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Types of audit programme: Standard and tailored

Types of audit programme: Standard and tailored

Basis	Standard audit programme	Tailored audit programme
Meaning	A prepared set of procedures commonly used for the same audit area across different clients.	A programme designed or adapted for a particular client’s operations, systems and risks.
When useful	As a starting point for routine areas with similar transactions and controls.	When the client has unusual transactions, significant changes or risks requiring specific attention.
Main advantage	Saves preparation time, promotes consistency and reminds staff to cover common audit objectives.	Directs staff towards the particular ways the client’s financial statements could be misstated.
Main limitation	Staff may follow it mechanically and overlook a risk specific to the client.	Requires more planning time and judgement. A programme developed from scratch may overlook routine work.
Example	An inventory programme instructs staff to select items from the year-end inventory listing and locate them in the warehouse to test existence.	After learning of a warehouse flood, the auditor adds procedures to identify damaged stock and assess whether its carrying amount should be reduced.

A firm can start with a standard programme and tailor it. The decision depends on what could go wrong at the particular client and whether the planned procedures would detect it.

Worked example | Jengka Furniture Sdn. Bhd.

During a warehouse tour, the auditor finds 40 water-damaged tables included in year-end inventory. Each table is recorded at RM500.

Programme step	Audit procedure	Assertion
Standard procedure	Select tables from the year-end inventory listing and physically locate them in the warehouse. Record the quantities found and any signs of damage.	Existence
Tailored procedure	Identify the 40 damaged tables on the inventory listing. Examine subsequent selling prices and estimated repair and selling costs to determine their net realisable value.	Valuation

Suppose the evidence supports a net realisable value of RM350 per damaged table. The required write-down is 40 × (RM500 − RM350) = RM6,000. The auditor then checks whether management recorded the adjustment.

The count answers “Are the tables there?” The additional procedure answers “Is RM500 per table still recoverable?” That second question explains why the programme needed tailoring.

Audit Programme

An audit programme is a written set of instructions describing the audit procedures the team plans to perform for a particular area, such as sales, inventory or trade receivables. It turns an audit objective into specific work that an auditor can carry out and a supervisor can review.

For example, “Test the completeness of sales” states an objective. An audit programme gives the instruction: “Select signed delivery notes for goods delivered before 31 December and trace them to the sales journal to check that all sales that should have been recognised were recorded.” The instruction identifies the documents, the direction of testing and the purpose.

What does an audit programme contain?

Element	What it tells the audit team
Objective and assertion	What the auditor wants to establish, such as whether recorded inventory exists.
Nature of the procedure	What the auditor will do and what evidence to examine, such as inspecting goods or obtaining a customer confirmation.
Timing and extent	When to perform the work and how many or which items to test, taking account of the assessed risk.
Responsibility and documentation	Who performs and reviews the work, when it was completed and where the results and conclusions are recorded.

An audit programme helps the team allocate work, cover identified risks and monitor completion. As the audit progresses, the team updates the programme if new information changes the risks or the evidence needed.

What is audit quality, and how is it measured?

Audit quality means the audit team performs its work competently and independently, obtains sufficient appropriate evidence and issues a report that fits the findings. The IAASB’s framework considers the inputs to the audit, the process followed and the outputs produced, alongside stakeholder interactions and the circumstances of the engagement. Audit quality therefore calls for several indicators interpreted together. IAASB

Area	Example of a measurable indicator	What the indicator helps assess
People and resources	Partner and manager hours spent on areas assessed as high risk.	Whether experienced staff devoted attention to difficult judgements. Hours alone say little about the quality of that attention.
Supervision and review	Proportion of significant audit areas reviewed before the report was signed.	Whether the team had time to challenge conclusions and obtain additional evidence where needed.
Evidence and judgement	File inspection findings on unsupported conclusions, including how often the same finding recurs.	Whether the work actually supports the opinion and whether the firm has addressed earlier weaknesses.
Communication	Time taken to communicate significant findings to the audit committee, together with a review of what was communicated.	Whether those responsible for oversight received clear information in time to act.
Reporting outcome	Whether an independent file review finds that the opinion issued was appropriate in the circumstances.	Whether the final report reflects the evidence and the significance of unresolved matters.

Classroom example. Two audit teams encounter the same RM3,000 interest difference. One writes “amount immaterial” without recording its cause. The other establishes that December interest was omitted, checks whether similar year-end expenses were missed and verifies management’s adjustment. Both teams might ultimately issue an unmodified opinion. The second file provides a stronger basis for assessing audit quality because a reviewer can follow the evidence, the judgement and the conclusion. 

Ownership and confidentiality

Ownership concerns who owns the records. Confidentiality concerns who may see or use the information. The audit firm generally owns its working papers, subject to applicable law or regulation. The client retains ownership of its original accounting records. For example, the company owns its sales ledger, while the firm owns the audit schedule documenting which sales it tested and what it found. micpa.com.my

The auditor must protect confidential information during and after the engagement. Disclosure requires proper authority, such as valid client authorisation where legally permitted, or an applicable legal or professional right or duty. mia.org.my

Situation	Appropriate treatment
A bank officer asks the auditor to email the client’s loan working papers.	The bank’s interest in the client does not itself authorise disclosure. The auditor checks whether a valid basis exists before releasing information.
An audit regulator lawfully requests specified working papers for an inspection.	The firm verifies the request and provides the required records through an authorised, secure channel.
An audit assistant wants to use a client’s payroll schedule in a class presentation.	The assistant can create a fictional example. Removing the company name alone may still leave employees identifiable from salaries or job titles.

Preparation of working papers

Under ISA 230, the auditor prepares documentation promptly and in enough detail for an experienced auditor with no previous connection to the engagement to understand the work. The reviewer should be able to identify what was tested, the results, significant judgements, who performed the work and who reviewed it. mia.org.my

What to record	Worked example for Jengka Furniture’s bank loan
Heading and reference	Jengka Furniture Sdn. Bhd. — Loan interest expense — Year ended 31 December 2026 — L2.
Objective and assertion	Determine whether the company recorded the correct interest expense for the year. The main assertion is accuracy.
Evidence and procedure	Inspect the signed agreement for the fixed rate of 6%. Check the loan statement to establish that RM600,000 was outstanding for the full year. Recalculate the interest and compare it with the ledger.
Result	Expected interest is RM600,000 × 6% = RM36,000. The ledger shows RM33,000, giving a difference of RM3,000.
Investigation and conclusion	The loan statement shows RM3,000 of December interest accrued and payable in January. Management records the adjustment. The auditor checks the revised ledger and concludes that it now agrees with the recalculation.
Preparation and review	Record the preparer’s name and completion date, the reviewer’s name, the date and extent of review, and references to the agreement, loan statement and adjustment.

