Question

In: Accounting

1. Enumerate, and explain, each audit procedure classified according to purpose and according to nature. 2....

1. Enumerate, and explain, each audit procedure classified according to purpose and according to nature.

2. Define external confirmation. Give examples of situations involving external confirmation.

3.What are the different forms of confirmation request? What are the situations where each type may be used?

4. Explain the typical approach followed in performing analytical procedures.

5. Define substantive tests. What are the different types of substantive tests?

6. Differentiate fraud from error.

Solutions

Expert Solution

Answer 1:- Audit procedures are the processes, technique, and methods that auditors perform to obtain audit evidence which enables them to make a conclusion on the set audit objective and express their opinion. Sometimes we call audit procedures as audit programs Auditors normally prepare audit procedures at the planning stages once they identified audit objectives, audit scope, audit approach, and audit risks

List of Five Types of Procedures

1- Analytical Review:-  Analytical review is not the procedure that uses to obtain audit evidence, but it is the procedure used to assess the unusual transactions or events as the principle or basic to perform other procedures

2 Inquiry:  Auditors inquire accountant and related management to gather information and obtain an explanation on the mater that found by auditors

3) Observation:Observation is one of the audit procedures that auditors use to obtain an understanding and gather audit evidence mainly to the real process or the ways how clients have done some specific business process

4) Inspection: Inspection refers to verification or vouching documents. This is one of the most important and it can be 60% of audit work involve with the inspection of documents.

5) Recalculation: Recalculation is the type of audit procedure that normally done by re-performing the works performed by the client in the purpose of assessing if there any difference between the audit’s work and the client’s work.

Answer 2:- External confirmation is the process of obtaining and evaluating audit evidence through a representation of information or an existing condition directly from a third party in response to a request for information about a particular item affecting assertions in the financial statements or related disclosures. For Example in the case of goods held on consignment, evidence will be obtained about existence and rights and obligations assertions, but not about the value. Confirmation about the completeness assertion can be obtained by contacting certain parties.

Answer 3:- Performing analytical procedures generally follows this four-step process:

1. Form an expectation. Here, the auditor develops an expectation of an account balance or financial relationship. Developing an independent expectation helps the auditor apply professional skepticism when evaluating reported amounts. Expectations are formed by identifying relationships based on the auditor’s understanding of the company and its industry.

2. Identify differences between expected and reported amounts. The auditor must compare his or her expectation with the amount recorded in the company’s accounting system. Then any difference is compared to the auditor’s threshold for analytical testing. If the difference is less than the threshold, the auditor generally accepts the recorded amount without further investigation and the analytical procedure is complete. If the difference is greater than the threshold, the next step is to investigate the source of the discrepancy.

3. Investigate the reason. The auditor brainstorms all possible causes and then determines the most probable cause(s) for the discrepancy. Sometimes, the analytical test or the data itself is problematic, and the auditor needs to apply additional analytical procedures with more precise data.

4. Evaluate differences. The auditor evaluates the likelihood of material misstatement and then determines the nature and extent of any additional auditing procedures. Plausible explanations require corroborating audit evidence.

Answer 5:- Substantive testing is an audit procedure that examines the financial statements and supporting documentation to see if they contain errors. These tests are needed as evidence to support the assertion that the financial records of an entity are complete, valid, and accurate. There are many substantive tests that an auditor can use.

There are two types of Substantive Procedures

1:- Analytical procedures:- Analytical procedures are an important part of the audit process and consist of evaluations of financial information made by a study of plausible relationships among both financial and nonfinancial data.

2:- Tests of details:- Tests of details are usually categorized into two types:

(i) Substantive tests of transactions

(ii) Tests of details of account balances and disclosures focus

Answer 6 :- The difference between fraud and error lies in the intention. Simply put, fraud is an act that is intentionally carried out to benefit certain individuals or groups and causes detrimental effect to others, while errors are acts of unintentional mistake or negligence


Related Solutions

Audit Analytical Procedures 1. Explain what is meant by Analytical Procedure as used in audit 2....
Audit Analytical Procedures 1. Explain what is meant by Analytical Procedure as used in audit 2. Outline the 3 main types of Analytical Procedures 3. Identify and explain the 3 main uses of Analytical Procedures during the audit 4. Develop audit procedures for the use of analytical procedures as a substantive procedure in the testing of the reasonableness of monthly payroll costs for the year
Question 1 Inherent risks can be classified according to their nature, such as “unusual pressure on...
Question 1 Inherent risks can be classified according to their nature, such as “unusual pressure on management” or “account likely to require adjustments”; and also their level as either a “financial report level inherent risk” or an “assertion level inherent risk”. Required: Below are listed six situations that can give rise to inherent risks. Classify each situation by its nature and level. Note: In answering this question please write the letter that denotes the situation followed by its nature and...
Compare internal audit and external audit, provide the following for each: 1.Definition 2.Purpose 3.Who is the...
Compare internal audit and external audit, provide the following for each: 1.Definition 2.Purpose 3.Who is the beneficiary of the audit work? 4.What is the relationship between auditor and auditee? 5.The qualification of the auditor 6.What is the audit work plan based upon? 7.Who does the auditor report to? Please provide the hierarchy of authority in audit reporting. 8.What is the scope of audit work? Please provide a list of items that could be included in the auditing scope.
Below are 12 audit procedures. Match each procedure according to one of the 8 appropriate types...
Below are 12 audit procedures. Match each procedure according to one of the 8 appropriate types of audit evidence. - Watch client employees count inventory to determine whether company procedures are being followed. - Count inventory items and record the amount in the audit files. - Trace postings from the sales journal to the general ledger accounts. - Calculate the ratio of cost of goods sold to sales as a test of overall reasonableness of gross margin relative to the...
For each audit activity, identify the audit procedure. Each activity has one answer, but the audit...
For each audit activity, identify the audit procedure. Each activity has one answer, but the audit procedures can be used more than once.       -       A.       B.       C.       D.       E.       F.       G.       H.       I.       J.    Review lease agreements for capital leases.       -       A.       B.       C.       D.      ...
for each of the following audit procedures, (a) state the type of audit procedure used (e.g.,...
for each of the following audit procedures, (a) state the type of audit procedure used (e.g., observation), (b) state the general audit objective(s) tested by the procedure (no additional explanation is required), and (c) evaluate and briefly explain the reliability of the evidence produced by the audit procedure. Select a sample of the audit client’s suppliers’ invoices to see if these transactions have been recorded in the accounting records. Write to the audit client’s banks to ask for financial year-end...
Explain the purpose of an audit firm undertaking an audit of the design and effectiveness of...
Explain the purpose of an audit firm undertaking an audit of the design and effectiveness of internal control procedures.
Explain the audit procedure for checking the Construction In Progress estimate?
Explain the audit procedure for checking the Construction In Progress estimate?
Part I Explain the purpose of an audit firm undertaking an audit of the design and...
Part I Explain the purpose of an audit firm undertaking an audit of the design and effectiveness of internal control procedures. Part II An auditor may perform the following three types of substantive procedures: (a) tests of details of transactions; (b) tests of details of balances; and (c) analytical procedures Explain the purpose of an audit firm undertaking an audit of the design and effectiveness of internal control procedures. Below are specific audit procedures that fall within one of these...
Urinalysis is 1 of the most prescribed diagnostic procedure for patients with GUT disorders. Enumerate normal...
Urinalysis is 1 of the most prescribed diagnostic procedure for patients with GUT disorders. Enumerate normal and abnormal findings in the said procedure and the indication/s of the abnormal findings
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT