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assurance.
2
AUDIT PROCEDURES (EVIDENCE Recalculation Consists of Extending
GATHERING TECHNIQUES) checking the sales
arithmetical invoices and
Technique Definition Examples
Inquiry Consists of Obtaining accuracy of inventory,
seeking written or source adding
information of oral documents journals and
knowledgeable information and subsidiary
persons inside from the accounting records,
or outside the client in records or checking the
entity. response to performing calculation
specific independent of
questions calculations. depreciation
during the expense and
audit. prepaid
Observation Consists of Observation expense.
looking at a by the Reperformanc Consists of Use CAATs
process or auditor of e independent to check
procedure the counting execution of controls
being of procedures or recorded in
performed by inventories controls that the
others. by entitys were originally database.
personnel, performed as Reperform
site visit at part of the aging of
the clients entitys internal accounts
facilities. control. receivable.
Inspection Consists of Reviewing Confirmation Consists of Used to
examining sales orders, response to an confirm the
records, sales inquiry to existence of
documents, or invoices, corroborate accounts
tangible shipping information receivable
assets. documents, contained in and
bank the accounting accounts
statements, records. payable,
customer verify bank
return balances
documents, with banks,
customer cash
complaint surrender
letters, etc. value of life
3
insurance, Tracing is an audit procedure whereby
notes the auditor selects sample items from
payable with basic source documents and proceeds
lenders or
forward through the accounting system
bondholders.
Analytical Consist of the Calculating to find the final recording of the
procedures analysis of trends in transaction (e.g. in the ledger).
significant sales over
ratios and the past few
Recalculation and Reperformance
trends years,
Recalculation consists of checking the
including the comparing
arithmetical accuracy of source
resulting net profit as
documents and accounting records or
investigation a percentage
of fluctuations of sales in of performing independent calculations.
and current year Re-performance is the auditors
relationships with the independent execution of procedures or
that are percentage controls that were originally performed
inconsistent of the as part of the entitys internal control,
with other preceding
relevant year,
Reliability and Cost of Audit
information or comparing
that deviate client current Procedures
from ratio to the assuming good internal controls and the
predictable industry ability to choose a specific method, a list of
amounts. current ratio, the most reliable to the least reliable
and
evidence-gathering techniques are
comparing
recalculation,
budgets to
inspection,
actual
reperformance,
results.
observation,
through the accounting system to find order of cost from costliest to least costly
receivable is typical of the confirmation unless all of the following are present: 1
process. First the auditor either decides to the assessed level of inherent
provide a reasonable basis for drawing that controls are less effective
conclusions about the population (e.g., than they actually are, or in the
the auditor must identify and assess the rationale (or lack of rationale) for the
risks associated with related party transactions suggests that they may
outside the entitys normal course of auditor should also determine if the
The auditor may identify fraud risk that the transactions have been
10.11 Notes
1
Ibid ISA 505. External Confirmation. Paragraph 15.
2
IFAC. 2012. International Standards on Auditing 530 (ISA 530). Audit Sampling. Paragraph 4. .Handbook of
International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements Part 1 2012
Edition. International Federation of Accountants. New York.
3
IFAC. 2012. International Standards on Auditing 540 (ISA 540), Auditing Accounting Estimates, Including Fair
Value Accounting Estimates, and Related Disclosures. Handbook of International Quality Control, Auditing, Review,
Other Assurance, and Related Services Pronouncements Part 1 2012 Edition. International Federation of Accountants,
New York.
4
IFAC. 2012. International Standards on Auditing 230 (ISA 230), Audit Documentation. Paragraphs 9-11 and A6.
Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services
Pronouncements Part 1 2012 Edition. International Federation of Accountants. New York.
5
Uncorrected misstatements Misstatements that the auditor has accumulated during the audit and that have not been
corrected.
6
IFAC. 2012. International Standards on Auditing 450 (ISA 450). Evaluation of Misstatements Identified
during the Audit. Paragraph 3. Handbook of International Quality Control, Auditing, Review, Other Assurance,
and Related Services Pronouncements Part 1 2012 Edition. International Federation of Accountants, New York.
7
Ibid. ISA 230, Audit Documentation. paragraphs 811, and A6
8
IFAC. 2012. International Standards on Auditing 700 (ISA 700), Forming an Opinion and Reporting on Financial
Statements. paragraphs 10-15. Handbook of International Quality Control, Auditing, Review, Other Assurance, and
Related Services Pronouncements Part 1 2012 Edition. International Federation of Accountants. New York.
9
Ibid. ISA 230. Audit Documentation. paragraphs 811, and paragraph A6
10
IFA., 2012. International Standards on Auditing 580 (ISA 580), Written Representations. paragraph 10.
Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services
Pronouncements Part 1 2012 Edition. International Federation of Accountants. New York.