The External Institutions of Corporate Governance: regulators, markets, auditors and others

Topics: Auditing, Financial audit, Audit Pages: 5 (900 words) Published: April 23, 2014
The relationship of audit techniques, audit procedures and assertions Audit technique - are the basic tool or means employed to obtain audit evidences. Audit procedures - are the application of audit techniques.

Assertions – are representation of management as to the fairness of the financial statements.

Audit Procedures


Counting of inventory, cash securities, unmatured, promissory note (to establish existence and where applicable, ownership and condition of assets).

Physical Existence


Obtaining confirmation directly of details of account balances (to verify validity and accuracy of balances and other information with outside parties).

Existence; rights and obligations


Obtaining client’s representation letter; explanation to many diverse questions raised during the audit (to obtain knowledge).


Examine, Inspect, review, trace, verify and vouch

Examining (or vouching) paid checks, vendor’s invoices, approved client documents (voucher; purchase orders, receiving reports) titles, contracts and other documentary materials (to verify the validity and propriety of accounting treatment of transaction and account balances and compliance with internal control).

Occurrence, measurement

Observe, Test and Verify

Observing the taking of physical inventories by the client’s personnel; of actual operation of internal control (to determine compliance with prescribed procedures).


Extend Foot

Rechecking clerical determination by client (to verify the accuracy of computation and transfer of information made by client).


Compare, Trace

Comparing current period account balances or operating data with similar information for prior periods and investigation of unusual data relationship (to disclose and determine the reason for significant changes).


Analytical Review

Compare sales with sales budget.


Deciding the number of item to Audit

The author must decide the extend of testing or the number of items to audit. For example when auditing cash receipts, an auditor may decide to examine every cash disbursement or only a sample of them. The sufficiency of the evidence needed determines the number of items to test.

Timing of Testing
Another decision that the auditor must make is when to perform each audit procedures.

Year-end work – audit procedures performed between year-end and completion of audit. For example confirming accounts receivable at December 31 for a client with a December 31fiscal year-end.

Interim work – audit procedures performed before year-end. For example confirming accounts receivable one month before year-end.

The auditor should consider the following in deciding whether and when to perform interim work in a particular account balance The internal control associated with the account,
How rapidly business condition might change,
Management’s predisposition to misstate the financial statements and the potential impact of such misstatement on the account , and The predictability of the account balances at year-end.

Timing of test of controls
The auditor shall test controls for the particular time, or throughout the period for which the auditor intends to rely on those controls in order to provide an appropriate basis for the auditor’s intended reliance. When the auditor obtains evidence about the operating effectiveness of control during an interim period, the auditor shall: Obtain audit evidence about significant changes to those controls subsequent to the interim period; and Determined the additional audit evidence to be obtained for the remaining period. When using audit evidence obtained in previous audit, the auditor should consider the following The effectiveness of other elements of internal control, including the control environment, the entity’s...
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