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Bab 1-Audit Approach P.point

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44 views17 pages

Bab 1-Audit Approach P.point

Uploaded by

Aslamaitulakma Mohamad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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CHAPTER 1 : AUDIT APPROACH

1.1 Understand the nature


of audit approach
1.1.1 Discuss the audit approach steps.

Step1 – Understand the business and industry.


Step2 – Understand the Company itself.
Step3 – Understand the materiality, inherent risk
and Acceptable risk.
Step4 – Understand internal control of the
company, the control risk.
Step5 – Design the Audit plan and program.
1.1.2 Differentiate the types of audit approach:

a) Interim Audit
 is an audit conducted during the fiscal year usually as a

means of minimizing the work and time involved in


concluding the audit after the fiscal year. A corporation
might have an interim audit covering the first nine
months of the fiscal year so that at the end of the fiscal
year most of the auditing will focus on the last three
months of the fiscal year thus allowing for a
comprehensive audit and early completion of the audit
reports. An interim audit does not usually yield any
formal reports from the external auditors.
 
 
b) Financial Audit
 Financial audits are performed to obtain assurance as to whether
an organization’s financial statements are free of material
misstatements. During a financial audit, an auditor
reviews financial statements to provide a formal auditor’s
opinion. This opinion is attached to the front of the organization’s
financial statements to provide assurance that they are fairly
presented - in other words, that they meet generally accepted
accounting principles and have been scrutinized by an
independent auditor.

c) Compliance Audit
 Compliance audit is essentially about comprehensively reviewing
whether a company is adhering to the regulatory related
guidelines or not. IT, security and independent accounting
consultants conduct an evaluation of the thoroughness and
strength of preparations pertaining to compliance. Auditors
conduct a review of the security related policies, procedures
pertaining to risk management and user access controls
throughout the compliance audit course.
d) Substantive strategy
The substantive approach involves little reliance on internal controls.
It is used if the audit client’s internal control system is weak and the
auditor cannot place much reliance on it. This approach entails the
auditor carrying out examinations in greater detail, which means an
extensive collection and intensive examination of evidence. For
example, in the examination of documents, the auditor has to collect a
relatively large sample. Nevertheless, the size of the company must be
considered as this approach is relatively difficult to be implemented
effectively.
e) Reliance strategy
This approach is used when the audit client’s internal control system
is found to be reasonably strong and can be relied upon. This approach
assumes that if the company being audited has an efficient
management, then there will not be many problem with its records,
documents and financial statements. In applying this approach, the
auditor carries out his/her duties with greater reliance on internal
controls, which means that the extent of the auditor’s examination will
depend on the strengths or weakness of internal controls. The auditor
does not need to carry out detailed examination if the internal control
system in the company is judged to be strong.
1.1.3 Determine the used of each type of audit approach

a)The substantive procedures approach


 This is referred to as the vouching approach or the direct verification
approach. In this approach, audit resources are targeted on testing
large volumes of transactions and account balances without any
particular focus on specified areas of the financial statements.

b)The balance sheet approach


 In this approach, substantive procedures are focused on balance sheet
(statement of financial position) accounts, with only very limited
procedures being carried out on income statement/profit and loss
account items. The justification for this approach is the notion that if the
relevant management assertions for all balance sheet (statement of
financial position) accounts are tested and verified, then the profit/loss
figure reported for the accounting period will not be materially
misstated.
c)The systems-based approach
This approach requires auditors to assess the effectiveness of the
internal controls of an entity, and then to direct substantive
procedures primarily to those areas where it is considered that
systems objectives will not be met. Reduced testing is carried out in
those areas where it is considered systems objectives will be met.

d)The risk-based approach


 A risk-based audit approach is designed to be used throughout
the audit to efficiently and effectively focus the nature, timing
and extent of audit procedures to those areas that have the most
potential for causing material misstatement(s) in the financial
report. ASA 315 Identifying and Assessing the Risks of Material
Misstatement through Understanding the Entity and its Environment
and ASA 330 The Auditor’s Responses to Assessed Risks are
auditing standards that specifically set out the risk based audit
approach, with other auditing standards containing specific
risk-related principles and procedures appropriate to their
subject matter.
1.1.4 The uses of flowchart in audit
approach
 Detailed
 Systematic
 Highlight control features
 Referenced to other audit documents
1.2 KNOW THE TYPES
OF AUDIT TEST
b) Verification c) Test Of Control
(Compliance Audit)

a) Vouching
d) Substantive
Test

1.2.1 Discuss each type of


audit test

h) Rotational e) Walk-
Test Through test

g) Weakness
Test f) Depth Test
1.2.2 Explain the uses and
purpose of each of audit
approach
Category of audit test Purpose Types audit test
Compliance tests To provide reasonable 1. Risk assessment
assurance that the procedures
accounting control 2. Tests of controls
procedures are being
consistently applied as
prescribed by policies,
procedures, rules and
regulation and sound
business practice.
Compliance tests are
used to help determine
the extent of substantive
testing to be performed
Substantive test To obtain evidence of the 1. Substantive test of
validity and propriety of transaction.
accounting treatment of 2. Analytical
transactions and procedures.
balances or, conversely, 3. Test of details of
of errors or irregularities balance.
therein.
1.3 PERFORM THE AUDIT
PROCEDURES AND
TECHNIQUES
1.3.1 EXPAIN THE NEEDS OF AUDIT
PROCEDURES AND AUDIT
TECHNIQUES.
 Phase I : Planning the audit
 Phase II : Testing of internal control
 Phase III : Substantive testing
 Phase IV : Final examination and issuance of
audit report
1.3.2 Elaborate the audit procedures
through
a)Test of control
 Tests of Controls are audit procedures performed to test

the operating effectiveness of controls in preventing or


detecting material misstatements at the
relevant assertion level.

b) Analytical procedures
 Analytical procedures are one of many financial

audit processes which help an auditor understand the


client's business and changes in the business, and to
identify potential risk areas to plan other audit
procedures
c)Substantive Procedures
 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.

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