the techniques for gathering audit evidence

Answer 1

1.Inspection
2. Observation
3. Inquiry
4. External confirmation
5. Recalculation
6. Reperformance
7. Analytical procedures

Question 2

Inspection

Answer 2

Inspection involves examining records or documents, whether internal or external, in paper form, electronic form, or other media, or a physical examination of an asset

example of inspection used as a

test of control is inspection of records for evidence of authorization

substantive procedure would be to inspect land registry records to confirm ownership of a building

Question 3

Observation

Answer 3

Looking at a process or procedure being performed by others

(mainly used as test of control)

*observation evidence limited to the time at which the observation takes place, being observed may affect how the process is performed

example as

test of control: auditors observation of inventory counting by the client staff

substantive procedure: if the auditor inspects inventory and observes the condition of individual items e.g damaged

Question 4

Inquiry

Answer 4

consists of seeking information of knowledgeable persons, both financial and non-financial, within the entity or outside the entity… Inquiries may range from formal written inquiries to informal oral inquiries

Question 5

External confirmation

Answer 5

Represents audit evidence obtained by the auditor as a direct written response to the auditor from a third-party (the confirming party), in paper form, or by electronic or other medium

• commonly used to confirm or request information such as account balances
• can also be used to confirm transactions between the client and other parties

Question 6

What are the types of external confirmation

Answer 6

1. Positive confirmation requests
   - a request that the confirming party respond directly to the auditor indicating whether the confirming party agrees or disagrees with the info in the request or provide request info
2. Negative confirmation requests
   - a request that the confirming part respond directly to the auditor only if the confirming party disagrees with the info provided (provide less persuasive audit evidence)

Question 7

Recalculation

Answer 7

Consists of checking the mathematical accuracy of documents or records

example as

TOC: auditor checking the mathematical accuracy of the weekly bank reconciliation performed by the client

SP: recalculation of depreciation calculation for a sample of equipment

Question 8

Reperformance

Answer 8

Reperformance involves the auditors independent execution of procedures or controls that were originally performed as part of the entity’s internal control.

only used as TOC

ex. auditor repeating (all or part of) the inventory count previously carried out by the client

using test data to test the controls in a computerised systems

Question 9

Analytical procedures

Answer 9

Consist of evaluations of financial information through analysis of plausible relationships among both financial and non-financial data. Analytical procedures also encompass such investigation as is necessary of identified fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount

• only used as substantive procedure

Question 10

What is a reasonableness test

Answer 10

most common substantive analytical procedure

provide an independent check on the total value of a population

such proofs in total may reduce the need for further substantive procedures (i.e test of detail)

Question 11

Which techniques for gathering audit evidence can be used as both test of controls and substantive procedures

Answer 11

Inspection
Observation
Inquiry
External Confirmation
Recalculation

Question 12

Which technique can only be used as a TOC

Answer 12

Reperformance