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Chapter 9.docx - Chapter 9: Audit Procedures Learning...

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Chapter 9: Audit ProceduresLearning OutcomesWhen you have completed this chapter you will be able to:Explain the assertions contained in the financial statements;Provide examples of procedures used to audit specific balances;Discuss and provide examples of how analytical procedures are used as substantiveprocedures;Apply audit techniques to small and not-for-profit organisations; andDiscuss the problems associated with the audit and review of accounting estimates.General PrinciplesWe dealt with theprinciplesof audit evidence in an earlier chapter. This chapter deals withtheapplicationof those principles.It is a starting point to help you familiarize yourself with the basic auditing techniques to allowyou to apply them to questions. It isnotan exhaustive summary of all audit tests, this wouldsimply not be possible in one volume.Financial Statements AssertionsThe objective of audit testing is to assist the auditor in coming to a conclusion as to whether thefinancial statements are free from material misstatement.
However, the auditor does not simply design tests with the broad objective to identify materialmisstatement. This is a difficult conclusion to reach and can only be based upon a series ofdetailed tests, each designed with a specific testing objective relating to certain areas of thefinancial statements.For example: auditors have to assess whether inventory balances are free from materialmisstatement. Unfortunately, there are many ways inventory could be misstated:items could be missed out of inventory;items from the next accounting period could be accidentally included;it might not be valued at the lower of cost and net realizable value;damaged or obsolete stock might not be identified;purchase cost may not be recorded accurately; orthe stock count may not be performed thoroughly.Each of these concerns could result in misstatement, which ultimately could (alone or inaggregate) be material.For this reason auditors have to perform a range of tests on the significant classes oftransaction, account balances and disclosures to be reasonably sure that they are notmisstated. These tests focus on what are known asfinancial statements assertions:Occurrence: did the transactions and events recorded actual occur and pertain to the entity?Completeness: have all transactions, assets, liabilities and equity interests been recorded thatshould have been recorded?Accuracy: have amounts, data and other information been recorded and disclosedappropriately?Cut-off: have transactions and events been recorded in the correct accounting period?Classification and understandability: have transactions and events been: recorded in theproper accounts; and described and disclosed clearly?

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Term
Spring
Professor
ACASSELMAN
Tags
Balance Sheet, Financial audit

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