6. audit techniques

AUDIT LECTURES SLIDES

AUDIT TECHNIQUES

1. Audit Techniques BY Atta-ur-Rahman Arif

2. INTRODUCTION Audit techniques are tools, methods or processes by means of which an auditor collects necessary evidence to support his opinion in respect of the propositions or assertions submitted by the client to him for his examination.

3. AUDIT PROCEDURES Audit procedures are ways of applying techniques to particular phase of an audit. Generally, the attainment of the audit objectives required the collection of the evidence to support a decision.

4. Kinds of audit techniques Posting verification Extension verification Vouching Confirmations Physical examination Reconciliation Testing

5. Kinds of audit techniques Analysis of financial statements Scanning Documentary examination Flow charting Electronic data processing Inspection Observation

6. Kinds of audit techniques Enquiry Computations Management representations Sampling techniques Compliance test Substantive tests Analytical review Use of computer- assisted audit techniques

7. KINDS Posting Verification Verification of items by one source to another source To establish the authencity and consistency of recording process Extension Verification Multiplying two or more accounts to prove the accuracy of the total

8. KINDS Vouching An examination of all original evidences To proving the accuracy of the entries in the books of accounts Confirmation To ascertain the correctness of the figures and validity of the client’s record With the third party

9. KINDS Testing Selection of representative items from the records and examining them for reaching on conclusion about the trend Analysis of Financial Statement Uses various Financial Ratios horizontally and vertically

10. KINDS Physical Examination Includes inspection, counting, identification and measurement of quantity May observe the process of stocktaking Reconciliation Reconcile two or more related items if they are not agree or match with each other

11. KINDS TESTING Selection of representative items from the records and examining them for reaching a conclusion about trend of activity. Items must be sufficiently representative of whole data. Analysis of Financial Statements Financial ratios Horizontal and Vertical comparison Relationship with Industry averages

12. KINDS Documentary Examination Same as Vouching in nature To examine the adequacy and reliability Scanning Make a wide search to find out which of the entries are regular, consistent and logical

13. KINDS Observation Observe the various policies and procedures or plans followed by the client Flow Charting To describe graphically the issue of transactions through different stages

14. KINDS Inspection Arrange an inspection of the client’s office, plant, branches etc. To obtain the understanding of plant layout, manufacturing processes, product, control and safeguard of inventories etc. Should inspect before examination and review

15. OTHERS Enquiry Computation Management Representation Sampling Techniques Compliance Techniques Substantive Testing Analytical Review Computer Assisted Accounting Techniques

16. Obtaining Management Representation Important evidence in form of summary of oral discussions with management Written representation from management Should be addressed to the auditor contain Specified information Its procedure must be agreed with client in early stage of audit.

17. Audit sampling techniques Audit sampling technique is the application of a compliance or substantive procedure to less than 100% of the items within an account or class of transaction to enable the auditor to obtain and evaluate evidence of some characteristics of the entire class and enable the auditor to form a conclusion concerning the whole class.

18. Design of the sample Audit objectives Population Risk and assurance Tolerable errors Expecting errors in the population Sratification

19. Evaluation of the sample Analyse any errors detected in the sample Project the errors found in the sample to the population Assess the sampling

20. Compliance test Compliance tests are the proceduers desugned to obtain reasonable assurance of the internal control, that it is effective and reliable These tests include procedures requiring inspections of documents suporting transactions to gain evidence that control have operated properly.

21. Substantive test Substantive tests are those tests of transactions and balances and other procedures which privides audit evidence as to the completeness, accuracy and validity of the information contain in the accounting records or in the financial statements., like analytical review

22. Methods of substantive test: Inspection of the documents Inspection of assets Direct confirmations Reperformance of computations

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