8why do we need audits

8/2/2019 8why Do We Need Audits

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Why Does an Auditor Need Evidence

Auditors will form an opinion on financial statements

Auditors opinion enhancers users confidence in Financial

Statements

Auditors are paid to do an Audit To Avoid been sued

Management Assertions/Financial Statement Assertions

Is the set of information that the preparer of Financial Statements(Management) is providing to another party. Financial statements representa very complex and interrelated set of assertions. At the most aggregatelevel, the financial statements include broad assertions such as "totalliabilities as at 31 December are $50 million", "total revenue for the year is$9 million" and "net income for the year is $3 million".


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Transactionsand Events Accounts

Presentationand

Disclosure

Assertions are decomposed to three Categories

Occurrence

Completeness

Accuracy

Authorization

Cutoff Classification

Existence

Rights and obligations

Completeness

Valuation and Allocation

Occurrence

Rights & Obligations

Completeness

Valuation &

AllocationClassification and

Understandability


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Sufficient

Evidence

Quality of Evidence

Appropriate

Reliable Relevant

It needs to be

enough

evidence

SourceIndependent/external/internal Effectiveness of internal controls Medium document/original/copy/oral How directly to auditor Qualifications of providerKnowledge of Business

Adequate sample size

Selection of proper populationitems-quality


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Audit Procedures

1.1. Inspection of Records

2. Confirmation

3. Analytical procedures

4. Enquiries

5. Recalculation

6. Re performance

7. Observation

8. Physical Examination


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Inspection of Records & Tangible Assets

It is the inspection or count by the auditor of a tangible asset/Document.

May give direct evidence of existence of an assetshare certificate,

title deeds, evidence of valuation,cash etc

Confirmation

Information SourceCash in bank

Accounts receivable

Bank

Customer

Accounts payable Creditor

The receipt of a written or oral response from an independent thirdparty. Auditor has client request that the third party respond directly to

the auditor.


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Analytical Procedures

Enquiries

As Part of the Planning Process

At the Final Review Stage

Audits studies relationships among data. Unusual fluctuations occurwhen significant difference are not expected but do exist or whensignificant differences are expected but do not exist. Required during theplanning and completion phases on all audits.

It is the obtaining ofwritten or oral information

from the client in response to questions

from the auditor.

Issue is Material

No Other Sources of Evidence

Low Quality Evidence


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Re Calculation

Re-Performance

It involves rechecking a sample of calculations

made by the client.

It is the auditors independent tests of client accountingprocedures or controls that were originally done. i.e. test

Checking inventory count, IT tools to check debtors ageing

Observation

Auditor witnesses the physical activities of the client


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Audit documentation is the principal record of auditing proceduresapplied, evidence obtained, and conclusions reached by the auditor in the

engagement.

Ownership and access to the working papers are with the auditor.

Storage Should be kept for minimum of at least 5years.SOX -7

Permanent File

Information that is

relevant for multiple

years on recurring

engagements.

Current File

Information relevant for

a given audit client for a

particular audit year.

Working Papers


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Types of Files

Permanent Files - information with continuing relevance

Information on client

Chart of accounts

Organization charts

Contracts, agreements

Pension plans

Deferred tax and other schedules


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Current Files - information specific tocurrent year audit

Audit program

Time budget

Working trial balance

Lead schedules

Detailed schedules

Types of Files


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WORKINGPAPERS

NATURE

Records of

1. Proceduresapplied

2. Tests performed

3. Information

obtained

4. Conclusionsreached

PURPOSE TYPES

1. Working trial

balance2. Schedules and

analyses

3. Audit memoranda

and corroborating

info4. Adjusting and

reclassifying

entries

Working Papers

1. Principle support for

auditors report2. Evidence that

examination was

made in accordance

with GAAS

3. Means forcoordinating and

supervising the

examination


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What is documenting audit evidence?

The audit work papers include all forms of documentation including:

Evidence of planning, including audit programs

The client's trial balance and any auditor adjustments

Copies of selected internal and external documents includingconfirmation and representation letters and abstracts of company

documents are allowed to do and to put in file

Schedules prepared or obtained by the auditor

Auditor memos

Results of analytical procedures and tests of client records

Auditor analysis of account balance

8why do we need audits

Documents