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June 3 AT Overview of The Audit Process PDF
June 3 AT Overview of The Audit Process PDF
June 3 AT Overview of The Audit Process PDF
June 3, 2020
Audit Process
Module Chapters:
Page 1 of 6
Auditing Theory
2 major processes
Failure to follow the PSAs (minimum guide) is an evidence of the auditor’s negligence.
A negligent auditor is liable for an incorrect opinion due to non-detection of material
misstatements. Thus, PSAs serve as benchmarks of the auditor’s quality of work.
Inquiry
Inquiry deals with INTERNAL sources of evidence
1. Oral evidence
2. Inquiry of:
Management Ex: Evidence about management’s
People within the entity future actions may best be obtained
3. Primary, most-used audit procedures through inquiry (e.g., interview), as
4. As to usefulness: written plans may not be available.
A valid source of evidence
Highly useful if evidence does not exist in written form
But, less reliable if external sources are available
5. Evidence is:
Indirect
Subjective - depends upon the person asked
Inspection
1. Inspection of:
Asset
Records and documents
Illustration
Goods were shipped for P100,000 and machinery was acquired for
P400,000 and placed for use in the factory.
Tracing procedures:
- Trace bill of lading (documents) to the sales journal (records) to
check whether all shipments were recorded - completeness of
Sales
- Trace actual machinery located in the factory (physical) to the
recorded machinery in the ledger to check whether all assets
were recorded - completeness of PPE
Observation
Recalculation
Reperformance
Confirmation
Analytical procedures
1. Auditability of information
2. Preconditions for an audit
3. Relevant ethical requirements
4. Integrity of client’s management
5. Mutual understanding of the terms of the engagement
6. Evidence available
An audit must not be accepted if the following preconditions are not met:
Understanding
2 aspects of understanding
Practice Statements
Complementary
Review Chapter 2 discussion notes especially on departure from PSAs and its implications
and answer the Assessment Quiz 1 hour after studying this material and the online
Module.
Summary Quizzers (downloadable) per subject will be released before the end of June in
preparation for the 1st Pre-board examinations.
Editor’s notes:
1. The notes in this material are presented in “Quick Facts” approach to provide an overall view of the topic.
2. Details about some items are presented in Chapter 2 in our online Module.