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Course Portfolio

Auditing II 2 ‫ا را‬
ACCT 329
Level 6

By
Trabelsi Slaheddine
&
Jihan Morsi Mohammed eladawy
Code: ACCT-329
Course Name: Auditing - II Course Type: Core

Pre-Requisite: Auditing - I Concentration

Course Level:
Year 1: Semester 1 Semester 2 Summer Semester

Year 2: Semester 1 Semester 2 Summer Semester

Year 3: Semester 1 Semester 2 Summer Semester

Year 4: Semester 1 Semester 2 Summer Semester

Course Description:
This course exposes the students to the theoretical and practical aspects of auditing regarding
audit examination and reporting on financial statement according to Generally Accepted
Auditing Standards. The main focus of the course is auditing requirements and standards in
Saudi Arabia, and dealing basically with advanced techniques in auditing especially, analytical
review, sampling and auditing of EDP.

Objectives:
On completion of this course, students will be able to understand:

• Audit Procedures
• sampling and auditing of EDP
• Audit of Limited Companies
• Audit of Public Sector Undertaking and Banks
• Audit of Insurance Companies and audit of non-profit Organizations
Learning Outcomes:
The expected learning outcomes of this course are:

• Audit Procedures
• sampling and auditing of EDP
• Audit of Limited Companies
• Audit of Public Sector Undertaking and Banks
• Audit of Insurance Companies and audit of non-profit Organizations

Skills to be developed throughout the Course:


Students will develop their analytical and oral communication skills via case study work carried
out in seminar sessions. Information technology and written communication skills will be
developed when completing the written assignment which will also test student’s creative skills
and their abilities to present theoretical information in practical situations.

Students are encouraged to make use of IT facilities particularly web sites to support research
and reading.

Learning Resources:
Text Books

Author Title Publisher Year

Tandon, B.N. Principles of Auditing S. Chand & Company 2007

Pargare Dinkar Principles and practices of Auditing Sultan Chand 2006

Sharma, T.R. Auditing Principles and Problems Sahitya Bhawan 2008

e- Library Reserves

• http://www.emeraldinsight.com/insight
• http://www.businessnation.com/research/subject/accounting
Internet

• Ebsco Business Premier: A database containing several hundred key business


and management journals with full text articles updated daily.
• Courseware: Specific research support resources and documents, selectively
posted to complement and build upon materials available in proctor’s
methodological text. Such documentation will typically be posted regularly.
• www.decalibrary.org
• www.ipl.org
• www.lib.utsa.edu/research/subject/accounting
Journals

• Auditing
• International journal of Auditing
• Accounting forum
• Advances in Accounting
• Critical perspective on Accounting
• The British Accounting Review
• International journal of accounting
Delivery and Teaching Strategy: (Lecture, Online, Physical, blended, self directed
through CD, web based courses and DVD)

Methods of Instruction: It would be based on Lecture, demonstration and assignment


review. Questions are encouraged and participation is expected.

Assessment Strategy:

First Mid Term Exam: 20 Marks to be held on..…….Day,…….Month, 20..

Second Mid Term Exam: 20 Marks to be held on……Day,……Month, 20..

Attendance, Participation & Assignment: 10 Marks

Final Exam: 50 Marks

Total: 100 Marks
Syllabus Change Policy: This syllabus is a guide for the course and is subject to
change with advanced notice.

Course Contents:

Audit Procedures: Verification program-selective verification, Audit in depth, test checking,


Auditor’s Approach to statistical sampling, Routine checking, vouchers, verification and
valuation of assets and liabilities, Auditor’s Report on Profit and Loss Account and Balance
Sheet. Standard of Auditing. Advanced techniques in auditing especially, analytical review and
auditing of EDP.

Audit of Limited Companies: Qualifications and Appointment of Company Auditors, their


powers, duties and liabilities, Audit of share capital, share transfer and managerial
remuneration, Additional matters in the Auditor’s Report (Manufacturing and other companies),

Audit of Public Sector Undertaking and Banks: Special features concerning Audit of
departmental undertakings, Statutory Corporations and Government Companies, Procedure of
appointment of Auditors and Special features relating to the audit of Banks.
Unit 1
Audit Procedures
Introduction

Auditing is the process by which an independent person collects and


evaluates the evidence for the purpose of determining the quality of
accounts of an entity.

The verification program is developed before starting the process of


audit.

In verification audit program, entity conducts verification review to


confirm that the program is at par with the prevailing standards of
auditing. Thus, authenticity of program is confirmed.

Some of the common auditing standards to be checked for the program


are:

1- Only competent and independent person can carry out the audit.
2- Work should be well planned in audit.
3- Sufficient and accurate evidence is to be gathered and tested before opinion
is put.
4- Appropriate judgment of an auditor is very important and it depends upon
the professional knowledge of auditor.
Thus, the above verification program along with the supportive documents is
selected for audit.
Audit evidence:
Definition:
It is a proof that an auditor uses to express his opinion on the accounts and
financial operations of the firms.
It is include check,records, invoices, contacts, and others information.

