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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 8.5(B) Application Controls
Application controls include both automated or manual controls that operate at a business process level. Automated Application controls are embedded into IT applications viz., ERPs and help in ensuring the completeness, accuracy and integrity of data ... | [
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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 8.5(C) IT dependent Controls
IT dependent controls are basically manual controls that make use of some form of data or information or report produced from IT systems and applications. In this case, even though the control is performed manually, the design and effectiveness of such controls depe... | [
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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 8.6 General IT Controls vs. Application Controls
- These two categories of control over IT systems are interrelated.
- The relationship between the application controls and the General IT Controls is such that General IT Controls are needed to support the functioning of application... | [
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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 8.7 Testing methods in an automated environment
Having learnt about the various IT risks and controls, let us understand the different ways testing is performed in an automated environment. There are basically four types of audit tests that should be used. These are inquiry, observation, inspectio... | [
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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 9.1 Manual elements vs automated elements in entity's internal control
Manual elements in internal control may be more suitable where judgment and discretion are required such as for the following circumstances:
- Large, unusual or non-recurring transactions.
- Circumstances where erro... | [
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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 10. AUDIT APPROACH IN AN AUTOMATED ENVIRONMENT
<!-- image -->
| Risk Assessment | Understa... | [
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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 11. DATA ANALYTICS FOR AUDIT
In today's digital age when companies rely on more and more on IT systems and networks to operate business, the amount of data and information that exists in these systems is enormous. The combination of processes, tools and techniques that are used to tap vast ... | [
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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## AUDITING AND ETHICS
The tools and techniques that auditors use in applying the principles of data analytics are known as Computer Assisted Auditing Techniques or CAATs in short. Data analytics can be used in testing of electronic records and data residing in IT systems using spreadsh... | [
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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 12. DIGITAL AUDIT
Entities are embracing digitization as part of their operations to keep pace with changing times. New technologies are helping companies revamp their operations and rethink the way business is conducted. Companies are restructuring their business models driven by technology. Au... | [
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-0.0... |
Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 13. INTERNAL FINANCIAL CONTROLS AS PER REGULATORY REQUIREMENTS
The term Internal Financial Controls (IFC) basically refers to the policies and procedures put in place by companies for ensuring:
| | Reliability of financial reporting |
|-----|----------------------... | [
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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## AUDITING AND ETHICS
| | of time during the financial Year for less than ₹ 25 crore. ... | [
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... |
Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 14. DOCUMENTING THE RISKS
The auditor shall document:
- (a) The discussion among the engagement team and the significant decisions reached
- (b) Key elements of the understanding obtained regarding each of the aspects of the entity and its environment and of each of the internal cont... | [
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... |
Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 15. ASSESS AND REPORT AUDIT FINDINGS
At the conclusion of each audit, it is possible that there will be certain findings or exceptions in IT environment and IT controls of the company that need to be assessed and reported to relevant stakeholders including management and those charge... | [
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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Some points to consider are as follows:
- Are there any weaknesses in IT controls?
- What is the impact of these weaknesses on overall audit?
- Report deficiencies to management -Internal controls memo or Management letter.
- Communicate in writing any significant deficiencies to those Cha... | [
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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 16. THE AUDITOR'S RESPONSES TO ASSESSED RISKS
SA 330- The auditor's responses to assessed risks deals with the auditor's responsibility to design and implement responses to the risks of material misstatement identified and assessed by the auditor in accordance with SA 315,... | [
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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## SA 330 states that: -
- (a) The auditor shall design and implement overall responses to address the assessed risks of material misstatement at the financial statement level.
