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Potential Audit Procedure Failures. For each of the general audit procedures of; Recalculation, Observation, Confirmation (accounts...

Potential Audit Procedure Failures. For each of the general audit procedures of;

Recalculation, Observation, Confirmation (accounts receivable, securities or other assets), Injuiry, Inspection of internal domuments, reperformance and analystical procedures.

Discuss one way the procedure can be misapplied or the auditors could be misled in such a way to render the work (audit evidence) misleading or irrelevent. Give examples

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Expert Solution

Hey,

Recalculation: Check of Mathematical Accuracy is done in this Procedure. Eg, Recalculating Depreciation, companies can give wrong estimated life so due to that the conclusion which auditor reaches may be irrelevant.

Observation: Looking at the procedure applied by other is done in this procedure. Eg, Auditor generally does the observation of Inventory Counts, management can misguide auditor showing cheap chemical say X and saying that this is an expensive chemical say Y. As auditor doesn't have appropriate knowledge he can be misguided easily.

Confirmation: Obtaining direct written confirmation from the third party is done in this procedure. Eg. Confirmation for Account Receivable, management can misguide auditor by not allowing the auditor to do confirmation of some debtors.

Inquiry: Seeking Information from Knowledgeable person internally say employes. Eg. We can confirm working hours put in by employees in the production department, but management doesn't allow to talk to employees which impair auditor in collecting sufficient evidence.

Inspection of Internal documents: Inspecting such documents helps in understanding policies.Eg. However, these documents are internally generated and it can be modified easily to misguide auditor.

Reperformance: Independently executing procedures that employees do. Eg, Reperforming aging schedule of Account Receivable, Management can provide incorrect data regarding the aging policies than actually, they have so the reperformance result matches with companies result.

Analytical Procedure: Analysis of relationships among both financial as well as nonfinancial data. Eg. Comparing monthly sales for the current year with previous years, management can modify sales figures to match the pattern as per previous years and this could misguide auditors.

Hope this explanation helps you to understand the concepts.

Thanks.

ekkarill92 answered 1 year ago
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