A note saying “interest checked” leaves the reviewer unable to tell whether the auditor checked the rate, the principal, the period or only the arithmetic. Recording those details makes the conclusion reviewable.

Current audit file

The current file contains the planning, testing, evidence and conclusions for one financial year. It shows how the audit team reached its opinion for that year.

Stage	Examples of current-file contents
Planning	Current-year audit strategy, risk assessment, materiality calculation and audit programme.
Fieldwork	Trial balance, inventory test counts, bank confirmations, sales cut-off tests and schedules of audit differences.
Completion	Evaluation of uncorrected misstatements, management representation letter, final financial statements and signed auditor’s report.

One loan, two files. For the audit at 31 December 2026, the five-year agreement belongs in the permanent file. The bank confirmation at 31 December 2026, the 2026 interest calculation and the auditor’s conclusion on the closing balance belong in the current file. The interest working paper can cross-reference the agreement so the reviewer can find the rate used.

Permanent files

Audit working papers are the records of what the auditor tested, the evidence obtained and the conclusions reached. For example, a bank confirmation provides evidence of a loan balance. The auditor’s working paper shows how that balance was compared with the ledger, how any difference was investigated and what the auditor concluded. mia.org.my

The permanent file contains information that remains useful across several annual audits. The auditor reviews it each year and updates documents when circumstances change.

Typical contents	Why the auditor keeps them
Incorporation documents and the company constitution, if adopted	To understand the company’s legal structure and relevant shareholder rights.
Group structure and ownership information	To identify subsidiaries, controlling parties and relationships relevant to the audit.
Long-term loan and lease agreements	To refer to repayment terms, interest rates, security and other obligations across financial years.
Descriptions of the accounting system and major business processes	To understand how the company processes transactions and identify changes since the previous audit.

Example. Jengka Furniture Sdn. Bhd. signs a five-year bank loan. The auditor keeps a copy of the signed agreement in the permanent file because its terms affect several audits. If the bank changes the interest rate, the auditor adds the signed amendment and records its effective date.

Tests of details of account balances and disclosures

A balance test examines an amount at a particular date. A disclosure test examines whether the notes contain the required information and describe it accurately. The same document can support both purposes. standards.xrb.govt.nz

Item tested	Assertion	Example of a substantive test
Trade receivables balance	Existence	Obtain direct confirmation from selected customers of the balances they owed at 31 December. Investigate differences between replies and the ledger.
Inventory balance	Valuation	For damaged tables, compare recorded cost with the expected selling price less repair and selling costs. Determine whether a write-down is required.
Trade payables balance	Completeness	Select payments made after year-end and inspect the supplier invoices and goods received notes. Where the company received the goods before year-end, check that it recorded the liability at 31 December.
Loan disclosure	Completeness and accuracy of disclosure	Inspect the signed loan agreement for assets pledged as security. Compare those terms with the loan note in the financial statements.

Exam application: Suppose an auditor inspects a supplier invoice. If the auditor checks whether the purchasing manager performed the required approval, the purpose is to test a control. If the auditor checks whether the company recorded the correct amount in the correct period, the purpose is to test the transaction directly. A strong exam answer identifies the action, the evidence examined and the purpose.

Tests of details of classes of transactions

These tests examine individual transactions during the year, such as sales, purchases and wages. The auditor selects the starting document according to the assertion being tested. mia.org.my

Assertion	Example of a substantive test
Occurrence of sales	Select entries from the sales journal and vouch them to customer orders and signed delivery notes to establish that the recorded sales occurred.
Completeness of purchases	Select goods received notes for timber deliveries and trace them to supplier invoices, the purchases journal or year-end accruals to determine whether the purchases were recorded.
Accuracy of wages	For selected employees, agree hours worked to approved timesheets and hourly rates to employment records. Recalculate gross pay and compare it with payroll.
Cut-off of sales	Inspect delivery records immediately before and after 31 December, check when control passed under the sales terms and compare that date with the accounting period used.

Analytical procedures

The auditor uses a plausible relationship to develop an expected figure, compares it with the recorded figure and investigates significant differences. During audit planning, this can identify an area of risk. When used as a substantive procedure, the auditor needs reliable data, a sufficiently precise expectation and a basis for deciding which differences require investigation. standards.xrb.govt.nz

Worked example. Jengka Furniture rents out a warehouse for RM5,000 per month. The auditor inspects the signed tenancy agreement and verifies that the tenant occupied the premises for all 12 months at the same rate. Expected rental income is RM60,000, but the ledger shows RM50,000. The RM10,000 difference warrants investigation. The auditor examines invoices, correspondence and any rent concession agreement to determine whether the company omitted two months’ income or had a valid reason to record a lower amount.

Substantive procedures

Substantive procedures directly address possible misstatements. They comprise substantive analytical procedures and tests of details. Tests of details can examine individual transactions during the year, balances at year-end and disclosures in the notes to the financial statements. 

Tests of controls

The auditor tests controls when planning to rely on their operating effectiveness, or when substantive procedures alone cannot provide sufficient appropriate audit evidence. The auditor obtains evidence about how the control worked during the relevant period. Enquiry alone is ordinarily insufficient. standards.auasb.gov.au

Control used by Jengka Furniture Sdn. Bhd.	How the auditor tests the control
Credit approval. The credit manager must approve orders exceeding a customer’s credit limit before dispatch.	Select orders that exceeded the limit during the period. Inspect the approval record and compare the approver’s identity and approval time with the dispatch record.
Completeness of invoicing. Each week, a supervisor investigates deliveries for which no invoice has been issued.	Select weeks across the year, reperform the matching of delivery notes to invoices and inspect how the supervisor resolved the unmatched items.
Review of bank reconciliations. The finance manager reviews the monthly reconciliation and follows up long-outstanding items.	Select reconciliations from different months. Inspect the dated review and evidence that the manager investigated outstanding items. A signature alone gives limited evidence of what the review covered.

If the auditor finds that the supervisor repeatedly skipped the weekly review, the auditor investigates the cause, reassesses reliance on that control and adjusts further testing. For example, the auditor may trace more deliveries around year-end to the sales records to look for omitted revenue. 

Tests of controls vs substantive tests

Basis	Tests of controls	Substantive procedures
Main question	Did the client’s control operate effectively during the period being tested?	Is there a material misstatement in a transaction, balance or disclosure?
What the auditor examines	How the control was performed, who performed it, when it was performed and whether exceptions were resolved.	The recorded amount, date, transaction, balance or information disclosed in the financial statements.
Example using one invoice	Inspect evidence that the supervisor matched the invoice to the signed delivery note before posting and followed up any difference.	Compare the invoice with the signed delivery note and agreed selling price. Recalculate the amount to test the recorded sale.
Possible finding	The required review was skipped. This is a control deviation.	The company invoiced 25 tables when it delivered only 20. This is a misstatement.