- (b) The auditor shall design and perform further audit procedures whose nature, timing and extent are based on a... | [
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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## In designing the further audit procedures to be performed, the auditor shall:
- (a) Consider the reasons for the assessment given to the risk of material misstatement at the assertion level for each class of transactions, account balance, and disclosure, including:
- (i) The li... | [
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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## The auditor shall design and perform tests of controls to obtain sufficient appropriate audit evidence as to the operating effectiveness of relevant controls when:
- (a) The auditor's assessment of risks of material misstatement at the assertion level includes an expectation tha... | [
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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## In designing and performing test of controls, the auditor shall:
- (a) Perform other audit procedures in combination with inquiry to obtain audit evidence about the operating effectiveness of the controls, including:
- (i) How the controls were applied at relevant times during the period u... | [
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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Matters the auditor may consider in determining the extent of test of controls include the following:
- The frequency of the performance of the control by the entity during the period.
- The length of time during the audit period that the auditor is relying on the operating effectiveness... | [
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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 16.2 Timing of Test of Controls
The auditor shall test controls for the particular time, or throughout the period, for which the auditor intends to rely on those controls in order to provide an appropriate basis for the auditor's intended reliance. Audit evidence pertaining o... | [
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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 16.3 Using Audit Evidence Obtained in Previous Audits
In determining whether it is appropriate to use audit evidence about the operating effectiveness of controls obtained in previous audits, and, if so, the length of the time period that may elapse before retesting a control, the auditor shall co... | [
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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 16.4 Evaluating the Operating Effectiveness of Controls
When evaluating the operating effectiveness of relevant controls, the auditor shall evaluate whether misstatements that have been detected by substantive procedures indicate that controls are not operating effectively. The absence o... | [
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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 16.5 Specific inquiries by auditor when deviations from controls are detected
When deviations from controls upon which the auditor intends to rely are detected, the auditor shall make specific inquiries to understand these matters and their potential consequences, and shall deter... | [
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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## This requirement reflects the facts that:
- (i) the auditor's assessment of risk is judgmental and so may not identify all risks of material misstatement and
- (ii) there are inherent limitations to internal control, including management override.
Substantive procedures are audit procedur... | [
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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 16.6 Tests of Details
Tests of details are further classified into tests of transactions i.e., vouching and tests of balances i.e., verification.
For example, a purchase transaction may be verified by examining the related purchase invoice, goods received note, inward gate entry regist... | [
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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 16.7 Substantive analytical procedures
Substantive analytical procedures refer to analytical procedures used as substantive procedures by auditor. The term 'analytical procedures' means evaluations of financial information through analysis of plausible relationships among both fin... | [
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Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Depending on the circumstances, the auditor may determine that:
- Performing only substantive analytical procedures will be sufficient to reduce audit risk to an acceptably low level. For example, where the auditor's assessment of risk is supported by audit evidence from tests of contro... | [
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... |
Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Test Your Understanding 10
A Chartered accountant during course of audit of a company finds that cash is not deposited into bank frequently although concerned staff of company was required to do so. Further, the official responsible for ensuring performance of above function, has also n... | [
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0.05559924617409706,
0.04436688497662544,
0.02537957951426506,
-0.0324... |
Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## CASE STUDY-1
CA Paritosh is auditor of a company. The financial statements of the company have just been received for audit. Following issues have been flagged pertaining to the financial statements of the company for purpose of risk assessment: -
- (i) The revenue of company has fallen from ` 50... | [
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-0.01790330745279789,
-0.00490990886464715,
-0.019228871911764145,
-0.009105904027819633,
0.06053775176405907,
0.038935624063014984,
0.01689092256128788,
0.013055432587862015,
... |
Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Based on above, answer the following questions: -
1. Regarding drastic fall in revenue of the company, which of the following is an audit risk?
2. (a) Fall in revenue would result in fall of profits for the company.
3. (b) Drastic fall in revenue may imply that company is not able to carry out its... | [
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-0.032450951635837555,
-0.011227279901504517,
-0.007111402228474617,
-0.023211879655718803,
0.0791914090514183,
0.004305498208850622,
0.03313945606350899,
0.009674644097685814,
... |
Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## AUDITING AND ETHICS
- (c) Inventories may be overstated in such a scenario.
- (d) The company should launch a 1+1 free offer for its customers.
