Auditing Process and Its Authentication

This study provides a detailed review and explanation about auditing process and its authentication. It covers auditing ethics, legal responsibilities & issues for an auditor, audit planning, collecting evidence, risk assessment and controls with substantial testing.

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Audit

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Table of Contents
Introduction:....................................................................................................................................3
Task 1...............................................................................................................................................4
Task 2...............................................................................................................................................5
Task 3...............................................................................................................................................6
Task 4...............................................................................................................................................8
Task 5...............................................................................................................................................9
Conclusion.....................................................................................................................................10
References......................................................................................................................................11

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Introduction:
This study will provide you a detailed review and explanation about auditing process and its
authentication. This reading will be based on the professional practice of auditory procedure
which commences with an introduction to compliance and assurance in regards to the audit
process. It will provide knowledge of changes in the auditing profession and its assurance
aspects in the regulatory organization. A perfect discussion will be provided regarding auditing
ethics and legal responsibilities & issues for an auditor. The whole report is related to auditing
process and its legal liabilities. This report contains different audit information like audit
planning, collecting evidence, risk assessment and controls with substantial testing. Readers will
be provided with the substantial move of “Hands-on” experience in this case study of Auditing
Practice.

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Business Report possessing major five issues:
To,
Senior Auditor,
Task 1
According to ISA 200 overall motives of the free and independent audit and its conduction as per
requirement in International Standards on Auditing justifies the overall purpose of Audit report
and enhancement of the degree of compliance and assurance in the financial statement.
Judgments and clarification regarding the materiality of Trial balance and another financial
statement whether it would be individual and aggregate can be exactly accepted with the reason
of influence to the internal and external users in the light of financial surrounding and
acceptance.
In the situation 1, preliminary assessment of materiality has been shown around $15,000 in the
financial report of the company, which could be appropriate if Auditor does acts wisely in such
circumstances during preparing auditing report with the initial assessment of materiality which
could be reassessed. In this situation, the past history of misstatement might be detected during
the audit and their assessment of materiality of a financial report which could be based on audit
risk, it is needed to be considered by the auditor the amount of $15,000 based on 5% of total
materiality to be appropriate. It is important for the Auditor to determine lower but specific
amount of materiality in the financial report (for particular balance accounts) & defining the
class of transactions and qualitative disclosures. So this amount of $15,000 considered as
materiality can be appropriate when misstatement in these areas would be considered at the level
of specific materiality.

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Effects of changes in the preliminary assessment of materiality:
If the auditor considers that the changes in preliminary assessment of materiality are required,
then such changes in the group materiality would be taken as changes in the level of items and
balanced account in the financial statements. In such cases, it would not be followed that the
materiality in particular balance amount would be higher in a group materiality. When it is
determined that the changes in items are needed then it will need to communicate with other
members as soon as possible and group materiality will be determined better than lower
materiality. Sometimes changes in materiality would arise through misstatement identified in the
financial statement. So such changes affect the materiality of accounts balance in the financial
report when determining the number of items materiality mentioned in the financial report.
Task 2
Analytical review of auditing procedure consists of an analysis of financial ratios, which are
based on relationship and fluctuation. It includes investigation related to changes occurred in the
amount and value of changing trends which are related to the deviation of predicted amounts. In
the situation given in issue 2, auditor refers trend analysis in the case to compare current balance
with previous year balance to diagnose whether the balance of current accounts would be
changed compared to a previous year from the establishment of trend analysis (Kassem and
Higson 2012).
Trend analysis is used to evaluate percentage deviations in the current account over the base of
previous years’ accounts. If the differences would be negative, it refers to decreasing trend
analysis and if it will positive, it indicates a positive sign of increment in trend analysis. Here
presents the auditing analysis report of year 2015 and 2016.

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Particulars 2016 2015 Increase/decrease % Change
Cash in hand 85,000 80,000 5,000 (increase) 6.25%
Account receivable 118,340 111,000 8,340 (increase) 7.51%
Sales 78,750 187,450 -108,700 (decrease) -5.79%
Net income 35,480 75,600 -40,150 (decrease) -5.31%
Task 3
It can be observed that four accounts appearing in the statement of profit and loss or income
statement need to properly adhere. These accounts are sales, cost of sales, cash at bank and
inventory (Ivers, et. al. 2012). Also, these four accounts constitute the major proportion of the
financial items as mentioned in the trial balance. Also, these items constitute or are part of
operational activities and thus all these accounts requires proper attention and due care. Proper
audit procedures should be formulated in relation to these special items so that error or fraud
committed in relation to these financial items can be easily determined. The assertion related to
these items can vary depending on the prevailing situation and scenario. The widely applied
assertion can be associated with significance. Thus, significance level needs to be properly
addressed in such a manner that true and fair view of final accounts can be obtained and an
unbiased auditor opinion can be gained. This will help all the financial stakeholders interested in
the business affairs to take the correct and appropriate decisions accordingly.
Particulars Jul 1, 2016 - Nov
30, 2016
Jul 1, 2015 - June 30,
2016
Cash at 85,000 80,000

