MINISTRY OF SCIENCE AND EDUCATION OF AZERBAIJAN REPUBLIC

AZERBAIJAN
STATE
ECONOMIC
UNIVERSITY
UNEC

MASTER OF BUSINESS ADMINISTRATION (ACCOUNTING)

AUDIT FOR BUSINESS AND ECONOMICS
2024/2025 AUTUMN

INDEPENDENT WORK
ON THE TOPIC

“Audit engagements”

Authors;Qadimaliyev Ilham,Hamidov Bahram,Mammadli Emin,Ibadov

Muzaffar and Ibadli Kamran

Lecturer: Fariz Quliyev

Group: 22_23_03_E6/1-23

BAKU – 2024
1
 PLAN:

1.Introduction…………………………………………………………………....3
2. Special analysis………………………………………………………….......4
3.Reference…………………………………………………………………….......9

2
 Introduction
Audit typically involves deriving an independent audit opinion towards financial
statements of organization. Audit consists of several steps that consists of planning
and scoping,audit procedures and in the end include audit report.
Firstful, audit starts with planning in order to understand client business, risks and
identify potential threats.At this point, scope of audit procedures should be
determined and define how much risk will be gathered.Furthermore,analytical
procedures with comparison last year budget results should be implemented.

After that,typical audit engagements will be implemented by usual procedures.This

will be started from test ofcontrols.Then any deficiencies will be presented to
management.Furthermore,substantive procedures will be started.It will primarily
depend that it should be full or reduced depend on type of risk that have already
taken.Addititonally,there are several steps within substantive procedures that in the
end will give comprehensive results related to financial statements.This consists of
analytical procedures and test of details.Additionally,there is an also final review of
financial statements,where analytical procedures should be utilized once again,Except
that,there are several final financial reports as a results of engagement.

3
 Analysis

Audit planning evolves several steps that includes ;

Intial activities ; Before accepting an audit engagement, the auditor must assess their
independence and perform preliminary procedures to determine if they can continue
with the client. This includes reviewing prior audits, professional pronouncements,
and identifying potential conflicts of interest. The auditor should gain an in-depth
understanding of the client's business, industry, and regulatory environment. This
involves reviewing the client's financial statements, annual reports, and other relevant
documents.Then auditor can easily turn to the secondary activities mainly to the risk
assessment process. This is a critical step where the auditor pinpoints potential risks of
material misstatement in the financial statements. This involves considering inherent
risks (related to the nature of the business) and control risks (related to the
effectiveness of internal controls). Based on the risk assessment, the auditor
determines the overall approach for the audit. This includes deciding on the nature,
timing, and extent of audit procedures to be performed.

4
Another step evolves test of controls.Any deficiencies with test of controls will be
informed to the management and full substantive procedures will be implemented.

A test of controls, also known as internal controls testing, is an audit procedure used
to assess the effectiveness of a company's internal controls. These controls are
designed to prevent or detect errors and fraud in financial statements.There are several
types test of controls. If the auditor determines that the internal controls are operating
effectively, they can reduce the extent of substantive testing performed on the
financial statements. This leads to a more efficient audit process. Tests of controls can
reveal weaknesses in the internal control system that could lead to material
misstatements. This allows the auditor to address these weaknesses and recommend
improvements to the client. The auditor asks the client's personnel about the controls
in place and how they are operated. The auditor observes the client performing the
control procedures. The auditor examines documentation or other evidence to see if
the control procedures were performed. The auditor performs the control procedure

5
themselves to verify its effectiveness. The auditor uses specialized software to test the
controls over computerized systems.

Furthermore, substantive procedures start to be implemented using test of details and

analytical procedures. Substantive procedures, also known as substantive tests, are the
backbone of an audit engagement. These are the tests performed by the auditor to
directly gather evidence about the accuracy and completeness of the financial
statements.

The primary objective of substantive procedures is to identify any material

misstatements (errors or fraud) that could be present in the financial statements. The
evidence gathered through these procedures helps the auditor form an opinion on
whether the financial statements are fairly presented in accordance with accounting
standards. These procedures focus on verifying the occurrence, completeness,
accuracy, and authorization of transactions underlying the financial statementsThese
procedures aim to ensure the existence, valuation, and completeness of the reported
account balances. These involve comparing financial data with industry benchmarks,
prior periods, or other relevant information to identify potential inconsistencies or
anomalies. The specific types and extent of substantive procedures performed will
depend on several factors. Substantive procedures are crucial for providing the auditor
with sufficient audit evidence to support their opinion on the financial statements.
They play a vital role in ensuring the integrity and reliability of financial reporting.
Substantive procedures work hand-in-hand with tests of controls. While tests of
6
controls assess the effectiveness of internal controls, substantive procedures directly
verify the accuracy and completeness of the financial statements.

Test of details defects anomalies and with certain percentage claims that there is a
certain level of material misstatement. Here are some common examples of test of
details procedures:

1) Vouching a sample of sales invoices to shipping documents and customer

contracts.
2) Recalculating inventory quantities and comparing them to physical counts.
3) Reviewing aging analyses of accounts receivable and payable to identify
potential collection issues.
4) Sending confirmation letters to customers to verify the accuracy of their
account balances.
5) Performing analytical procedures to compare current year's sales figures with
industry averages or historical trends.
7
 Test of details are crucial for providing the auditor with sufficient and reliable
audit evidence to support their opinion on the financial statements. They play a
vital role in ensuring the integrity and accuracy of financial reporting.

As a result,in the end of external audit there is a final audit report that indicates
materiality of financial statements. An audit report is a formal document issued
by an auditor after completing an audit engagement. It serves as a
communication tool to convey the auditor's opinion on the fairness and
accuracy of a company's financial statements. The primary purpose of an audit
report is to express the auditor's opinion on whether the financial statements are
presented fairly, in all material respects, in accordance with an applicable
financial reporting framework (e.g., Generally Accepted Accounting Principles
- GAAP). By providing an independent assessment of the financial statements,
the audit report enhances the credibility and reliability of financial information
for users like investors, creditors, and regulators.

There is a also review engagement can be implemented. A review involves a less

extensive set of procedures compared to a full audit. The auditor provides limited
assurance on the financial statements.

8
 Reference

1.Macroeconomic journal 2022

2.National Statistics Comitee