Audit and Assurance: Procedures for Obtaining Audit Evidence
Verified
Added on  2023/06/07
|8
|1260
|191
AI Summary
This article discusses the procedures for obtaining audit evidence in audit and assurance, including analytical procedures, inquiry, inspection, observation, and recalculation. It also covers the suitability and limitations of each procedure, as well as the difference between internal and external audit functions.
Contribute Materials
Your contribution can guide someone’s learning journey. Share your
documents today.
AUDIT AND ASSURANCE
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
Table of Contents INTRODUCTION...........................................................................................................................3 MAIN BODY..................................................................................................................................3 CONCLUSION................................................................................................................................3 REFERENCES................................................................................................................................1
Question 1 (a) (i) Analytical procedure: This is used to gather audit evidence related to account balance via comparison. Inquiry: This is used to gather audit evidence related to unusual balance or information vial seeking explanation from the management. Inspection:This is used to get assurance on the account balance or transaction via reviewing internal and external documents. Observation:It is used to observe the real business process and its risk through observing and comparing reported figures. Recalculation:Inthis,auditorre-performcertaincalculationstocheckaccuracyofthat calculations (DRAFT, 2019). (ii) Examples Analytical procedure: comparing sales of £5.2 million with last year. Inquiry:Seeking management explanation on no receivables within Modern World. Inspection: Inspecting sales invoice, goods dispatched notes and payment receipt to ensure recorded revenue of Modern World are free from material misstatement. Observation: Observing the sales figure through extended audit procedure. Recalculation: Recalculating the number of cuddly toys available for sales. (b) Suitability and limitation of following procedure: Analytical procedure: It is suitable for detecting a misstatement in financial statement. The limitation of analytical procedure is that it is useless for reviewing financial statement during the year. Inquiry: The inquiry procedure is suitable for comparing the trends, revenue of the company with past figures. The limitation of enquiry is that there is no guaranteed that management provide true information while inquiry (Kumari and et.al., 2019).
Inspection:This procedure is suitable for getting assurance on different accounting balances as well as transactions. Time consuming is a limitation of this procedure as auditors required more time to inspect different internal and external documents of Modern World. Observation: It is suitable to assess the commitment of client towards the internal control of business. The limitation of observation is that it sometime fails to provide the reasonable assurance and identify the potential risk associated with company (DRAFT, 2019). Recalculation:In the case, when auditor think certain value inappropriate and wrong, at that time recalculation has been re-performed by auditor to check the accuracy of that value or reported figures. The limitation of this procedure is that, the auditor need to hire expert for recalculations. Question 4 (a) (i) Beside external confirmation, the five other procedures for obtaining audit evidence are as follows: Inspection: This is the most significant audit procedure which is perform by the auditors to review the different internal as well as external documents to get assurance on the various transaction and account balance. Observation: This procedure helps the auditors to assess the client’s commitment to internal control. For which, they observe the internal process of real business and analyse risk in business. Recalculations:This is another procedure to collect audit evidence where the independent auditors need to re-perform the calculations to check the accuracy certain calculations. Analytical review: This is one of the key procedure to gather audit evidence and compare information, trends, market demand and account balance in order to get reasonable assurance on the financial statement of client (Kumar and et.al., 2021).
Paraphrase This Document
Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Inquiry: In case if the auditor notices any unusual balance and information in the accounting records which are material and persuasive, then they can perform inquiry procedure regarding the same. (ii) Example of each procedure: Inspection:Inspecting purchase invoice to ensure that the recorded purchase cost is materially misstated. Observation: Extending audit procedure to get sufficient and appropriate audit evidence when accounting records shows millions of purchasing expenses. Recalculations:Recalculation of deferred tax to ensure deferred tax assets and liabilities accuracy (Kumar and et.al., 2021). Analytical review:Comparing financialcost with the loan. Inquiry: When revenue remain static, but the marketing expense of company has drastically increased compared to next year. (b) S.no.Audit riskResponse to risk 1.Risk related to purchase order.Inspectingpurchaseinvoice,good receipt notes. 2.Risk regarding refurbishing expenses of £16.5m. Conductinganalyticalprocedureand analyse refurbishing expenses. 3.Risk related to Bank loan of £27.5m.Seeking explanation from management regarding the bank loan approval from bank through inquiry. 4.Riskrelatedtoonlinebookingon website (DRAFT, 2019). Seeking explanation from management regarding why they have not mentioned any record of online booking on website. 5.Risk related to workforce redundantObservingthenumberofemployees reduce by company.
Question 5 (a) Difference between internal and external audit function are as follows: BasisInternal auditExternal audit Audit purpose The internal audit is done to analyse or improvethe organizationalgoal and performance. Toexpressopiniononthetruthand fairness of financial statement. Audit focusToenhanceandprotect organizational value. Toverifytheregulatorycompliance within company. Audit scopeOrganizational operationsFinancial records Primary audience ExecutivemanagementandBoard members. Investors,customers,publicinterests etc. (b) (i) Test of control: A test of control is an auditing procedure with the help of which the auditors can evaluate the internal control of company. For instance, Attending the wages pay out, to ensure wages are paid to valid employees only. (ii) Substantive procedure: This is an audit test which is designed by an auditor with the aim to evaluate the financial statement of the client. For instance, selecting a sample of employees from the payroll and check the hours paid to individualclockcard,toensurethatemployeesarepaidfortheworktheyhavedone (Koshiyama, Kazim and Treleaven, 2022). (c) The three procedure that an auditor should perform to review the overall financial statement are as follows: Analytical procedure: This is the procedure which is used to compare different account balance at the time of finalization. Substantive procedure: This is the procedure followed to evaluate the financial statement of the client.
Inquiry: To conduct inquiry over financial statement when accounting records show unusual account balance or transactions (Kumari and et.al., 2019).
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
REFERENCES Books and journals DRAFT,E.,2019.INTERNATIONALAUDITINGANDASSURANCESTANDARDS BOARD (IAASB). Kumar, S. and et.al., 2021. Research patterns and intellectual structure of Managerial Auditing Journal:aretrospectiveusingbibliometricanalysisduring1986-2019.Managerial Auditing Journal. Kumari, T. and et.al., 2019. A Comparative Study on Audit Quality Followed in India, UK & USA. Koshiyama, A., Kazim, E. and Treleaven, P., 2022. Algorithm auditing: Managing the legal, ethical, and technological risks of artificial intelligence, machine learning, and associated algorithms.Computer.55(4). pp.40-50. 1