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Bank
Inventory 187,500 174,000
Sales 78,750 187,450
Cost of
sales
28,958 63,595
Following the bar graph will help to gain an understanding of trend analysis in relation to these
four financial items. It can be observed that out of these four financial items, inventory is the
major component during the period July 1 to 30th Nov 2016. However, during the period of July
1, 2015, to June 30, 2016, sales is the highly valued financial item followed by inventory. In
relation to inventory valuation can be one assertion. On the other hand, in relation to sales,
classification can be an assertion. Completeness can be assumed to be an assertion in relation to
cost of sales. Lastly, in relation to cash at a bank or bank balances, existence (physical
verification or checking the bank statement) can be an assertion. However, it is important to note
that choosing assertion and accordingly applying audit procedure totally depends on the skills
and expertise level of the auditor (Louwers, et. al., 2015).

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Task 4
Audit procedure explains the steps and procedures that need to be followed while conducting or
performing the audit. It is essential to consider and decide upon the audit procedures at the audit
planning phase itself. This will help to determine the areas and their audit procedures that will be
applied during the conduct of the audit. Also, such audit procedures need to be properly
communicated to all the persons who are part of the audit team since they are the responsible
persons who will perform and accordingly apply the audit procedures (Alabede, 2012). To obtain
audit evidence in relation to such audit procedures, the person responsible or handling such
financial items need to be cross-checked and an attempt should be made to obtain all the relevant
information from them. This will help to identify the possibility of fraud or error that may exist
in relation to such activities. In relation to inventory, physical verification can be audit
procedures. Talking about the cost of sales, ensuring completeness can be audit procedure.
While, checking the accuracy of sales figure can assume to be audit procedure in relation to
sales, tallying bank balance with bank statement will be appropriate audit procedure in relation to
cash at bank (Jelic, 2012).
Besides, different audit techniques need to be applied in relation to such financial items. Such
audit techniques should be flexible enough so that later on these audit technique can be modified.
Task 5
The opinion of the auditor is not tenable since fraud risk factors are equally important and should
be considered throughout the audit plan and programme (Khaddash, et. al., 2013). Such fraud
risk factor is the most influential factor affecting or influencing the level of audit risk as well as
the tolerance risk. Ignorance of fraud risk factors will not help to conduct the audit in the desired

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manner. It is the primary responsibility of every auditor to check each and every financial item
considering the materiality and relevance of items.
It is also important to consider the fact that the auditor’s judgment should be independent and
should not get influenced by the opinions and views of others (Dhara, Kumar, and Roy 2015).
Therefore, the auditor cannot skip his or her responsibilities by just saying that the officers and
personnel of the auditee (concerned business enterprise) are honest and that he relies on them.
Being an auditor, he should perform his duties with due reasonable care and taking into
consideration of applicable professional ethics and auditing standards.

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Conclusion
Throughout the report, it has been observed that audit is the most integral component of any
business entity and thus all the business enterprises need a proper audit and every form and type
of business enterprise need to conduct an audit. As such whether profit-oriented and non-profit
organizations need to perform the audit. However, it is important to consider the fact that all the
financial items do not require equal attention and for this purpose materiality and significance
level need to be considered. This will help to focus on core areas that require special attention so
that audit procedures can be framed and applied accordingly.

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References
Alabede, J.O., (2012) The Role, Compromise and Problems of the External Auditor in Corporate
Governance, Research Journal of Finance and Accounting.
Alles, M., Brennan, G., Kogan, A. and Vasarhelyi, M.A., (2018) Continuous monitoring of
business process controls: A pilot implementation of a continuous auditing system at Siemens,
In Continuous Auditing: Theory and Application, pp. 219-246.
Chan, D.Y. and Vasarhelyi, M.A., (2018) Innovation and practice of continuous auditing,
In Continuous Auditing: Theory and Application, pp. 271-283.
Dhara, S., Kumar, S., and Roy, B.C., (2015) Management of Solid Waste for Sustainability of
Steel Industry, International Journal of Technology Innovations and Research. 2(3), pp. 111-
113.
He, D., Zeadally, S. and Wu, L., (2018) Certificateless public auditing scheme for cloud-assisted
wireless body area networks, IEEE Systems Journal, 12(1), pp. 64-73.
Ivers, N., Jamtvedt, G., Flottorp, S., Young, J. M., Odgaard-Jensen, J., French, S. D., and
Oxman, A. D. (2012) Audit and feedback: effects on professional practice and healthcare
outcomes, Cochrane Database Syst Rev, 6(6).
Jelic, M., (2012) The impact of ethics on quality audit results, International Journal for Quality
research, pp. 23-27.
Kassem, R., and Higson, D. A., (2012) Financial Reporting Fraud: Are Standards’ Setters and
External Auditors Doing Enough?, International Journal of Business and Social Science.
Louwers, T. J., Ramsay, R. J., Sinason, D. H., Strawser, J. R., and Thibodeau, J. C. (2015)
Auditing & assurance services. USA: McGraw-Hill Education.