3. A large customer has failed to pay to the company. Identify audit risk from below:
- (a) Receivables may be misstated if irrecoverable debt is not w... | [
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0.02269778959453106,
-0.005457726772874594,
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0.019285619258880615,
-0.004542629234492779,
-0.007062598597258329,
0.0921570286154747,
0.063872329890728,
-0.014938458800315857,
0.0246676504611969,
0.013685... |
Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## CASE STUDY-2
CA Piyush is understanding internal controls as part of audit exercise of a company. It is a new client. He has studied controls in place in various operational areas of the company. After studying and gaining an understanding of such controls, he has decided to test few controls to a... | [
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0.06265177577733994,
0.03964284434914589,
0.05289872735738754,
0.04487977176904678,
-0.0... |
Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Based on above, answer the following questions: -
1. Which of the following most appropriately describes test of control regarding insurance of inventories?
2. (a) Inspect insurance policies to verify that inventories at each location are insured for fire and burglary. The sum insured and period o... | [
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0.059855807572603226,
0.04715491831302643,
0.02131674624979496,
0.0421377494931221,
-0.0... |
Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## AUDITING AND ETHICS
2. Which of the following most appropriately describes test of control regarding inventory counts?
2. (a) Obtain detail of inventory counting procedure and ensure that inventory count is carried out according to laid down procedure.
3. (b) Obtain detail of inventory counting pr... | [
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0.0751032680273056,
0.013136561028659344,
0.013892797753214836,
0.0023740867618471384,
0.... |
Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## SUMMARY
- ♦ Audit risk means the risk that the auditor gives an inappropriate audit opinion when the financial statements are materially misstated. Audit risk is a function of the risks of material misstatement and detection risk.
- ♦ Risks of material misstatements consists of two components i.e.... | [
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0.0022527393884956837,
0.018658772110939026,
... |
Inter_P5_Audit_Mod1_Chapter_3_Risk_Assessment_and_Internal_Control.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## AUDITING AND ETHICS
- ♦ Misstatements, including omissions, are considered to be material if they, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
- ♦ Performance materia... | [
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0.044482242316007614,
0.012013961561024189,
0.03903068229556084,
0.010171515867114067,... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## After studying this chapter, you would be able to understand-
- ♦ Audit Evidence (SA 500)- Meaning, types, relevance and reliability, sufficiency and appropriateness and sources of audit evidence, audit procedures, nature and timing of audit procedures, Assertions, selecting items for testing, rel... | [
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0.09671028703451157,
0.040910959243774414,
0.011392012238502502,
0.015512306243181229,
-0... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 1.1 Introduction
Auditing is a logical process. An auditor is called upon to assess the actualities of the situation, review the statements of account and give an expert opinion about the truth and fairness of such accounts. This he cannot do unless he has examined the financial statements objec... | [
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0.082197405397892,
0.040486890822649,
0.02171785570681095,
0.02117295004427433,
-0.0236... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 1.2 Meaning of Audit Evidence as per SA 500
Audit evidence may be defined as the information used by the auditor in arriving at the conclusions on which the auditor's opinion is based. Audit evidence includes both information contained in the accounting records underlying the financial st... | [
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0.004506624303758144,
0.09135796874761581,
0.03813629597425461,
0.0012230193242430687,
-0.007449854165315628,... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## SOLUTION
There exists a very important relationship between Audit Evidence and opinion of the Auditor. While conducting an audit of a company, the auditor obtains audit evidence and with the help of that audit evidence obtained, the auditor forms an audit opinion on the financial statements of tha... | [
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-0.0007342101889662445,
0.07629229128360748,
0.021576043218374252,
0.039282526820898056,
0.022876344621181488,
... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Accounting records include
- the records of initial accounting entries and supporting records, such as cheques and records of electronic fund transfers;
- invoices;
- contracts;
- the general and subsidiary ledgers, journal entries and other adjustments to the financial statements that are not re... | [
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0.07171180099248886,
0.013900702819228172,
0.03782645985484123,
0.029737021774053574,
-0.... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## (a) Depending upon nature:
1. Visual: For example, observing physical verification of inventory conducted by the client's staff.
2. Oral: For example, discussion with the management and various officers of the client.
3. Documentary: For example, fixed deposit certificate, loan agreement, sales b... | [
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-0.0066218022257089615,
0.041219934821128845,
0.05654655769467354,
0.01900106854736805,
0.022320985794067383,... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Example
Purchase invoice, supplier's challan and forwarding note, debit notes and credit notes coming from parties, quotations, confirmations, etc.
