Question

How does the auditor determine the best tests to perform to achieve the audit objectives for a procedure? Please discuss and support your response with examples.

Answer 1

Answer -

In the following ways the auditor can determine the best tests to perform to achieve the audit objectives for a procedure -

1. First we need to identify the assertions that need to be tested ie identify those areas where there is a possibility of material misstatement. For eg - Cash management - there is a high possbility that cash is misstated in the books. Also, receivables is one area where there can be risk of material misstatement.

2. Completeness - Checking the completeness whether all the transactions have been completely recorded in the financial statement and proper disclosures have been made. For Example - assets, liabilities, capital, etc have been completely shown.

3. Occurrence- We should know transactions which occur frequently and what impact it would have on the financial statements. Also, the events should have actually been occured.

4. Classification and Understandability - We should identify if the items are been properly classified as per the nature of it. For example, if an item is purchased for long term but the amount is not material then should be classified as an expense and not an asset.

5. Accuracy - To check that the transactions have been entered at correct values.

6. Materiality - Try to audit those things which can have a material impact on the organisation. Eg- there might be a fire in the organisation due to which there would be a huge loss. Assess the impact of it properly

Conclusion -

Thus, based on above observations an auditor can determine the best tests to perform to achieve audit objectives.