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18 Cards in this Set
- Front
- Back
- 3rd side (hint)
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Audit Planning
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Audit Planning refers to the planning by the auditor, to enable them to conduct an effective audit, in an efficient and timely manner, and includes planning about area, scope, depth of transactions to be audited, time to be devoted, persons to be deployed for audit, etc.
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Audit Programme
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•Prof Meigs defines it as,"a detailed plan of the audit work to be performed, specifying the procedures to be followed, in verification of each item in the financial statements & giving the estimated time period".
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Timetable prepared to do the audit work within a specified period of time.
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Advantages of audit programme
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(1)Guidance to assistance
(2)No omission or repetition of work (3)Specific instructions regarding audit procedures (4)Delegation & supervision of work (5)Allocation & responsibilities of work (6)Evidence in court (7)Timely completion of audit (8)Flexible audit programme |
GN-SD-FATE
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Disadvantages of audit programme
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(1)Mechanical work
(2)Work to rule (3)Defence against deficiencies (4)Insufficient evidence in court (5)Rigid timetable (6)Fixed audit programme |
IF-MD-WR
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Working papers
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•Audit working papers are written records kept by the auditor, as regards evidence accumulated during the course of audit, methods, procedures followed & the conclusions drawn.
•These papers contain information about important facts & explanation of working notes, in connection with the accounts under audit. |
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Current file
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•It is a file which contains working papers of the year under audit.
• It should include the following documents: (1)A copy of the accounts (2)Audit programme (3)Details of audit tests performed (4)Extracts of minutes of meeting of the directors & shareholders (5)Queries raised during the course of audit (6)Official comments on the queries raised (7)Confirmation letters confirming accounts (8)Certificate for valuation of stock (9)Statement of missing vouchers (10)Bank Reconciliation Statement (11)Statement of computation of tax, bonus, gratuity, etc |
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Permanent file
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•It is a file which contains papers of continuing importance, affecting the company and the audit. The purpose of this file is to provide background information about the company.
•It should include the following papers: (1)A certified copy of M.O.A &A.O.A (2)A copy of partnership deed & trust deed (3)A copy of legal regulations (4)Note on the nature of business carried on (5)Note on location of various offices & factories (6)Client's letter containing specific instructions regarding the audit work (7)List of books of accounts (8)A copy of organization chart (9)A list of officers with the nature of work done by them (10)Details of holding & subsidiary company (11)Brief note on system of internal control (12)Statement of basis of stock valuation, work in progress & depreciation |
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Audit Note book
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•Also called as Audit Memoranda.
•Maintained by the auditor for recording a large variety of matters observed during the course of audit. • It is a written record of the queries made, replies received thereto, correspondence entered into,etc •It contains errors, difficulties, doubtful queries of various accounting records. •It is generally divided into 2 parts: (1)For keeping a record of general information & (2)For recording special points which have been observed during the course of audit. |
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Contents of audit note book
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(1)Nature of the business carried on
(2)M.O.A, A.O.A, partnership deed, trust deed, etc (3)Structure of financial & administrative organization (4)A list of books of accounts (5)Names of principle officers, their duties & responsibilities (6)Particulars of accounting & financial policies followed (7)Important contracts to which the client is a party (8)Important resolution passed in the year (9)Queries |
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Auditing techniques
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(1)Inspection
(2)Observation (3)Inquiry (4)Confirmation (5)Computation (6)Analytical review |
O-IC°AI
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Test Check
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•Prof. Meigs defines test check as, "Testing & test checking means, to select and examine a representative sample, from a large number of similar items".
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When is Test Check used?
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•Test check can be adopted when:
(1)Volume of transactions is large (2)Auditor has very little time at his disposal & it may not be possible for him, to go for detailed checking (3)Number of transactions are identical & homogeneous in nature (4)Internal control system is satisfactory. |
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Advantages of test checking
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(1)Audit objective
(2)Expertise (3)Exception principle (4)Assessment of risk (5)Saving in time (6)Reduction in work load (7)Moral check (8)Cost saving |
CA°R-in-ME°Ss
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Disadvantages of test checking
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(1)Biased
(2)Unauthentic (3)Greater risk (4)Unscientific (5)Change in level |
C-BU°G
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Inherent limitations of audit
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(1)Auditor's work involves exercise & judgement
(2)Audit evidence not conclusive (3)Audit cannot be relied upon to discover all frauds (4)Auditor cannot decide objectively what is material (5)Auditor is not a technical expert (6)Absolute certainty not attainable (7)Internal control (8)Test checking |
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Secret Reserve
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•Known as hidden reserve. It does not appear on face of balance sheet.
•It is defined as the amount by which the net worth has been deliberately understated. •Through creation of secret reserve, company's position appears 2 b worse than what it is actually. |
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Objectives behind creation of secret reserve
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•Secret reserve is opposite of window dressing. Assets r undervalued, liabilities r overvalued, profits r understated & losses r overstated.
•Objectives behind creation of secret reserves are: (1)To use for personal purpose (2)To misguide competitors (3)To hide abnormal profits |
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Importance of working papers
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(1)Auditor can understand the SINCERITY of his assistants
(2)Help the auditor in FINALIZATION of audit report (3)In case of CHANGE in audit staff, working papers are very muh helpful to the new staff in establishment of link (4)Provides TRAINING to audit staff (5)Helps in PLANNING next year's audit work (6)Auditor can understand the weakness of INTERNAL CONTROL system (7)Auditor can PROTECT himself from a suit brought against him for negligence (8)Auditor can ANSWER the queries of earlier days easily (9)It provides a means to CONTROL the audit work (10)Working papers r the PROPERTY of the auditors |
IT-SP°°-FC-AC
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