Case Study: Auditing And Assurance

Assignment

Case Analysis

Auditing

Introduction

This assignment deals with identification of substantive audit procedures for the given account balances. The overview of substantive audit procedures is given below:

Substantive Audit Procedures

Substantive audit processes may be considered as the techniques designed via an auditor to audit the monetary statements of a enterprise that requires the auditor to provide compelling proof to confirm the completeness, accuracy, availability, opportunity, size, and monetary (auditing) of the financial statements, business records. (Substantive Procedure in Audit – Definition, Examples, Types, 2020)

The reason of this form of audit method is to determine whether or not there are any material errors within the entity’s economic statements, this is, whole, accurate, legitimate, and all applicable statistics is disclosed. The method includes checking the balance of the account, checking the standard inputs, and different modifications made during the practise of the organisation’s monetary statements and it consists of asking questions about suspicious transactions. Some examples might be a 3rd birthday celebration guarantee along with verifying the financial institution’s financial institution balance from the Bank at once, calculating the actual stock, verifying the money owed payable etc.

Need of Substantive Audit Procedures (What are Substantive Audit Procedures? (Definition, Explanation, Example, and More), 2021)

Auditors’ auditing strategies or techniques for detecting significant discrepancies within the monetary statements are called audible audit strategies. Auditors cannot rely on the consumer’s inner manage machine to other clients; therefore, they use most effective rigorous audit strategies.

Similarly, auditors behavior audible audits to acquire enormous proof regarding account balances, overall performance classes, and disclosure of economic statements to their clients. Auditors are accountable for designing and imposing audible audit procedures so that you can respond correctly to the assessed dangers of lying throughout the audit.

As a preferred, auditors have to comply with tactics for reconciling financial statements with statistics of basic debts and observe fabric journals and other changes used to prepare economic statements.

Example

When analyzing sales, auditors can also examine sales figures inside the Client’s Income Statement with previous years ‘figures to see how a great deal they’ve changed and whether or not the exchange is consistent with the auditors’ requirements. In the identical manner, auditors can also evaluate customer sales with its most income or income cost to look if the cost has stepped forward as expected. In this way, auditors can advantage precious insight into what has changed for the customer at some point of accounting.

Test Details

The audit approaches used by the auditors to assess the numerous accounting claims for the key useful areas, the account balance, and the disclosure of the client’s economic statements, are called information audits. The auditors reviewed assisting proof in the course of a time period reviewing the facts such as the evaluation of income invoices to verify the info of the supporting files. It is a treasured tool for auditors whilst looking for transaction statistics. They can include those techniques into each object of financial statements they’re auditing to make certain the accuracy of the statistics.

Importance of substantive Audit Procedures (Pankova, 2016)

These types of substantive audit procedures are taken into consideration important due to the fact:

• They have a tendency to provide help and a request for a decision made with the aid of the auditor;
• They may additionally disregard any unjustified claims made by the auditor.
• Add a verification layer to the audit system by means of making sure that these audit strategies are carried out carefully.

For this purpose, the Audit Procedures may be considered an necessary a part of the overall audit process due to the fact they often provide the idea for the auditor’s claims. They test for any collisions or faulty statements within the economic statements, which might be very beneficial in determining whether or not there had been any excesses in the ones situations.

Identification of Substantive Audit Procedures

Case Study 1

1.

Wages and Salaries

For wages and salaries, auditor can perform substantive audit procedures by proper examination of salary slips that were given to the employees and matching the given salaries with the records. Apart from that auditor can check the performance records of the employees and cross check, whether proper wages were given to the employees by examining the cash records journal properly.

2.

Electricity

For this case, the auditor can perform substantive audit procedures by proper examination of electricity bills paid to the office. This is very essential, as it will help the auditors to examine about the fraud bills to the electricity office. The auditor can correctly examine by checking the recorder power readings.

3.

Inventory

In this case, the auditor can perform substantive audit procedures by observing the track record of inventory goods, by checking the inventory management file. The auditor can also compare the allocated budget with the cash journal to check for any variances, if present.

Note: In this manner, the auditor could perform the substantive audit procedures for all the above three account balances. This will ensure the auditor to check for any faults or frauds present, which are very much essential to detect for smooth and proper functioning of supply chain network of an organization.

Case Study 2

Opinion

The Auditor-General carried out fifty transaction evaluation assessments and determined 3 errors. He concluded that no such blunders became huge and therefore concluded that the internal controls have been reliable. As the auditor discovered three mistakes out of 50 because of this the error became 6% i.e. (3 *100 /50). The tolerable error became 5% and accordingly the error turned into 1% better than the tolerable errors. However, the auditor concludes that such controls are reliable which ends up in an errors or mistakes within the audit. Since the error turned into extra than a tolerable error, the auditor need to perform the equal procedure on another pattern to make certain that the mistake became not significant and ought to finish that the control became dependable. It creates a excessive chance of retrieval and so that you can decrease the sort of hazard, the auditor must conduct in addition investigations.

So, in my opinion, the auditor does now not nicely observe what he sees. He also did now not perform any tests to test the inner controls but handiest did manipulate controls. He ought to carry out both analytical checks and make certain that the danger remains low always at some point of the observation.

Conclusion

The above assignment was based on Auditing, where two case studies were given and questions on substantive audit procedures were asked.

References

Pankova, S. V. (2016). Implementation of Audit Procedures For Marketing Audit Performance. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2779955

Substantive Procedure in Audit – Definition, Examples, Types. (2020, September 30). WallStreetMojo. https://www.wallstreetmojo.com/substantive-procedure/

What are Substantive Audit Procedures? (Definition, Explanation, Example, and More). (2021, July 31). AUDITHOW. https://audithow.com/substantive-audit-procedures/