In an audit situation, the bulk of evidence that an auditor gets is internal in nature. However, substantial external evidence is also available to ... | [
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0.09389469027519226,
0.03867208585143089,
0.020198656246066093,
0.013180886395275593,
-0... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## ILLUSTRATION 2
An audit team member of the auditors of Genuine Limited was of the view that audit evidence obtained internally from within the company under audit are more appropriate from the reliability point of view as compared to audit evidence obtained externally as evidence obta... | [
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0.001471955794841051,
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0.003152468940243125,
0.06972698867321014,
0.03660900518298149,
-0.00670751603320241,
0.02046823315322399,
-0... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## SOLUTION
Audit evidence obtained externally is more appropriate from reliability point of view as compared to those which are obtained internally. The reason that audit evidence obtained externally is more appropriate from the point of view of reliability is that there is a ve... | [
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0.0018223193474113941,
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0.059150319546461105,
0.030968548730015755,
-0.02144259214401245,
-0.014448217116296291,
... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 1.4 Relevance and Reliability of audit evidence
The auditor has to express opinion on the truth and fairness on the financial statements. He shall consider the relevance and reliability of the information to be used as audit evidence.
The quality of all audit evidence is affected by ... | [
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0.050111111253499985,
0.013225582428276539,
0.003634785069152713,
-0.011919497512280941,
... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## RELEVANCE AND RELIABILITY OF AUDIT EVIDENCE
Relevance deals with the logical connection with, or bearing upon, the purpose of the audit procedure and, where appropriate, the assertion under consideration. The relevance of information to be used as audit evidence may be affected by the... | [
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0.05765400826931,
-0.006994054187089205,
-0.01858390122652054,
-0.006255722604691982,
-... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Example
If the purpose of an audit procedure is to test for overstatement in the existence or valuation of accounts payable, testing the recorded accounts payable may be a relevant audit procedure.
On the other hand, when testing for understatement in the existence or valuation of accounts paya... | [
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0.08223296701908112,
0.017770297825336456,
-0.009180057793855667,
0.030508821830153465,
... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 1.4.2 Reliability
Information to be used as audit evidence should be reliable.
Reliability of information to be used as audit evidence, and therefore of the audit evidence itself, is influenced by its source and its nature , and the circumstances under which it is obtained, including the c... | [
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0.0028730265330523252,
-0... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## For example,
information obtained from an independent external source may not be reliable if the source is not knowledgeable, or a management's expert may lack objectivity.
While recognising that exceptions may exist, the following generalisations about the reliability of audit... | [
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0.008585220202803612,
-0.... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 1.5.1 Sufficiency and Appropriateness are interrelated.
The sufficiency and appropriateness of audit evidence are interrelated. Sufficiency is the measure of the quantity of audit evidence.
The quantity of audit evidence needed is affected by the auditor's assessment of the risks of misstatement ... | [
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0.002466676291078329,
-0.031364139169454575,
-0.... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 1.5.2 Obtaining Sufficient and appropriate Audit Evidence by the Auditor
The auditor shall design and perform audit procedures that are appropriate in the circumstances for the purpose of obtaining sufficient and appropriate audit evidence.