A missing review can occur even when the invoice amount is correct. The control deviation affects how much the auditor can rely on the review. A misstatement affects the reported figure and requires the auditor to evaluate its financial statement impact.

Terms used in audit procedures

An audit procedure is an action the auditor takes to obtain evidence. Its purpose determines whether it is a test of controls or a substantive procedure. For example, an auditor can inspect the same sales invoice to answer two different questions: Did the supervisor perform the required check? and Did the recorded sale actually occur? standards.auasb.gov.au

Term	Meaning	Example
Inspect or examine	Read a document or examine a physical asset.	Inspect a loan agreement to identify the interest rate, repayment dates and assets pledged as security.
Vouch	Start with an item in the accounting records and work back to supporting evidence. This commonly tests occurrence or existence.	Select a sale from the sales journal and vouch it to the customer’s order and signed delivery note to establish whether the sale occurred.
Trace	Start with a source document or physical item and follow it into the accounting records. This commonly tests completeness.	Select signed delivery notes and trace them to the sales journal to find completed deliveries that the company may have omitted.
Agree	Compare a specific detail in one record with the corresponding detail in another.	Agree the quantity on the sales invoice to the quantity on the signed delivery note.
Recalculate, cast or cross-cast	Recalculate means check the arithmetic. Cast means add a column. Cross-cast means check totals across rows.	Recalculate 20 tables × RM500, then cast the invoice lines to check the total charged.
Reconcile	Compare two records, identify differences and establish what explains them.	Reconcile the bank statement balance to the cash book and examine the items explaining the difference.
Observe	Watch someone carry out a procedure.	Observe how warehouse staff mark furniture after counting it to prevent double counting.
Enquire	Ask a knowledgeable person for information and obtain supporting evidence where necessary.	Ask the credit controller why a customer has stopped paying, then inspect correspondence about the disputed invoices.
Confirm	Obtain a direct written response from an external party.	Ask a customer to confirm directly to the auditor how much it owed at 31 December.
Reperform	Independently repeat a procedure or control originally performed by the client.	Repeat the supervisor’s matching of delivery notes to invoices and compare the exceptions identified.
Scan	Look through records for unusual items that merit further investigation.	Scan the December sales journal for unusually large entries, then inspect the documents supporting those entries.

Why direction matters: If a delivery was never invoiced, it will be missing from the sales journal. Starting with the delivery notes gives the auditor a chance to find it. Starting with the sales journal helps the auditor investigate whether the sales already recorded are genuine.

Types of audit evidence and how auditors obtain them

An audit procedure is what the auditor does. Audit evidence is the information the procedure produces. For example, sending a confirmation request is the procedure. The customer’s direct written reply is the evidence. ISA 500 groups physical examination and examination of documents under inspection. They are shown separately below because students use them differently in practice. mia.org.my

Procedure	What the auditor does	Practical example
1. Physical examination	Inspects a tangible asset to obtain evidence about its existence or condition.	Select 15 tables from the inventory list, locate them in the warehouse and inspect them for damage.
2. Inspection of documents and records	Examines paper or electronic records for information relevant to an assertion.	For a December sale, inspect the contract and signed delivery note to determine whether the company recorded revenue in the correct period.
3. External confirmation	Obtains a direct written response from an external party.	Ask a customer to confirm the amount owed at 31 December and arrange for the reply to come directly to the auditor.
4. Observation	Watches another person perform a process or control. The evidence relates to what happened while the auditor was present.	Watch warehouse staff count inventory and observe how they mark items already counted to avoid double counting.
5. Enquiry	Asks knowledgeable people for information and follows up important explanations with supporting evidence.	Ask why damaged tables are still recorded at full cost, then check recent selling prices and repair estimates.
6. Recalculation	Independently checks mathematical accuracy.	Recalculate an invoice for 20 tables at RM500 each and compare the result of RM10,000 with the recorded amount.
7. Reperformance	Independently carries out a procedure or control that the client originally performed.	Repeat the supervisor’s weekly matching of delivery notes to invoices and compare the missing invoices identified with the supervisor’s findings.
8. Analytical procedures	Develops an expectation using relationships between figures, compares it with the recorded result and investigates significant differences.	Gross profit margin rose from 25% to 38% while timber costs increased and selling prices remained stable. Investigate whether product mix changed, costs were omitted or sales were recorded too early.

Exam application: If the question asks for an audit procedure, name the action, the item or document and the purpose. For example: “Select signed delivery notes issued before 31 December and trace them to the sales ledger to test whether all completed deliveries that qualified as sales were recorded.” This identifies the starting point, the direction of testing and the completeness assertion.

Persuasiveness of audit evidence

Persuasiveness means how convincingly the evidence, taken together, supports a specific audit conclusion. It depends on both sufficiency and appropriateness. Evidence from an independent source, obtained directly by the auditor and supported by other records, will generally be more persuasive. The circumstances and the assertion being tested still matter. mia.org.my

Suppose Jengka Furniture records RM30,000 owing from a customer at 31 December.

Evidence obtained	What it supports
The sales manager says, “The customer owes us RM30,000.”	This gives the auditor an explanation to follow up. It comes from the company and requires corroboration.
The customer replies directly to the auditor and agrees that RM30,000 was outstanding at year-end.	This provides stronger evidence of the existence of the receivable at 31 December. mia.org.my
The auditor matches the customer’s January payment of RM30,000 to the year-end invoices and the bank statement.	This supports valuation or recoverability because the auditor can see that the company collected the outstanding amount.

If the customer confirms RM20,000 while the ledger shows RM30,000, the auditor investigates the RM10,000 difference. A payment in transit, a disputed invoice or a sale recorded in the wrong period would each call for different follow-up evidence. 

Sufficient appropriate audit evidence

Audit evidence is the information an auditor uses to reach a conclusion and support the audit opinion. It includes accounting records and information from other sources, such as a customer’s confirmation, a signed delivery note or the auditor’s own inventory count. mia.org.my

Sufficiency concerns the quantity of evidence. Appropriateness concerns its quality, which depends on two things: whether the evidence addresses the audit question (relevance) and whether the auditor can depend on it (reliability). mia.org.my

Concept	Question the auditor asks	Example at Jengka Furniture Sdn. Bhd.
Sufficiency	Have I obtained enough evidence, considering the risk and the quality of the evidence available?	Sales rose sharply in the final week of December. The auditor examines more year-end transactions and gives particular attention to large or unusual sales.
Relevance	Does this evidence address the particular assertion I am testing?	To test completeness of sales, the auditor selects signed delivery notes and traces them to the sales ledger. This can reveal deliveries that the company omitted from sales.
Reliability	How dependable is the evidence, given its source and how I obtained it?	To test existence of a receivable, a written reply received directly from the customer generally carries more weight than a verbal assurance from the sales manager.

