Question

Financial Auditing

1. What are some accounts that should be given special emphasis after the actual fieldwork is done and why?

2. How would an auditor use ARP during the review phase of an audit?

Answer 1

Question1. What are some accounts that should be given special emphasis after the actual fieldwork is done and why?

Solution:

The points to be considered before

o The auditor should first examine the internal check system in vogue in the company and determine the extent to which he can rely upon the system.

o The auditor should inspect the minutes of the meetings of shareholders and the Board of Directors.

Name of the accounts which should be given special attention while auditing because such accounts are considered as main aspect of the business.

Whereas the case of main account would always differ from the other accounts because of the nature of the business.

• Income – The main account of any company. Every business has one aspect that is to earn. Hence we need to have a close eye view on the transaction happening through income account.

• Expenditure – Another account to have manipulation easily. Close watch on each voucher of expenses, whether they were actually occurred for the organisation or not. If not then it can indicate the signal for showing lower income and avoiding the payment of taxes to local authorities.

• Capital – Promoters account has to be vouched carefully for the purpose of close inspection of the transaction only favouring the organisation occur.

• Cash – Another important account because entries can be very easily diversified against the organisation without the knowledge of individuals.

• Sales – Considered that whether actual sales occurred or it’s manipulated, hence increase or decrease in sales can have a vice versa effect on the company. Therefore inspect thoroughly.

• Purchase – Same condition as applied to sales applies to purchase.

2. How would an auditor use ARP during the review phase of an audit?

Solution:

Let’s start with the understanding of ARP (Analytical Review Procedures)

· The use of ARP in the initial planning to assist in determining the nature, time and extend of other auditing procedures.

· The use of ARP during the conduct of examination with other procedures applied by the auditors to individual elements of financial information.

· The assessment of the risk of material misstatement.

· The modification of audit procedure to ensure that any material error have a reasonable chance of being detected.

· The use of ARP to review the overall information of financial statement.

Basically Regular audits are key to improving business performance in all industries and can facilitate the achievement of many other goals that a particular organisation may have in their sights.

There are 4 phases for planning a review of an audit.

1. Preparation

i. Discuss the scope, objectives and methods of implementing of audit.

ii. Gathering of all relative documents for review and better understanding of procedure to complete the task.

iii. Audit planning is also an important part.

iv. Creating checklist for the task to be performed.

2. Performance

i. Assigning of the various activities to be performed by each and every individual of the team.

ii. Reviewing the work task perform by team.

iii. Analysing the need and changes required to reach the true and fair means of auditing.

3. Reporting

i. The report will include a summary sheet with the audit number, objectives, name of auditor, list of nonconformities and any relevant observations made during the audit.

ii. Marking the comment and presenting the final signed audit report to the management.

4. Follow Up

i. Follow up audits are required to ascertain whether the auditee has taken appropriate action to rectify any nonconformities that were identified during the main audit.

ii. These follow up audits should of course be prepared, performed, and reported along the same lines as the original audit, to ensure their effectiveness.