Audit $ Assurance

1. PA603
AUDITING & ASSURANCE
Bab 1: AUDIT APPROACH
NAME NO.MATRIK
SITI NADIRAH BINTI MOHD NIZAM 10DAT11F2004
SITI NURWAHIDA BT ABU BAKAR 10DAT11F1012
NUR AMALINA BINTI IZAHAR 10DAT11F2021
SHANMUGAPRIYA A/P HARIRAM 10DAT11F1023

2. 1.1 Understanding The Nature of Audit Approach
1.1.1 Discuss the Audit Approach step
1.1.2 Differentiate the types of audit approch
a. Interim Audit
b. Financial Audit
c. Compliance Audit
1.1.3 Determine The used of each type of Audit
Approach
1.1.4 Explain The uses of flowchart In Audit
Approch

3. STEP 1
• Adequately plan, control and record his work.
STEP 2
• Ascertain the entity’s system for recording and processing transactions
and assess the adequacy and reliability of the system.
STEP 3
• Obtain relevant and reliable audit evidence.
STEP 4
• If the auditor wish to rely on any internal controls, he should ascertain
and evaluate the internal controls and performs.(internal control..eg:
filing, punch card)
STEP
5
• Carry out a substantive review of the financial statements, and in
conjunction with the conclusion drawn from other audit evidence
obtained, to give him a reasonable basis for his opinion on the financial
statements.

4. INTERIM AUDIT
• To establish prove
the reliability and
completeness of the
accounting books
and records as a
basis for the
preparation of the
financial statement.
• Risk assessment
procedure and
planning analytical
procedure.
FINANCIAL AUDIT
• Substantive
procedure on the
financial statement
so as to enable the
auditor to give an
opinion on the
financial statements.
( True and Fairview)
• Determine whether
the overall financial
statement are
prepared in
accordance with
specific financial
reporting
framework.
COMPLIANCE AUDIT
• Audit to conform
whether a firm is
following the terms
of an agreement.
• Determine the extent
to which rules,
policies, laws,
covenants or
government
regulations are
followed by the
entity being audited.

5. INTERIM AUDIT
• To establish the
reliability and
completeness of the
accounting books
and records.
COMPLIANCE
AUDIT
• To confirm whether
a firm following the
term of an
agreement.
FINANCIAL AUDIT
• To carry out
substantive
procedures on the
financial statement
so as to enable the
auditor to given an
opinion on the
financial statement.

6. Flowcharts are a great
tool to use to visualize
complex systems
involved in an
organization and are
easier and less time
consuming for someone
to understand than a
narrative. By placing
everything in a visual
manner it will be easier
for an auditor to see the
redundancies and an
organization's system of
internal accounting
control.
EXAMPLE OF FLOWCHART

7. 1.2 Know The Types of Audit Test
1.2.1 Discuss each type of audit test
a. Vouching
b. Verifications
c. Test of Control
d. Substantive Test
e. Walk-through Test
f. Depth Test
g. Weakness test
h.Rotational test
1.2.2 Explain the uses and purpose of each type
of audit test

8. Audit Test
A procedure performed by either an external or
internal auditor in oder to assess the accurancy of
various fianancial statement assertions.
2 common catergorizations of audit tests are :
a) substantive test
b) test internal control

9. Type of Audit Test
Vouchin
g
 Vouching is a technical term, which refers to
the inspection of documentary evidence
supporting & substantiating a transactions, by
an auditor. It is the essence of Auditing
 It is the practice followed in an audit, with the
objective of establishing the authenticity of
the transactions recorded in the primary books
of account.

10.  As for verifications , auditors are
Verification
normally required to see that the
supporting document are verified while
auditing.
 sIs normally done by nominated person in the company which involves
reviewing, inspecting & checking to ensure that the documents conform
to specific requirements. On the other hand, there’s another physical
verifications which is done by the auditors themselves. This is an auditing
procedure whereby an auditor inspects the actual assets of the company to
make sure that they are the same with the written records.
 Are audit procedures performed to test
Test of control
the operating effectiveness of control
in preventing or detecting material
misstatements at the relevant assertion
level.
 An auditor might use inspections of documents, observations of specific
control, re- performance of the control, or other audit procedures to
gather evidence about control.

