Immersing in audit

  Auditors do not normally examine all the information available to them, as it would be impractical to do so. Auditors may select items for testing by following means : (a) Selecting all items (100% examination). (b) Selecting specific items; and (c) Audit sampling . The application of any one or combination of these means depends on the particular circumstances, for example, the risks of material misstatement related to the assertion being tested, and the practicality and efficiency of the different means. Selecting all items Auditors are unlikely to test 100% of tests of controls; however, it is more common for tests of details. 100% examination may be appropriate when, for example:   ● The population constitutes a small number of large value items.  ●   There is a significant risk and other means do not provide sufficient appropriate audit evidence; or   ● The repetitive nature of a calculation or other process performed automatically ...

  What does   “Analytical procedures” mean   and when do auditors use it? “Analytical procedures” is one of the audit procedures used to obtain audit evidence. It is applied practically at all stages of the audit. The term “Analytical procedures” means evaluations of financial information through analysis of plausible relationships among both financial and non-financial data. Analytical procedures could be designed using the comparisons of the entity’s financial information with: ·         Comparable financial information for prior periods. ·         Projected results of the entity, such as budgets or forecasts, or expectations of the auditor, such as an estimation of depreciation. ·         Similar industry information, such as a comparison of the entity’s ratio of sales to accounts receivable with industry averages or with other entities of comparable size in t...

  Opening balances is particularly important matter for the initial audit engagements. If auditors enter the initial audit engagement, they must audit financial statements opening balances. Opening balances are account balances that exist at the beginning of the period. Opening balances are based on the closing balances of the prior period and reflect the effects of transactions and events of prior periods and accounting policies applied in the prior period. Opening balances also include issues requiring disclosure that existed at the beginning of the period, such as contingencies and commitments. There exist two situations relating to the opening balances when assigning to the initial audit engagement: ·         The financial statements for the prior period were not audited . ·         The financial statements for the prior period were audited by a predecessor auditor. If the financial statements for the...

  ISA 501 deals with specific considerations by the auditor in obtaining sufficient appropriate audit evidence in respect to certain aspects of inventory, litigation and claims involving the entity, and segment information in an audit of financial statements. The ISA defines the audit procedures that should be performed in obtaining audit evidence regarding: (a) Existence and condition of inventory.  (b) Completeness of litigation and claims involving the entity; and (c) Presentation and disclosure of segment information in accordance with the applicable financial reporting framework.

  The preparation of a company’s financial statements may require ability in a field other than accounting or auditing. In such situations the company may employ or engage experts in these fields to obtain the necessary expertise for preparing of the financial statements. Management’s expert is an individual or organization possessing special experience and knowledge in a field other than accounting or auditing, whose work in that field is used by the company to assist in the preparation of the financial statements. The management`s expert expertise may be needed in the following fields: ·       The valuation of complex financial instruments, land and buildings, plant and machinery, jewelry, works of art, antiques, intangible assets, assets acquired, and liabilities assumed in business combinations and assets that may have been impaired. ·         The actuarial calculation of liabilities associated with insurance contr...

The ISA explains what constitutes audit evidence in an audit of financial statements and deals with the auditor’s responsibility to design and perform audit procedures to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion. ISA 500 deals with objective and requirements relating to the audit evidence. Such requirements include: ·         Information to Be Used as Audit Evidence. ·         Means of selecting items for testing g to Obtain Audit Evidence. ·         Procedures in relation to inconsistency in, or doubts over reliability of, audit evidence.

  A company should disclose information ( operating segment information ) to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates. An operating segment is a component of a company: (a)     that engages in business activities from which it may earn revenues and incur expenses. (b)    whose operating results are regularly reviewed by the company’s chief operating managers to make decisions about resources to be allocated to the segment and assess its performance, and (c)     for which separate financial information is available.   The requirements to disclose operating segment information apply to: (a)     t he separate or individual financial statements of the company ·         whose debt or equity instruments are traded in a public market. · ...

  External confirmation is audit evidence obtained as a direct written response to the auditor from a third party (the confirming party), in paper form, or by electronic or other medium. External confirmation is considered reliable audit evidence in relation to such assertions as Existence, Completeness, Rights and Obligations. External confirmation procedures are used to test the account balances and their elements, the terms of agreements, contracts, or transactions between an entity and other parties, about the absence of certain conditions (for example, “side agreement”). There exist two types of external conformation: Positive confirmation request – A request that the confirming party respond directly to the auditor pointing out whether the confirming party agrees or disagrees with the information in the request. Negative confirmation request – A request that the confirming party respond directly to the auditor only if the confirming party disagrees with the informa...