The Audit Procedure Explained: Streamlining Your Business Audit

Procedure of Audit

Understanding the procedure of an audit is crucial for ensuring transparency and accountability within any organization. 

The audit process typically involves several key steps:

1. Planning: Establishing the scope and objectives of the audit, identifying key areas of focus, and assembling the audit team.
2. Risk Assessment: Evaluating potential risks that could impact the organization’s financial statements or operational effectiveness.
3. Fieldwork: Gathering evidence through various methods, including interviews, observations, and document reviews, to assess compliance and performance.
4. Analysis: Analyzing the collected data to identify discrepancies, inefficiencies, or areas for improvement.
5. Reporting: Compiling findings into a comprehensive report that outlines the audit results, recommendations, and any necessary corrective actions.
6. Follow-Up: Ensuring that the organization implements the recommended changes and monitoring progress over time.

A well-executed audit not only enhances trust among stakeholders but also drives continuous improvement within the organization.

Adoption of distinctive ticks

Auditor should use distinctive ticks of various colours while auditing the books of account of a business. Auditor use different types of ticks for different purpose e.g., vouching, posting, additions, carry forward etc.

Note – Auditor should give clear instruction to the member of his staff that the use of different ticks should not be made known to the clerk of his client.

Routine checking

The checking of common records and books which is carried on by auditor as a matter of routine is known as routine checking.

Routine checking involves four types of functions

1. Checking of casts, sub-cast, carry forward and other calculations in the book of original entry.
2. Checking posting into the ledger
3. Checking casts and balance of various account in the ledger
4. Checking of transfer of balance from the ledger to the trail balance

Routine checking can verify the arithmetical accuracy of the entries made in the book of account.

Advantage of routine checking

1. The book of original entry can be thoroughly checked and error and fraud can be easily detected/
2. Posting can be checked.

Disadvantage of routine checking

1. Only minor cases of fraud can be detected by routine checking major item of fraud cannot be detected.

Test Checking or Selective verification 

Auditor use the process of sampling, select a few items and if they are found correct, he presumes that the remaining entries would also be correct likewise.

Basic Concept 

If representative number of transactions, so selected at random by auditor for test checking is found to be correct, then the remaining ones would also be correct. Test checking should be applied and carried out intelligently and carefully otherwise it may lead to dangerous consequence but much be depended on system of internal check and intelligence of auditor.

Benefits 

1. It saves times and energy
2. If the selection of transaction is done intelligently, test checking is useful.

Limitation

1. All error and fraud may not be detected.

Audit in depth

Detail and step by step examination of transaction through its processes of activity from starting to end.  A comprehensive checking is involved and selected transactions are examined after tracing all the link from beginning to the end.

Main objective 

To complete the audit of accounts in a shorter interval and the auditor can maintain the time target in his work.

FAQ's

Why is audit planning important?

It ensures efficient use of resources, identifies risk areas, and helps define the audit scope and strategy.

What is “materiality” in audit procedures?

Materiality is the threshold or magnitude of an omission or misstatement that would influence the decisions of users of financial statements.

How do auditors assess risk during an audit?

Through understanding the business environment, internal controls, and past audit results. They classify risks as inherent, control, and detection risks.

What is substantive testing?

These are audit procedures designed to detect material misstatements in financial data (e.g., testing account balances and transactions).

Can audit procedures detect all frauds?

No. While audit procedures aim to detect material misstatements (including fraud), they may not uncover all frauds, especially if there's collusion or sophisticated concealment.

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