11. Substantive test
 Are those activities performed by the
auditor to detect material misstatements
or fraud at the assertions level.
 A procedure used during accounting audits to check for errors in the
balance sheets & other financial documentations. A substantive test might
involve checking a random sample of transactions for errors, comparing
acc. balance to find discrepancies,or analysis and review of procedures
used to execute and record transactions.
Walk- through test
 Is a procedure used during an audit of an entity’s accounting system to
gouge its reliability. Walk- though tests trace the transactions step-by-step
through the accounting system from its inception to the final disposition.
 Also known as a combination of observation, documentation and inquiry in
the form of a transactions walkthrough.
 Involve the tracing of a few transactions through the accounting system.

12. Depth test
 Involve the examinations of books of accounts in
depth. Such a system of checking is adopted in
big business houses, where detailed examination
of all the records in not possible. This system of
checking is undertaken with a view to check the
incidence of error and frauds in the books of
accounts.
 Also known as
“cardle-to-grave”
Weakness test
 Once the depth test is completed, the
auditor will be able to form a view
regarding the number of errors or
weaknesses noted in the depth test and
take the necessary action to ensure that an
adequate level of assurance is attained
 Also known as “additional
test”

13. Rotational Test
 An idea of the adequacy of the client’s internal control system can be
obtained from the previous year’s audit. The auditor needs to consider
whether there is a need to carry out rotational test and whether they should
be performed on selected areas only
 This technique is useful when the client company has a large number of
departments or branches.
 This test may be applied as long as the controls identified have not changed
since they were last tested and the assessed risk of material misstatement
as the assertion level is not significant.

14. The used & purposes of
Each Type of Audit Test

15. Purposes & uses of Vouching
Proper Evidence
The purpose vouching is to note that proper evidence is available for every entry.
This signatures, initials and rubber stamp are evidence that document has been
authorized and checked
Proper Authority
The purpose of vouching is to note that there is proper authority behind every
transactions. In the absence of any signature of manager the transaction are not
acceptable at all
Right Period
The purpose of vouching is to check that date of the vouchers relate to accounting
period. This adjustments in books are made on the basis of current year record of
transactions.
Correct Amount
The purpose of vouching to check that correct amounts have been recorded in the
entry. The vouching is useful to record only correct amount in the books or accounts.

16. Purposes & uses of
 Verifications The general objective to be achieved by audit verifications work is to
establish whether the financial statements present a true and fair view
 Verification means to obtain and examine evidence in respect of an
item assets that:
o The asset exists on a given date.
o The asset is legally owned by the concern.
o There are no unrecorded assets.
o The asset are disclosed, classified, and presented in accordance
with recognized accounting policies and the requirement of law
 Audit techniques that may be used physical inspection, observation
and confirmation.

17. Purposes & uses of Test of control
 The objective : to obtain evidence about the effectiveness of control to support
the auditor’s opinion on the company’s internal control over financial report
 Test of controls are usually “dual purpose”
[1] to test compliance with an entity’s designed internal controls, formal or
informal
[2] to “re-performed” certain accounting systems and internal control
procedures
Purposes & uses of Substantive test
 To reveal monetary errors or misstatements in the recording or reporting of
transactions and balances.
 To determine whether transactions-related audit objectives have been
satisfied
 Inspect supporting documents like invoices to confirm that sales did occur.
 Arrange for suppliers to confirm in writing the details of the amount owing at
balance date as evidence that accounts payable is a liability (right &
obligations)
 Make inquiries of management about the collectability of customers
accounts as evidence that trade debtors are accurate as to its valuations

18. Purposes & uses of Walk-Through test
PURPOSE: to establish reliability of client’s accounting & internal control
procedures & to reveal system deficiencies & material weakness that need to
be rectified at the earliest
USE:
 The auditors selects one or a few documents for the initiation of a
transaction type & traces them step by step through the entire accounting
process. The auditor is required to performs at least one walk through for
each major class or transactions.
 The walk through procedure, documentation of the internal control in
flow charts or internal control questionnaires, reading the general ledger
and consideration of the prior years control risk assessment may permit
an assessment of control risk in the current period that is less then high.