Audit evidence is necessary to support ... | [
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-0.... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## ILLUSTRATION 3
There was a Partnership Firm of Chartered Accountants VM and Associates. Mr. M, one of the partners of VM and Associates, while explaining to his audit team members about importance of audit evidence informed them about sufficiency and appropriateness of audit evidence. Mr. A, one o... | [
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0.0795971229672432,
0.04359141364693642,
0.010923209600150585,
0.00360125326551497,
-0.032... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## SOLUTION
Sufficiency and Appropriateness of audit evidence does not mean simplicity and ease of obtaining audit evidence rather sufficiency of audit evidence is related to the quantity of audit evidence and appropriateness of audit evidence is related to quality of audit evidence.
- 1.5.3 Further... | [
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... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Example
- ♦ through analysis and review,
- ♦ reperforming procedures followed in the financial reporting process,
- ♦ and reconciling related types and applications of the same information.
Through the performance of such audit procedures, the auditor may determine that the accounting records ... | [
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0.03719770535826683,
0.03838551789522171,
0.009259989485144615,
... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Example
Corroborating information obtained from a source independent of the entity may increase the assurance the auditor obtains from audit evidence that is generated internally, such as evidence existing within the accounting records, minutes of meetings, or a management representation... | [
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0.05141054466366768,
-0.007276575081050396,
0.021420223638415337,
... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 1.7 Audit procedures for obtaining audit evidence
Audit evidence to draw reasonable conclusions on which to base the auditor's opinion is obtained by performing:
- (a) Risk assessment procedures; and
- (b) Further audit procedures, which comprise:
- (i) Tests of controls, when require... | [
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... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## (i) Inspection
Inspection involves examining records or documents, whether internal or external, in paper form, electronic form, or other media, or a physical examination of an asset. Inspection of records and documents provides audit evidence of varying degrees of reliability, depending o... | [
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-0.0... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## An example of inspection used as a test of controls is inspection of records for evidence of authorisation.
Some documents represent direct audit evidence of the existence of an asset, for example , a document constituting a financial instrument such as a stock or bond. Inspection of s... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## ILLUSTRATION 4
While auditing the books of accounts of AB Limited for the financial year 2022-23, the auditor of the company used an audit procedure according to which complete documents and records of the company were checked in detail in order to obtain audit evidence. Explain the audit procedur... | [
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0.00... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## SOLUTION
The audit procedure used by auditor of AB Limited is known as Inspection because inspection is an audit procedure in which complete documents and records of a company are checked in detail for the purpose of obtaining audit evidence. | [
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... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## For example,
the auditor's observation of inventory counting by the entity's personnel, or of the performance of control activities.
Observation provides audit evidence about the performance of a process or procedure, but is limited to the point in time at which the observation takes pl... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## (iii) External Confirmation
An external confirmation represents audit evidence obtained by the auditor as a direct written response to the auditor from a third party (the confirming party), in paper form, or by electronic or other medium. External confirmation procedures frequently are relevant... | [
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... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Example
The auditor may request confirmation of the terms of agreements or transactions an entity has with third parties; the confirmation request may be designed to ask if any modifications have been made to the agreement and, if so, what the relevant details are.
External confirmation procedure... | [
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-... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## (vi) Analytical Procedures
Analytical procedures consist of evaluations of financial information made by a study of plausible relationships among both financial and non-financial data.
Analytical procedures also encompass the investigation of identified fluctuations and relations... | [
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... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## ( vii) Inquiry
Inquiry consists of seeking information of knowledgeable persons, both financial and non- financial, within the entity or outside the entity. Inquiry is used extensively throughout the audit in addition to other audit procedures.
Inquiries may range from formal written inq... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 1.7.2 The following points are also relevant in respect of audit procedures for auditor's consideration:
The audit procedures inspection, observation, confirmation, recalculation, re -performance and analytical procedures, often in some combination, in addition to inquiry may be used as ... | [
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... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 1.7.3 Nature and Timing of the Audit Procedures
The nature and timing of the audit procedures to be used may be affected by the fact that some of the accounting data and other information may be available only in electronic form or only at certain points or periods in time. | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## For example,
source documents, such as purchase orders and invoices, may exist only in electronic form when an entity uses electronic commerce, or may be discarded after scanning when an entity uses image processing systems to facilitate storage and reference.