Example: The auditor inspects 100 tables in the warehouse. This provides evidence that the tables exist. If the question is whether the company owns them, inspecting another 100 tables still leaves ownership unresolved. The auditor needs different evidence, such as purchase records or consignment agreements. This illustrates why obtaining more evidence cannot make up for poor relevance. 

Determine whether an auditor’s expert is needed

What the auditor does

Consider whether a material issue requires knowledge outside accounting or auditing. If an expert is used, the auditor evaluates the expert’s competence, capabilities and objectivity, agrees on the scope of work and assesses whether the findings provide suitable audit evidence.

Example and audit implication

Management uses a valuer to estimate the fair value of its factory building. If the valuation is material and complex, the auditor may engage a separate property valuation specialist to assess the market data and assumptions. The auditor remains responsible for the audit opinion

Identify related parties and their transactions

What the auditor does

Ask management about related parties, inspect ownership records and board minutes, and examine significant or unusual contracts. Identify the relationship, transactions and outstanding balances so the auditor can assess any required disclosures.

Example and audit implication

A Jengka Furniture director also controls the transport company that delivers its furniture. The auditor examines the transport agreement, checks the delivery charges and year-end amount payable, and assesses whether the financial statements disclose the relationship and transactions as required.

Understand the client’s industry and business

What the auditor does

Study both the industry conditions affecting the client and the business arrangements that determine how those conditions affect this particular company.

Example and audit implication

Timber prices have risen across the industry. Jengka Furniture sells under fixed-price contracts, so its gross profit margin would normally come under pressure. If its reported margin rises instead, the auditor investigates possible explanations, including whether all timber costs were recorded.

Tour the client’s facilities

What the auditor does

Visit the factory, warehouse and dispatch area. Observe how staff receive materials, store goods and record deliveries. Ask employees to explain what happens when something goes wrong.

Example and audit implication

During the warehouse tour, the auditor notices water-damaged tables stored with finished goods. Their condition raises a valuation concern. The auditor identifies the affected items and checks whether their expected selling price, after repair and selling costs, supports their recorded value.

Gain a better understanding of the client

What the auditor does

Identify the company’s owners, directors, main products, customers, locations and sources of finance. Ask management what has changed since the previous year and examine supporting records.

Example and audit implication

Jengka Furniture earns 60% of its sales from one retailer. The auditor learns that the retailer has started paying late. This directs attention to receivables valuation: how much of the outstanding balance can the company realistically collect?

Assessing and documenting the understanding of internal controls

To understand a process, the auditor combines enquiry, observation and inspection. A useful technique is a walkthrough: select one actual transaction and follow it from the point it began to its entry in the accounting records. For a credit sale, the auditor might follow a customer order through credit approval, dispatch, invoicing and posting to the sales ledger. A walkthrough gives evidence about design and implementation. Evidence of consistent operation throughout the year requires further work when the auditor intends to rely on the control. standards.xrb.govt.nz

Documentation method	What the auditor records	Example
Narrative description	A written account of who performs each step, which documents are used and how exceptions are resolved.	“Every Friday, the accounts supervisor compares the dispatch register with the invoice listing and follows up on deliveries that have no invoice number.”
Flowchart	The movement of transactions, documents and information between people or departments.	A sales flowchart shows where the warehouse sends delivery information to accounts and where the supervisor checks for unbilled deliveries.
Internal control questionnaire (ICQ)	Answers to questions about specific controls, with notes on the evidence examined.	“Who checks that every delivery has been invoiced?” The auditor records the supervisor’s name or role and the weekly report inspected.
Risk and control matrix	The link between a possible misstatement, the relevant assertion, the company’s control and the auditor’s assessment.	The auditor links unbilled deliveries to completeness of revenue, identifies the weekly review and records whether it has been implemented.

Worked examination example

During a walkthrough, the auditor finds that accounts staff check invoices for the correct selling price, but nobody checks whether every delivery has been invoiced. Identify the weakness, its effect, a recommended control and a test of that control.

Required point	Suggested answer
Weakness	No one reconciles completed deliveries to sales invoices. The price check covers only invoices that staff have already prepared.
Possible effect	Goods may be delivered without a sale being recorded. Revenue and trade receivables may be understated. The main assertion affected is completeness.
Recommended control	Each week, an accounts supervisor should match completed delivery notes to invoices, investigate unmatched deliveries and document how each exception was resolved.
Test of control	Once the control is in use, select weeks across the period, inspect evidence of the supervisor’s review, repeat selected matches and verify that the supervisor followed up on exceptions.

Evaluation of internal controls

The auditor evaluates a control by asking three different questions. The evidence needed depends on the question. standards.xrb.govt.nz

Stage	Auditor’s question	Application to the weekly review
1. Evaluate design	If staff perform the control as intended, can it prevent, or detect and correct, the misstatement?	To detect missing sales, the review must start with the delivery records and look for the corresponding invoices. Starting with invoices already issued would miss a delivery that was never invoiced.
2. Determine implementation	Has the company actually put the control into use?	The auditor asks the supervisor to demonstrate the review, inspects a completed weekly report and traces an exception to the action taken. Enquiry is supported by documentary evidence.
3. Test operating effectiveness, when required	Did the control work consistently during the period on which the auditor intends to rely?	The auditor selects weekly reports from different parts of the year, checks who reviewed them and when, and inspects whether staff investigated exceptions. The auditor may independently repeat selected matches.

The auditor tests controls when planning to rely on their operating effectiveness, or when substantive procedures alone cannot provide sufficient appropriate evidence. If testing reveals that the supervisor frequently skipped the weekly review, the auditor reassesses reliance and may perform more direct testing. For example, the auditor can trace additional year-end deliveries to invoices and the sales ledger to look for omitted sales.

Components of internal control

The five components describe how the control system works as a whole. The following examples show how each component contributes to recording credit sales completely. standards.xrb.govt.nz

Component	Question it answers	Example
1. Control environment	What example does management set, and who is accountable?	Management gives the warehouse responsibility for dispatch and the accounts department responsibility for invoicing. Supervisors also have authority to investigate missing documents, even during busy periods.
2. Entity’s risk assessment process	How does management identify and assess what could go wrong?	Before opening a second warehouse, management identifies a risk that delivery notes from the new location may reach accounts late or go missing.
3. Control activities	What specific actions address the identified risks?	The company uses sequentially numbered delivery notes. Each week, a supervisor reviews a report of deliveries without invoices and assigns outstanding items for investigation.
4. Information system and communication	How is relevant information captured and passed to the people who need it?	When warehouse staff confirm delivery, the system sends the delivery note number, customer name and quantity to accounts so that staff can prepare the invoice.
5. Monitoring of controls	How does management know whether the controls continue to work?	Each month, the finance manager checks whether supervisors completed the weekly reviews and whether unresolved items are recurring at the same warehouse.