19. Purposes & uses of Depth Test
 To provide audit evidence to assist the auditor in arriving at his opinion where the
auditor is still unable to form an opinion from the results of the walkthrough test
and to confirm the accuracy client’s accounting system that involve only a small
number of transactions.
 To confirm the accuracy of clients accounting system (walk through checks)-
involve only a small number of transactions.
 To perform compliance test( the auditor may use a number of transactions, testing
the control in depth at each stage). Such test will provide evidence as to whether or
not he may rely upon that control in planning later audit work.
 To provide evidence of a substantive nature (to check that transactions have been
properly recorded in the accounting records or in the financial statements.

20. Purposes & uses of Weakness Test
PURPOSE: Is to establish whether material errors have in fact accrued ( if they have
an extended program of work on the verifications of associated asset will be carried
out)
USE:
 Additional test are done in view of the number of errors or weaknesses noted in
the depth test.
 Necessary in order to support conclusions drawn in a test of control that the level
of confidence or assurance required has been obtained.
Purposes & uses of Rotational Test
PURPOSE: is to improve audit approach efficiency, some firms rely to varying
degrees on controls tested in previous engagements. Controls are therefore tested on
a rotations basis.
USE:
 Where the system of internal control is known from past experience to be sound, it
is considered a useful technique to apply by carrying out tests on selected only.
 Where there is a large number of departments or branches, it is impractical to test
procedures at all departments or branches.

21. 1.3 Perform The Audit Procedures And Techniques
1.3.1 Explain the need of audit procedures and
audit techniques
1.3.2 Elaborate the audit procedures through :
a. Test of control
b. Analytical procedures
c. Substantive Procedures

22. The need of audit procedure and
audit techniques is to obtain an
audit evidence

23. Ascertainment the arithmetical
accuracy of the books of account by
checking posting, casting, cross
casting, carry forwards, opening and
closing balances etc.
Examining the documentary
evidences and the authority in
support of the transaction
Ensuring that information
disclosure is adequate in annual
financial statements and that it
conveys the real picture about the
asset, liabilities and operation
results.
Audit Procedures
Verification of existence,
owernership and title and value of
the assets and determination of
the extent and nature of liabilities.

24. Posting
checking
Casting
checking
Confirmation
Physical
verification
Audit techniques

26. Analytical Procedures
Analytical procedures are a form of audit evidence.
Analytical procedures are an important type of evidence on an audit. They involve a
comparison of recorded values with expectations developed by the auditor. They consists
of evaluations of financial information made by a study of plausible relationships
among both financial and nonfinancial data. For example, the current-year accounts
receivable balance can be compared to the prior-years' balances after adjusting for any
increase or decrease in sales and other economic factors.
There are three types of analytical procedures:
1. Preliminary analytical procedures
2. Substantive analytical procedures
3. Final analytical procedures
Auditing standards require that the auditor conduct analytical procedures in planning
the audit. Analytical procedures can be helpful in identifying the existence of unusual
transactions or events and amounts, ratios, and trends that might have implications for
audit planning.

27. Substantive procedure
Substantive procedures are intended to create evidence that an auditor assembles to support the
assertion that there are no material misstatements in regard to the completeness, validity, and
accuracy of the financial records of an entity. Thus, substantive procedures are performed by
an auditor to detect whether there are any material misstatements in accounting transactions.
Example of substantive procedure is
Bank confirmation
Accounts receivable confirmation
Inquire of management regarding the collectibility of customer accounts
Match customer orders to invoices billed
Match collected funds to invoices billed
Observe a physical inventory count
Confirm inventories not on-site
Match purchasing records to inventory on hand or sold
Confirm the calculations on an inventory valuation report
Observe fixed assets

28. The End