Audit Procedure
An audit procedure refers to the specific steps or actions performed by the auditor to obtain audit evidence and to determine whether particular audit objectives have been achieved.
In simple terms, audit procedures are the “how” of auditing—they explain what the auditor does to collect audit evidence.
Key Points about Audit Procedures
- Audit procedures are detailed instructions carried out during audit fieldwork.
- They are designed to obtain sufficient and appropriate audit evidence.
- Each procedure is linked to a specific audit objective or assertion.
- Audit procedures are documented in the audit programme.
Examples of Audit Procedures
- Inspect supplier invoices to verify purchases
- Observe cash handling procedures
- Confirm bank balances with the bank
- Inquire management about obsolete inventory
- Recalculate depreciation expense
- Perform analytical procedures to assess reasonableness of expenses
Audit Programme
An audit programme is a formal written plan that lists the audit procedures to be performed by the auditor in order to achieve specific audit objectives for a particular area of the financial statements.
In simple terms, the audit programme explains what audit work will be done, how it will be done, and by whom.
Key Features of an Audit Programme
- Contains a detailed list of audit procedures
- Prepared before and updated during the audit
- Guides audit assistants during fieldwork
- Ensures a systematic and consistent audit approach
- Serves as evidence that audit work has been properly planned and performed
Contents of an Audit Programme
Typically includes:
- Audit objectives
- Audit procedures to be performed
- Timing of procedures
- Extent of testing (sample size)
- Space to record results and conclusions
Purpose of an Audit Programme
- To ensure all necessary audit work is completed
- To avoid duplication or omission of audit procedures
- To facilitate supervision and review by seniors and partners
- To provide documentation and legal protection for the auditor
Relationship with Audit Procedures
Audit programme = the overall plan
Audit procedures = individual steps within the programme
An audit programme is a document that sets out the audit procedures to be carried out in a systematic manner to achieve audit objectives and support the auditor’s opinion.
Types of Audit Evidence & Audit Procedures
Audit evidence is obtained through audit procedures, which are specific actions performed by the auditor to collect evidence in order to meet audit objectives. Based on standard auditing practice and your Audit Planning 3B notes, there are seven main types of audit evidence, each linked to particular audit procedures.
PODCIAR
- Physical examination
- Observation
- Documentation
- Confirmation
- Inquiries of client
- Analytical procedures
- Recalculation & Re-performance
1. Physical Examination / Inspection
Inspection or counting of tangible assets to verify their existence and sometimes condition or valuation.
Examples (Audit Procedures):
- Counting petty cash on a surprise basis
- Verifying physical inventory (closing stock)
2. Observation
Using the auditor’s senses to watch processes or procedures being performed by the client.
Examples (Audit Procedures):
- Observing cash handling procedures
- Observing whether the storeroom is properly locked
3. Documentation (Inspection of Documents & Records)
Examining internal and external documents to support amounts in the financial statements.
Examples (Audit Procedures):
- Examining supplier invoices
- Reviewing contracts, vouchers, and receipts
(External documents are generally more reliable than internal documents.)
4. Confirmation (Third-party confirmation)
Obtaining a written response from an independent third party to verify balances or transactions.
Examples (Audit Procedures):
- Bank confirmation of cash balances
- Debtor confirmation of accounts receivable
(Types: Positive confirmation and Negative confirmation)
5. Inquiry
Seeking information from management or employees, either oral or written.
Examples (Audit Procedures):
- Inquiring about obsolete inventory
- Asking management about collectability of receivables
(Inquiry usually needs corroboration with other evidence.)
6. Analytical Procedures
Evaluating financial information through comparisons and relationships to identify unusual trends or variances.
Examples (Audit Procedures):
- Comparing expense ratios with prior years
- Analysing receivable turnover ratios
7. Recalculation & Re-performance
Recalculation: Checking the mathematical accuracy of records
Re-performance: Independently performing procedures originally done by the client
Examples (Audit Procedures):
- Recalculating depreciation expenses
- Recomputing invoice totals or accruals
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