A useful distinction is control activity versus monitoring. The supervisor who investigates an unbilled delivery is performing the control. The finance manager who checks whether supervisors consistently carry out those reviews is monitoring the control.

Objectives of internal control

Objective	What it means	Practical example
Effective and efficient operations	Help the company use its resources properly, meet operating targets and safeguard assets.	Warehouse staff release furniture only against an authorised dispatch document. This reduces the risk of theft or delivery to the wrong customer.
Reliable reporting	Produce complete, accurate and timely information for management and financial statement users.	Accounts staff match delivery notes to sales invoices so that all completed deliveries that qualify as sales are recorded in the correct period.
Compliance with laws and regulations	Help the company meet its applicable legal and regulatory obligations.	A payroll officer prepares a schedule of statutory deductions. A supervisor checks the amounts and confirms that payment is made by the applicable deadline.

Controls can serve more than one objective. For example, restricting access to the warehouse safeguards inventory and helps maintain reliable inventory records. They provide reasonable assurance because mistakes, collusion and management override can still occur.

Management’s and auditor’s responsibilities

Party	Responsibility	Example at Jengka Furniture
Management	Designs, implements and maintains internal controls. Assigns duties, reviews exceptions and corrects weaknesses.	The finance manager requires accounts staff to match each delivery note to an invoice. A supervisor reviews outstanding deliveries each week and follows up on missing invoices.
Those charged with governance	Oversee management’s approach to internal control and follow up on significant weaknesses. This role may be performed by the board or audit committee.	The audit committee asks why deliveries repeatedly went unbilled and requests evidence that management’s corrective action has worked.
External auditor	Obtains an understanding of relevant controls, assesses the risk of material misstatement and designs audit procedures in response. The auditor tests operating effectiveness when required and communicates significant deficiencies identified during the audit.	The auditor examines how the weekly review works. If planning to rely on it, the auditor tests whether the supervisor performed the review and followed up on exceptions during the period. www.icaew.com

Exam distinction: If the question asks for a control, describe what the company does. If it asks for a test of controls, describe what the auditor does to obtain evidence that the control operated effectively.

Internal control

Internal control is the system of policies, procedures and actions a company uses to give it reasonable assurance that it can achieve its objectives. In everyday terms, a control is something the company does to prevent a problem, detect it, or ensure someone corrects it.

Consider Jengka Furniture Sdn. Bhd., a fictional company that sells furniture on credit. A warehouse employee delivers 20 tables, but the delivery note never reaches the accounts department. The customer receives the tables without being invoiced. A weekly check that matches delivery notes to invoices would help the company detect the missing sale. This example connects all five topics below.

Obtaining the Client’s Legal Information

During audit planning, the auditor examines documents that establish who owns and controls the company, what decisions it has authorised, and what rights and obligations it has. These documents help the auditor identify transactions, balances and disclosures that may need closer examination.

Three common sources are the company’s incorporation and constitutional documents, minutes of meetings, and significant contracts. Using Jengka Furniture Sdn. Bhd. as an example:

Legal document or source	What the auditor looks for	Practical example
1. Incorporation records and company constitution, if adopted	The company’s registered identity and any provisions affecting share rights or decision-making.	The company has issued two classes of shares. The auditor reads the terms attached to each class and checks whether the share capital note describes those rights correctly.
2. Statutory registers and company secretarial records	Changes in directors, shareholders and shares issued during the year.	The register of members shows that the company issued new shares in June. The auditor agrees the issue to the relevant resolution, checks the proceeds against bank records and traces the amount to share capital.
3. Minutes of directors’ and shareholders’ meetings	Decisions about borrowings, asset purchases, dividends, guarantees and legal disputes.	The board approved the purchase of a delivery lorry in December. To determine whether the lorry belongs in the year-end accounts, the auditor checks the purchase agreement, invoice and delivery date. The minutes provide evidence of approval.
4. Significant contracts and agreements	Terms that affect when to record revenue, assets, liabilities or expenses. Examples include sales, purchase, lease and loan agreements.	A sales contract states that control of furniture passes to the customer on delivery. The company invoiced the customer on 29 December and delivered the furniture on 3 January. The auditor uses both documents to test sales cut-off.
5. Title deeds and security documents	The company’s rights over assets and whether it has pledged any assets as security.	The factory title identifies the company as the registered owner. A bank agreement also shows that the factory secures a loan. The auditor checks both the company’s rights to the property and the disclosure of the security.
6. Legal correspondence and claims	Existing or potential disputes that may require a provision or disclosure in the financial statements.	A customer claims RM150,000 for defective furniture. The auditor examines the claim, considers the lawyer’s assessment and evaluates whether management’s accounting treatment is appropriate. The amount claimed may differ from the amount the company expects to pay.

Classroom application

The board minutes dated 20 December state that Jengka Furniture approved a RM500,000 bank loan. The bank released the funds on 5 January. The company’s year-end is 31 December.

Is the board resolution alone sufficient evidence to record RM500,000 as a year-end borrowing? No. The resolution establishes that the board authorised the borrowing. The auditor should inspect the signed loan agreement, bank confirmation and evidence of drawdown to determine when the obligation arose. If the facility was undrawn at 31 December and the principal became payable only upon drawdown, the company would record the RM500,000 borrowing in January.

Client business risk

Client business risk is the possibility that an event or condition prevents the company from achieving a business objective. The auditor then considers whether that business problem could cause a material misstatement in the financial statements. The connection is easiest to see by identifying the affected account and explaining how it could be wrong. mia.org.my

Client business risk	Possible financial statement misstatement	Relevant audit response
A major retailer is struggling to pay. The company may lose cash it expected to collect.	Trade receivables may be overstated if the allowance for doubtful debts is too low.	Review the aged receivables report, inspect payments received after year-end and assess management’s allowance.
A furniture design has gone out of fashion. The company may have to offer steep discounts.	Inventory and profit may be overstated if the company continues to carry the furniture at full cost.	Inspect the condition of the goods and compare their cost with recent selling prices, after allowing for selling costs.
The company is under pressure to meet a sales target. Managers may have an incentive to record sales early.	Revenue and receivables may be overstated if January deliveries are recorded as December sales.	Test deliveries around year-end against customer acceptance records, contract terms and sales entries.

Classroom application. During the factory tour, an auditor sees 40 damaged tables. Which assertion should the auditor investigate first?

Suggested answer: Valuation. The auditor has seen the tables, which provides evidence of existence. The damage raises a different question: can the company recover their recorded cost? The auditor should inspect the damage and compare the carrying amount with the expected selling price after repair and selling costs.