Certain electronic inform... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## For example
if files are changed and if backup files do not exist. Accordingly, the auditor may find it necessary as a result of an entity's data retention policies to request retention of some information for the auditor's review or to perform audit procedures at a time wh... | [
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... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 1.7a Risk assessment procedures:
Risk assessment procedures refer to the audit procedures performed to obtain an understanding of the entity and its environment, including the entity's internal control, to identify and assess the risks of material misstatement, whether due to fraud or e... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 1.7.b(ii) Substantive Procedures- Tests of details and Substantive analytical procedures
Substantive procedures are designed to detect material misstatements at the assertion level. They comprise tests of details and substantive analytical procedures.
Designing substantive procedur... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Test Your Understanding 1
On perusal of financial statements of a company, auditor of company finds that notes to accounts contain ageing of trade payables in accordance with requirements of Schedule III of the Companies Act, 2013. The accountant of the company is responsible for ensuring proper ... | [
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... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Test Your Understanding 2
CA Sooryagaythri is conducting audit of an entity. During the course of audit, she has made oral inquiries from head accountant regarding preparing of bank reconciliations every month as has been laid down by the management. Discuss, whether inquiries as stated ... | [
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... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Test Your Understanding 3
A company has stipulated a control that reconciliations of its records showing quantitative details of its property, plant and equipment are carried out at regular intervals with physical verification of such items. The auditor has found that such reconciliatio... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 1.8.1 Assertions contained in the Financial Statements.
1. In representing that the financial statements are in accordance with the applicable financial reporting framework, management implicitly or explicitly makes assertions regarding the recognition, measurement, presentation and disc... | [
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-... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## (a) Assertions about classes of transactions and events for the period under audit:
- (i) Occurrence - transactions and events that have been recorded have occurred and pertain to the entity.
- (ii) Completeness - all transactions and events that should have been recorded have been recorded... | [
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0.03648020327091217,... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## (b) Assertions about account balances at the period end:
- (i) Existence - assets, liabilities, and equity interests exist.
- (ii) Rights and obligations - the entity holds or controls the rights to assets, and liabilities are the obligations of the entity.
- (iii) Completeness - all assets, li... | [
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... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## (c) Assertions about presentation and disclosure:
- (i) Occurrence and rights and obligations - disclosed events, transactions, and other matters have occurred and pertain to the entity.
- (ii) Completeness - all disclosures that should have been included in the financial statements have bee... | [
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... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Example
When we find in the balance sheet, an item under current assets reading as 'cash in hand -` 10,000' the obvious assertions that would strike the mind are the following:
- (i) The firm concerned had ` 10,000 in hand in valid notes and coins on the balance sheet day;
- ... | [
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0.008202898316085339,
0.... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Example
| Particulars | | ` |
|---------------------------------------------------|--------|----------|
| Plant and Machinery (at cost) | | 2,00,000 |
| Less : Depreciation till the end of previous year | 70,000 | ... | [
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0.0... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## The assertions are as follows:
- (i) the firm owns the plant and machinery;
- (ii) the historical cost of plant and machinery is ` 2 lacs;
- (iii) the plant and machinery physically exists;
- (iv) the asset is being utilised in the business of the company productively;
- (v) total charge of deprec... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Explicit assertions are made when otherwise the reader will be left with an incomplete picture; it may even be misleading.
An example of the former category may be found in the following items appearing in the liability side of the balance sheet:
Secured Loans ` 4,00,000
The description does not... | [
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0.0... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 1.9 Audit Trail
An audit trail is a documented flow of a transaction. It is used to investigate how a source document was translated into an account entry and from there it was inserted into financial statement of an entity. It is used as audit evidence to establish authe... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 1.10 Information to Be Used as Audit Evidence
- 1.10.1 When information to be used as audit evidence has been prepared using the work of a management's expert, the nature, timing and extent of audit procedures may be affected by such matters;
- The nature and complexity of the matter to... | [
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Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 1.10.2 When using information produced by the entity, the auditor shall evaluate whether the information is sufficiently reliable for the auditor's purposes, including as necessary in the circumstances:
- (a) Obtaining audit evidence about the accuracy and completeness of t... | [
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0.013885749503970146,
-0.003950620535761118,
0.01389336958527565,
-0.... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## The means available to the auditor for selecting items for testing are:
- (a) Selecting all items (100% examination);
- (b) Selecting specific items; and
- (c) Audit sampling.