An auditor must collect sufficient and appropriate audit evidence to make his
judgment of opinion.
Auditor obtain such evidence from tests that determine how well accounting
control work (compliancetest) and tests of accounting detail such as
completeness ( substentativetest)

So, to obtain sufficient and appropriate evidence the auditors must


performs:
1- Compliance tests
2- Substantive tests

Compliance tests:tests designed to obtain reasonable assurance that the


internal control system is in effect to rely upon for the purpose of audit.
It checks the systems efficacy to be audited.
Compliance tests seek to test:
1-That the internal control exists.
2-That the internal control is effective.
3-That the internal control has so operated and contained throughout the period
of audit with continuity.

Substantive tests:these are the tests designed to obtain audit evidence as to


completeness, accuracy and the validity of data produced by the accounting
system or activities performed by the auditor to detect material misstatement at
the assertion level.

By it, the auditor can take all the assertions that the financial statements which
given to him are true and fair.

Gathering audit evidences:


The audit evidences are of the following types:
1- Writtenevidences : these are in the form of documents , records , vouchers
ledgers , subsidiary books .
2-oral evidences : these are in the form of verbal reply in person or over phone
or in meeting .
3-physical evidences :are possible in cases of tangible assets
For example: factory building,cash,and investments.
The auditor collects evidence from different sources.The evidence may be
available in the entity itself(salesinvoices, reply by the staff purchase, bills) , or
outside sources( confirmation by debtor ) .

• These evidences are obtained by the following methods:-


1- Inspection:it consists of examination of records , documents or tangible
assets .
2- Observation:it means taking part in the process as a witness.
3- Inquiry : it is done by putting questions
4- Confirmation:to confirm the facts supplied.
5- Computation: consists in doing arithmetical exercises like
totaling,balancing, preparing reconciliation.
6- Analytical review:this involves analysis of significant accounting ratios and
trend performance including investigations of fluctuation that occur between
the current financial performances with the previous one.

• Audit in depth:
It is the examination of the system in a business to trace certain transactions
from their origin to the end, investigating at each stage the books of accounts
(records) for authorization.
Auditor has to examine a few transactions in detail from the origin of the
transactions till their end .
- Every record maintained relating to particular transaction is scrutinized.
- The technique of audit in depth is based upon test checking.
Test checking,
Auditor’s approach to statistical sampling,
And routine checking

Testchecking:
It is the selection and checking of representative sample from a large number of
sample items.

- In big house where the number of transactions to be checked is very large and
the time at the disposal of auditor is a little, a few transactions may be checked
at random, that means the test checking is adopted in big business houses.

- The most of auditors minimize their work by applying test checks.

• precaution to be taken while applying test checking :


1- Entry of every type should be checked.
2- Period and entries selected for test check should be different at each audit :
• The clients should not know the period selected for the test check.

* The months for the test check should be different from the last test check.
3- Selection of entries to be checked should be at random.
4- Test check is not applied to the cash book.
5- The transactions should be same for test checking.
6- The test check should be so arranged that the work done by every clerk is
checked.
7- The good internal control system in the company means less sample size.

Audit sampling:
The process of using of audit procedures to less than 100% of the items within
a class of transactions to help the auditor to form an opinion.

- Sampling makes the audit very simple because it is not possible to study
single items.

*Sampling take random:that mean each unit has equal chance of being
selected

Factors determining size of sample :


1- Internal control system: - if there is a good internal control system operates
within the entity, the auditor can restrict the size of sample to minimum.
2- Nature and value of business :
If the transactions are voluminous and repetitive, the auditor has to resort to
small sampling only
3- Time :
Depending upon the audit schedule, the auditor may select the sample size.
(Audit schedule also affects the sample size).
4- Audit aim.
5- Risk :

Risk of the items also decide about the sample size

(If the risk in not checking an item is a high, the auditor may not leave checking
it)
6- Previous history :
Previous audit history of the entry will determine the sample size.
Routine checking
Routine checking is the regular monitoring of business accounts, books and
ledgers to detect any error either accidently or fraudulently, it is done by closely
examining all the books, ledgers or accounts for the arithmetic errors.

Advantages:
Routine checking is easy to perform and ensures that a business is operating to
its full potential. If errors are detected, it could also potentially save company
money, especially if fraud is involved.

Disadvantages:
Routine checking can be expensive for company. And it is tedious for the
employee who must perform it
Major errors or fraudulent changes in books and ledgers can be overlooked as
well , especially if the person performing the routine checking has not been
thoroughly educated in locating them
Vouchers
• Vouchers:
It is documentary evidence in support of a transaction in the books of account.

Vouchers may be receipts, an agreement, resolution passed by the board of


directors or shareholders and as recorded in the minute books, an invoice,
bought note sold notes,contract, and bill.

• Vouching:
The act of establishing the accuracy and authenticity of entries in the account
books using documentary evidence by the auditor
It means testing the truth of items appearing in the financial statements.

Why we do vouching?
1- Any incorrect entry or any omission can easily discover through vouching.
2- The auditor checks whether the transaction has been properly recorded and
entered in the books of account .
3- Frauds can be discovered only by proper vouching.
4- The auditor satisfies himself about the truth and authenticity of the books of
account .