Knowledge of the client’s business and industry - Business operations and processes

Business operations and processes. The auditor also studies what happens inside the company. A walkthrough means following one transaction through the process, asking the employees involved what they do and inspecting the records they use. For example, the auditor follows a customer order from approval to delivery, invoicing, posting and collection.

Business process	Documents the auditor may inspect	What could go wrong?
Purchasing and receiving timber	Purchase order, goods received note and supplier invoice	Timber received in December is recorded only when the invoice arrives in January, understating year-end payables.
Production and storage	Production orders, job cost sheets and inventory records	The company counts the same batch as both work in progress and finished goods.
Sales and delivery	Customer order, delivery note and sales invoice	The company records a December sale even though control passes to the customer in January.
Collection from customers	Bank statement, remittance advice and customer ledger	The company receives payment but credits the wrong customer’s account.

Knowledge of the client’s business and industry — Industry and external environment

Industry and external environment. The auditor asks what is happening outside the company that could affect its operations or accounts. Two furniture manufacturers may face the same increase in timber prices but experience different effects because one can raise its selling prices while the other has fixed-price contracts. Understanding the client’s circumstances helps the auditor interpret its financial results. mia.org.my

External factor	Possible effect on the client	Audit question
Falling demand for a furniture design	Older models accumulate in the warehouse.	Can the company still sell those models for enough to recover their carrying amount?
Exchange rate changes	The ringgit amount needed to settle foreign-currency supplier invoices changes.	Were outstanding foreign-currency payables translated using the appropriate year-end rate?
Financial difficulties among retailers	Customers take longer to pay.	Does the allowance for doubtful debts reflect the risk of non-payment?

Balance-related audit objectives

Balance-related objectives concern what the company owns or owes at a particular date. Suppose Jengka Furniture reports inventory of RM100,000 at 31 December. The auditor needs evidence about the goods, the company’s rights to them and the amount reported. standards.xrb.govt.nz

Objective	Question the auditor asks	Example of an audit procedure
Existence	Are the goods on the inventory list physically present?	Select tables from the inventory list and locate them in the warehouse.
Completeness	Has the company included all inventory that should be recorded?	Select tables in the warehouse and trace them to the inventory list. Follow up on any missing item.
Rights and obligations	Does the company have rights to the recorded goods? For a liability, does the company owe the amount?	Inspect supplier agreements to establish whether timber held in the warehouse belongs to the company or is held on consignment for a supplier.
Accuracy, valuation and allocation	Are the quantities, unit costs and carrying amounts appropriate?	Recalculate quantity × unit cost. For damaged tables, compare cost with the estimated selling price less the costs needed to complete and sell them.
Classification	Has the company placed the goods in the correct category?	Check whether unfinished tables are classified as work in progress and completed tables as finished goods.
Presentation	Does the company present and disclose inventory appropriately?	If inventory is pledged as security for a bank loan, inspect the loan agreement and check the relevant disclosure.

Two textbook terms help students describe specific tests. Detail tie-in means checking that the detailed inventory listing adds up and agrees with the general ledger. Realisable value focuses on recoverability. For example, if a finished table costs RM500 and its net realisable value has fallen to RM350, the required write-down is RM150. A listing can add up correctly even when the goods are overvalued.

Transaction-related audit objectives

Transaction-related objectives concern what the company recorded during the financial year, such as sales, purchases, wages and cash receipts. Suppose Jengka Furniture records a credit sale of 20 tables at RM500 each, totalling RM10,000. Each objective asks a different question about that sale. mia.org.my

Objective	Question the auditor asks	Example of an audit procedure
Occurrence	Did the recorded sale actually take place?	Select the RM10,000 entry from the sales journal and inspect the customer’s order and signed delivery note.
Completeness	Did the company record all sales that should have been recorded?	Select signed delivery notes and trace them to the sales journal. Investigate a completed delivery with no corresponding sales entry.
Accuracy	Did the company record the correct quantity, price and amount?	Agree the 20 tables to the delivery note and RM500 to the agreed price. Recalculate the invoice as 20 × RM500 = RM10,000.
Cut-off or timing	Did the company record the sale in the correct financial year?	Examine deliveries immediately before and after 31 December. If the contract transfers control on delivery and the customer received the tables on 3 January, the sale belongs in January.
Classification	Did the company record the transaction in the correct account?	Check that sales of furniture appear as trading revenue and that proceeds from selling an old delivery van are recorded separately.
Presentation	Does the financial statement presentation clearly explain the transaction and any required disclosure?	Review how the company describes its revenue and check that the description is consistent with its sales arrangements.

Posting and summarisation is another objective commonly used in textbook exercises. For the RM10,000 credit sale, the auditor can check that the amount was posted to the correct customer’s account and that the sales journal total agrees with the general ledger.

Obtain client's information background

An auditor studies the client’s business to answer three questions: How does the company make money? What could go wrong in its financial statements? What evidence would help the auditor find out? Understanding the business helps the auditor identify risks and choose procedures that address them. mia.org.my

The examples below use Jengka Furniture Sdn. Bhd., a fictional Malaysian company that buys timber, manufactures furniture and sells it on credit to retailers. The page numbers follow your textbook outline.

1. Obtaining background information about the client

Planning activity	What the auditor does	Example and why it matters
1. Understand the client	Identify the owners, directors, main products, customers, locations and sources of finance. Read prior financial statements, board minutes and major agreements, and discuss changes with management.	Jengka Furniture earns half its revenue from one retailer. If that retailer is struggling financially, the auditor considers whether the company can collect the amount owed.
2. Tour the client’s facilities	Visit the factory, warehouse and dispatch area. Observe how goods move and ask staff how they record each movement.	The auditor sees damaged tables stored alongside finished goods ready for sale. This raises a valuation question: has management reduced the carrying amount of the damaged tables where necessary?
3. Understand the industry and business	Learn about external conditions affecting the industry and how the company purchases, produces, sells and collects payment.	Timber prices have risen, but the company’s selling prices are fixed under contract. The auditor considers the effect on margins and investigates any unexpected increase in reported gross profit.
4. Identify related parties	Ask management about related parties and transactions with them. Inspect ownership records, board minutes and significant contracts for relationships management may have overlooked.	A director controls a transport company that delivers the furniture. The auditor examines the delivery charges, year-end balance and whether the financial statements disclose the relationship and transactions as required. AUASB Local
5. Determine whether an expert is needed	Decide whether the audit requires knowledge outside accounting or auditing. Assess the expert’s competence, capabilities and objectivity, agree on the work and evaluate the results.	Management revalues the factory building. The auditor may engage a property valuer to assess the valuation assumptions. The auditor remains responsible for the audit opinion. AUASB Local

Reasons for changing auditors

Changes in professional appointment means a company replaces its existing auditor with a new auditor.