The application of any one or combination of these means may be appropriate depending on the auditors' judgement to obtai... | [
-0.014931334182620049,
0.003012568224221468,
0.023877061903476715,
-0.0017463797703385353,
-0.05600729212164879,
-0.008793956600129604,
0.012051691301167011,
-0.004108213819563389,
0.014247079379856586,
0.07602711021900177,
0.039680130779743195,
0.009272443130612373,
0.06163373962044716,
0... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 1.11(a) Selecting All Items
The auditor may decide that it will be most appropriate to examine the entire population of items that make up a class of transactions or account balance (or a stratum within that population).
100% examination is unlikely in the case of tests of controls; however, it i... | [
0.0006746244034729898,
0.004820588976144791,
0.02377045713365078,
0.010111968964338303,
-0.030286630615592003,
-0.04089012369513512,
0.0057873353362083435,
-0.007186760660260916,
-0.012094050645828247,
0.0559636652469635,
0.031857844442129135,
0.0015795453218743205,
0.02743752859532833,
0.... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## For example:
- The population constitutes a small number of large value items;
- There is a significant risk and other means do not provide sufficient appropriate audit evidence; or
- The repetitive nature of a calculation or other process performed automatically by an information sy... | [
0.003277529962360859,
-0.0074967932887375355,
0.007416968699544668,
0.011211617849767208,
-0.01530016865581274,
-0.025485895574092865,
0.019510796293616295,
-0.035470329225063324,
0.0013691032072529197,
0.07993192970752716,
0.07208379358053207,
-0.01804615557193756,
0.016882961615920067,
0... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 1.11(b) Selecting Specific Items
The auditor may decide to select specific items from a population.
In making this decision, factors that may be relevant include the auditor's understanding of the entity, the assessed risks of material misstatement, and the characteristics of the popul... | [
-0.011808151379227638,
0.017710978165268898,
0.0035893949680030346,
0.006592581048607826,
-0.0215956699103117,
-0.023399950936436653,
0.006294634658843279,
-0.004307839088141918,
-0.003026894060894847,
0.07515045255422592,
0.056903302669525146,
-0.012188478372991085,
0.024495260789990425,
... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## For example
items that are suspicious, unusual, particularly risk-prone or that have a history of error.
- All items over a certain amount.
The auditor may decide to examine items whose recorded values exceed a certain amount so as to verify a large proportion of the total amount of a ... | [
-0.026542415842413902,
-0.010142077691853046,
0.03200328350067139,
0.021721400320529938,
-0.012303325347602367,
0.005659794434905052,
-0.003032203996554017,
-0.0007519196951761842,
0.017796160653233528,
0.07981832325458527,
0.06575153023004532,
0.004652306903153658,
0.00822600070387125,
-0... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 1.12 Inconsistency in or Doubts over Reliability of Audit Evidence
If:
- (a) audit evidence obtained from one source is inconsistent with that obtained from another; or
- (b) the auditor has doubts over the reliability of information to be used as audit evidence,
the auditor shall determ... | [
-0.005150034092366695,
-0.013899533078074455,
0.014786865562200546,
0.007572532631456852,
-0.035558585077524185,
-0.013174010440707207,
-0.02515534870326519,
-0.031117213889956474,
0.023547105491161346,
0.08240902423858643,
0.02734585478901863,
-0.020417500287294388,
0.024874597787857056,
... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 1.13 Relying on the work of a management's expert
If the entity has employed or engaged experts, the auditor may rely on the works of experts, provided he is satisfied that sufficient and appropriate audit evidence is obtained with reasonable assurance to form an opinion on the financial statement... | [
-0.000046640481741633266,
-0.009668989107012749,
0.02711118571460247,
-0.0029013154562562704,
-0.015578852035105228,
-0.001723273890092969,
-0.011417735368013382,
-0.04928518086671829,
-0.023904895409941673,
0.06985747069120407,
0.013777624815702438,
0.027790436521172523,
0.01272212341427803... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## 1.14 Evaluation of Audit Evidence
SA 500 'Audit Evidence' is applicable to all the audit evidence obtained during the course of the audit to enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor's opini... | [
0.003294815542176366,
-0.006791692227125168,
-0.005235846620053053,
-0.034398287534713745,
-0.01852537877857685,
-0.008809007704257965,
-0.030118975788354874,
-0.013700236566364765,
-0.026913313195109367,
0.09262607991695404,
0.05480927973985672,
0.002609668532386422,
0.012786928564310074,
... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## Internal audit function refers to
A function of an entity that performs assurance and consulting activities designed to evaluate and improve the effectiveness of the entity's governance, risk management and internal control processes.
The objectives and scope of internal audit fu... | [
-0.023517560213804245,
-0.008623861707746983,
-0.015667013823986053,
-0.02078983001410961,
-0.023848233744502068,
-0.0013749180361628532,
-0.028879335150122643,
-0.016778014600276947,
-0.00022584327962249517,
0.03536725789308548,
0.07472925633192062,
0.022001583129167557,
0.00781347043812275... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## (1) Activities Relating to Governance
The internal audit function may assess the governance process in its accomplishment of objectives on ethics and values, performance management and accountability, communicating risk and control information to appropriate areas of the organization and... | [
-0.015371096320450306,
-0.018984602764248848,
-0.023795222863554955,
-0.013253925368189812,
-0.02300899103283882,
0.025670582428574562,
-0.03818809986114502,
0.006644794251769781,
-0.001999741652980447,
0.015279147773981094,
0.019363731145858765,
0.044001299887895584,
-0.0022579862270504236,... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## (2) Activities Relating to Risk Management
- The internal audit function may assist the entity by identifying and evaluating significant exposures to risk and contributing to the improvement of risk management and internal control (including effectiveness of the financial reporting p... | [
-0.01344372984021902,
0.014865047298371792,
-0.030080178752541542,
-0.013436608947813511,
-0.026594750583171844,
0.019850553944706917,
-0.033644624054431915,
-0.0019244533032178879,
0.0078075239434838295,
0.03682694584131241,
0.05408730357885361,
0.03111770935356617,
-0.006568104960024357,
... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## (3) Activities Relating to Internal Control
- Evaluation of internal control . The internal audit function may be assigned specific responsibility for reviewing controls, evaluating their operation, and recommending improvements thereto. In doing so, the internal audit function provides a... | [
-0.032280970364809036,
-0.022208983078598976,
-0.015120753087103367,
-0.030494078993797302,
-0.02319575659930706,
0.0077461060136556625,
-0.03685464709997177,
-0.007626211270689964,
-0.0014995938399806619,
0.017967982217669487,
0.035207074135541916,
0.043021026998758316,
-0.00817595981061458... |
Inter_P5_Audit_Mod1_Chapter_4_Audit_Evidence.pdf | Audit | Study_Material | N/A | [Concept: Theory]
## For example
the internal audit function might plan and perform tests or other procedures to provide assurance to management and those charged with governance regarding the design, implementation and operating effectiveness of internal control, including those controls that are relevant to t... | [
-0.019454117864370346,
-0.027635855600237846,
-0.00745331309735775,
-0.01744222827255726,
-0.03833424299955368,
0.007376657798886299,
-0.03527127951383591,
-0.005954321939498186,
-0.011737481690943241,
0.05740698426961899,
0.036821648478507996,
0.03020048514008522,
0.009311488829553127,
-0... |
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