Dalam Bahasa Melayu: Pertukaran pelantikan profesional, iaitu pertukaran daripada juruaudit sedia ada kepada juruaudit baharu.

The new auditor is called the proposed or incoming auditor, while the previous auditor is called the existing or outgoing auditor.

Reasons for changing auditors

Reason	Example
Audit fee disagreement	The client considers the existing auditor’s proposed fee too high.
Need for different expertise or resources	The company expands overseas and requires an audit firm with an international network.
Service concerns	The client is dissatisfied with delays in completing the audit.
Disagreement over accounting treatment	Management refuses to write down obsolete inventory as requested by the auditor.
Auditor’s resignation	The existing auditor decides to discontinue the engagement because of concerns about management’s integrity.

Responsibilities of the proposed auditor before accepting

The proposed auditor should investigate the circumstances of the change, including communicating with the existing auditor about relevant professional matters. This helps the proposed auditor make an informed acceptance decision. www.at-mia.my

Step	Explanation	Example
1. Ask the client why the change is proposed	Understand the reason and identify possible concerns.	Management says the previous auditor was “too strict”. The proposed auditor investigates what this means.
2. Obtain the client’s permission to communicate	Seek authorisation for the existing auditor to discuss relevant matters.	The client provides written permission for professional communication.
3. Communicate with the existing auditor	Ask whether there are professional or other reasons relevant to accepting the appointment.	Enquire about accounting disagreements, access restrictions or concerns about management’s honesty.
4. Evaluate the information received	Consider its effect on client acceptance, independence and the ability to perform a proper audit.	The existing auditor explains that management withheld important records.
5. Decide whether to accept	Accept only after the relevant concerns have been satisfactorily considered.	Decline if serious concerns about management’s integrity remain unresolved.

If the client refuses permission to communicate, the proposed auditor should carefully consider that refusal when deciding whether to accept. It is a warning sign requiring investigation, rather than automatic proof of wrongdoing. www.icaew.com

Practical example

ABC Sdn. Bhd. wants to replace Ali & Co. with Bakar & Co.

Ali & Co. had discovered obsolete inventory requiring a RM80,000 write-down. Management refused because the adjustment would reduce profit.

Before accepting, Bakar & Co. should communicate with Ali & Co., with appropriate authorisation, and assess the disagreement. The concern is that management may be seeking an auditor who will accept an inappropriate inventory value.

Key examination point: Communication with the outgoing auditor helps the incoming auditor identify matters affecting acceptance. The incoming auditor makes its own acceptance decision; it is not simply asking the outgoing auditor for permission to act.

Management assertions

Meaning: Management assertions are the explicit or implicit claims management makes through the financial statements.

In Malay: Asersi pengurusan ialah dakwaan atau pernyataan pengurusan tentang maklumat dalam penyata kewangan.

Auditors use assertions to identify what could be wrong and select appropriate procedures to test it. mia.org.my

A. Assertions about transactions and events during the year

The following categories also cover related disclosures. mia.org.my

Assertion	Simple meaning	Illustrative example	Possible audit procedure
Occurrence	Recorded transactions actually happened and relate to the company.	A recorded RM10,000 sale represents a genuine sale to a customer.	Examine the invoice, customer order and delivery evidence.
Completeness	All transactions that should be recorded are included.	All goods delivered to customers have been recorded as sales.	Trace delivery documents to the sales records.
Accuracy	Transaction amounts and details are correctly recorded.	Ten units sold at RM100 each are recorded as RM1,000.	Recalculate the invoice and check the agreed price.
Cut-off	Transactions are recorded in the correct accounting period.	A sale meeting recognition requirements in January is not recorded in December.	Examine transactions and delivery terms around year-end.
Classification	Transactions are recorded in the appropriate accounts.	A delivery van purchase is recorded as an asset rather than a repair expense.	Examine invoices and the account used.
Presentation	Transactions and related disclosures are clearly and appropriately presented.	Revenue categories and related explanations are understandable.	Review the financial statements and relevant disclosures.

B. Assertions about account balances at year-end

These categories also cover related disclosures. standards.xrb.govt.nz

Assertion	Simple meaning	Illustrative example	Possible audit procedure
Existence	Recorded assets, liabilities and equity interests actually exist.	Inventory shown in the records is physically present.	Select items from the inventory listing and inspect them.
Rights and obligations	The company has rights to its assets and responsibility for its liabilities.	Goods held on behalf of a supplier are excluded from the company’s own inventory.	Examine purchase documents and consignment agreements.
Completeness	All balances that should be included have been recorded.	All amounts owed to suppliers at year-end are included.	Examine subsequent payments for unrecorded liabilities.
Accuracy, valuation and allocation	Balances are recorded at appropriate amounts, with necessary adjustments.	Obsolete inventory is written down where required.	Compare cost with net realisable value and inspect ageing reports.
Classification	Balances appear in the appropriate accounts or categories.	The portion of a loan due within the next year is classified appropriately.	Review the loan agreement and repayment schedule.
Presentation	Balances and related disclosures are clearly and appropriately presented.	Information about assets pledged as security is properly disclosed.	Examine agreements and compare them with the financial statement notes.

One simple inventory example

Management reports inventory of RM100,000. The auditor considers several different questions:

• Existence: Are the goods actually there?
• Rights: Do they belong to the company?
• Completeness: Has any inventory been left out?
• Valuation: Is RM100,000 the appropriate carrying amount?

Remember: Seeing the goods provides evidence of their existence, but does not by itself prove ownership or correct valuation. Different assertions require different supporting evidence.

Objectives of a financial statement audit

The auditor’s overall objectives are to:

1. Obtain reasonable assurance that the financial statements as a whole are free from material misstatement, whether caused by fraud or error.
2. Express an opinion on whether the financial statements are prepared, in all material respects, according to the applicable financial reporting framework.
3. Report and communicate as required by the auditing standards. mia.org.my

Key term	Simple explanation	Example
Reasonable assurance	A high level of assurance, but not a complete guarantee.	The auditor obtains persuasive evidence but cannot promise that every mistake has been identified.
Material misstatement	An error or omission significant enough to influence users’ decisions, considering its size or nature.	Omitting a major loan could mislead a bank assessing the company’s financial position.
Audit opinion	The auditor’s conclusion on the financial statements based on the evidence obtained.	The auditor concludes whether the statements give a true and fair view under the applicable framework.

Example: A company reports a profit of RM200,000 but omits expenses of RM300,000. Correcting the omission would change the reported profit into a loss of RM100,000. This could substantially affect investors’ or lenders’ decisions.

An audit opinion does not guarantee the company’s future survival or the effectiveness of management’s business decisions.

Fraud and error

Fraud and error are a separate topic, although either may become relevant when investigating a change of auditor.

Aspect	Fraud	Error
Meaning	An intentional act involving deception.	An unintentional mistake.
Key distinction	Deliberate.	Accidental.
Example	Creating fictitious sales invoices to inflate revenue.	Accidentally recording an RM5,400 invoice as RM4,500.
Another example	Stealing cash and altering records to conceal the theft.	Overlooking a depreciation calculation.

Management, with oversight from those charged with governance, has primary responsibility for preventing and detecting fraud. The auditor seeks reasonable assurance that the financial statements contain no material misstatements caused by fraud or error. Fraud can be harder to detect because it may involve concealment, collusion or management overriding controls. mia.org.my

Student takeaway: Fraud is intentional; error is unintentional. Both can cause material misstatements.

Changes in professional appointments

Meaning: This occurs when a company replaces its existing auditor with another auditor.

The proposed auditor should investigate the reasons for the change and communicate with the existing auditor through the appropriate professional process before deciding whether to accept. MIA highlights this communication as an important part of client acceptance. Malaysian Institute of Accountants (MIA)

Action	Explanation	Example
Ask why the auditor is being changed	Establish whether the reason is routine or raises concerns.	The company needs a firm with more branches, or it disagrees with an accounting adjustment.
Seek permission for communication	Arrange appropriate authorisation to discuss relevant client matters with the existing auditor.	The client authorises the previous auditor to respond to professional enquiries.
Communicate with the existing auditor	Enquire about matters relevant to accepting the appointment.	Ask about disagreements, restricted access to records or concerns about management’s integrity.
Evaluate the information	Consider whether identified matters affect independence, integrity or the ability to perform the audit.	Management previously refused to correct a significant overstatement of inventory.
Decide whether to accept	Make and document an informed acceptance decision.	The firm declines because serious integrity concerns remain unresolved.

If the client refuses permission for communication, the proposed auditor should carefully consider that refusal when deciding whether to accept. icaew.com

Example: ABC Sdn. Bhd. changes auditors because the previous auditor insisted on recognising an impairment loss. The proposed auditor should investigate whether management is seeking an auditor who will accept inappropriate accounting.

Important distinction: A change of auditor does not automatically mean fraud has occurred. There may be legitimate commercial or operational reasons.

Engagement letter

Meaning: An engagement letter records the agreed terms of the audit between the auditor and the client.

ISA 210 requires the agreed terms to be documented in an engagement letter or another suitable written agreement, subject to limited exceptions where legislation sufficiently prescribes those terms. mia.org.my

Main content	Explanation	Example
Objective and scope	Identifies the purpose and coverage of the audit.	Audit of the financial statements for the year ended 31 December 2026.
Auditor’s responsibilities	Explains the auditor’s role in obtaining reasonable assurance and expressing an opinion.	Perform audit procedures and issue an independent auditor’s report.
Management’s responsibilities	Explains management’s responsibility for preparation, internal control and access to information.	Prepare the financial statements and provide complete accounting records.
Applicable reporting framework	Identifies the framework used to prepare the financial statements.	MFRS or MPERS, as applicable.
Expected report	Describes the expected form and content, while acknowledging that circumstances may require a different report.	The opinion may be modified if a material issue remains unresolved.
Other practical arrangements	May cover fees, timing and communication arrangements.	Agreed fee basis and planned completion date.

The first five areas reflect the principal terms required by ISA 210; practical arrangements may also be included. mia.org.my

Example: Management expects the auditor to prepare the accounts and guarantee that every fraud will be detected. The engagement letter clarifies the respective responsibilities and the limitations of an audit, helping prevent this misunderstanding.

Student takeaway: The engagement letter explains what both parties agree to do. It can form the contract governing their relationship, subject to applicable law.

Scope of audit work

Meaning: Audit scope describes the coverage of the audit, including the financial statements, reporting period and work needed to support the audit opinion.

An auditor obtains sufficient appropriate evidence to reduce audit risk to an acceptably low level. The work focuses on matters that could materially affect the financial statements. mia.org.my

For a retail company, illustrative audit work may include:

Area	Example of audit work	Purpose
Sales	Examine invoices and delivery records.	Assess whether recorded sales actually occurred.
Inventory	Attend the physical inventory count and perform test counts.	Obtain evidence about inventory quantities and condition.
Bank balances	Obtain bank confirmations and examine bank reconciliations.	Obtain evidence about recorded bank balances.
Trade payables	Examine subsequent payments and supplier documents.	Identify liabilities that may have been omitted.
Financial statement disclosures	Review the notes accompanying the financial statements.	Assess whether relevant information is adequately presented and disclosed.

Example of a scope limitation: Management refuses access to inventory records. The auditor must consider the effect on obtaining evidence and the audit report. Management cannot simply exclude an important area while expecting an opinion on the complete financial statements.

Pre-planning: Client acceptance

Meaning: Before accepting an audit, the audit firm evaluates whether it should work with the client and whether it can perform the audit properly.

The main considerations include management’s integrity, compliance with ethical requirements, and the firm’s competence, time and resources. Malaysian Institute of Accountants (MIA)

Consideration	Explanation	Practical example
Management’s integrity	Consider whether management is honest and willing to provide reliable information.	A director asks the auditor to ignore unrecorded sales. This raises serious concerns about accepting the client.
Independence	Identify relationships or interests that could compromise the auditor’s objectivity.	The proposed audit partner owns shares in the client. The independence issue must be resolved before proceeding.
Competence	Assess whether the team has the knowledge and skills needed.	An audit of an insurance company requires knowledge of specialised transactions and estimates.
Time and resources	Determine whether sufficient staff and time are available to complete a quality audit.	A large company requests completion within three days, but the firm has only two available staff.
Reasons for changing auditors	Find out whether the change involves disagreements or other professional concerns.	The previous auditor questioned unusually high inventory values, and management immediately sought another auditor.
Audit preconditions	Establish whether the reporting framework is acceptable and management acknowledges its responsibilities, including providing access to information.	Management agrees to prepare the financial statements and provide records, explanations and access to relevant employees.

Management’s acceptance of these responsibilities forms part of the basis for accepting the audit under ISA 210. www.icaew.com

Student takeaway: Client acceptance asks, “Should we accept this client, and can we audit it properly?”

Minggu 11- MODUL 10: INSTITUSI SOSIAL DALAM PEMBUDAYAAN INTEGRITI DAN ANTIRASUAH

MODUL 10: INSTITUSI SOSIAL DALAM  PEMBUDAYAAN INTEGRITI DAN ANTIRASUAH 

1. Pembudayaan integriti dan antirasuah 
2. Peranan institusi keluarga
3. Peranan institusi agama
4. Peranan institusi pendidikan
5. Peranan institusi media

Modul 

1. Nota Pelajar
2. Nota Pensyarah

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