Documentation
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Overview
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Objectives
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Audit Evidence-What is It?
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Why Audit Evidence?
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Types of Evidence
Physical evidence
Third-party representations
Documentary evidence
Computations
Data Interrelationships
Client representations
Accounting records
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Types of Evidence
Physical Evidence
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Types of Evidence
Third Party Representations
Confirmations
Lawyers Letters
Reports of Specialists
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Types of Evidence
Documentary Evidence
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Types of Evidence
Computations
Computations are:
Performed independently by auditor
Used to verify mathematical accuracy of
clients analyses and records
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Types of Evidence -Analytical
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Types of Evidence
Oral and Written Client
Representations
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Types of Evidence
Accounting Records
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Audit Procedures
Physical examination Physical Evidence
Observation
Confirmation Third-Party Representations
Tracing
Vouching
Documentary Evidence
Inspection
Reconciliation
Reperformance Computations
Analytical procedures Analytical
Inquiry Client Representations
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Comparison Accounting Records
Document Vouching
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Document Tracing
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Observation
Auditor witnesses the physical activities of
the client.
Useful in obtaining evidence that controls
which leave no documentary evidence of
application or existence are in operation.
Differs from physical examination because
physical examination counts assets, while
observation focuses on client activities e.g.
inventory counting.
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Reperformance
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Inspection of Documents &
Records
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Analytical Procedures
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Analytical Procedures
Analytical Procedures are useful in identifying
among other things:
Differences that are not expected.
The absence of differences when they are
expected.
Potential errors, irregularities or illegal acts.
Other unusual or non recurring transactions
or events.
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Analytical Procedures
If a change in one area would naturally lead
to a change in some other area, the absence
of the expected change should lead to a
further study in search of the cause.
Ex. If commissions paid to sales
representatives rise in one quarter, it would
be reasonable to expect a correspondence
increase in sales revenue.
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Examples
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Forms of Analytical
Procedures
Comparisons:
Current period information with similar
information for prior periods.
Current info with budgets or forecasts.
Info for the audited unit with info for other
organisational units.
Information for the audited unit with similar
information for the industry in which the
organisation operates.
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Analytical Procedures
Relationships:
Study of relationships of financial info with
appropriate non financial info e.g. changes
in payroll expense compared to changes in
average number of employees.
Study relationships among elements of
information.
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Analytical Procedures
When analysis uncovers unexpected results,
auditors should undertake further study e.g.
making inquiries to management & applying
other audit procedures. The explanation may
lie in errors, irregularities or illegal acts.
Further study should continue until the
auditor is satisfied that the results have been
sufficiently explained.
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Competence of Audit
Evidence
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Competence of
Evidential Matter
To be competent evidence must be:
Relevant
Must relate to the audit objective. E.g. purchase order
not relevant to prove that goods were actually received.
Valid (Reliable)
Independent sources have greater reliability than those
within the client organization.
Strong internal control increases reliability of evidence
created within the client organization.
Directly obtained evidence is more reliable than
evidence obtained second hand.
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Reliability of Certain Types of
Audit Evidence
Documentary
External Bank Statement
External/Internal Purchase Invoice
Internal Sales Invoice
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Competence of Evidence
Evidence is sufficient if there is sufficient of it to
support the auditors findings. It must be convincing
enough for a prudent person to reach the same
decision/conclusion. E.g. interviewing the auditee is
not enough to provide sufficient evidence.
It must be factual and adequate to the testing
objective.
Verifying the physical condition is most persuasive
evidence as to condition of asset.
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Selection of Audit
Procedures
The criteria for selection of the most
suitable technique can be based on the
following:
Will the technique meet the objectives of the
audit stage or phase?
Has the auditor the skills to use the procedure?
Is the material to be audited available and in a
condition to be used with the audit procedure.
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Selection of Audit
Procedure
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Compliance Audits
Compliance procedures provide evidence
that internal controls exist and that they are
being applied effectively and consistently.
Procedures which can be used include:
Enquiry & representation.
Observation
Inspection of supporting documents
Re-performance of controls.
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Substantive Procedures
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Substantive Procedures
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Audit Documentation
Audit Standard: 2330-1
Working Paper Files
Typical Working Paper Format
Storage of Working Papers
Ownership of Working Papers
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Audit Documentation
Standard 2330-1:
Internal auditors must document relevant
information to support the conclusions and
engagement results.
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Audit Documentation
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Working Paper-Objectives
Provide a basis for evaluating the internal
audit activitys quality control program.
Document whether engagement
objectives were achieved.
Support the accuracy and completeness
of the work performed.
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Key X-teristics of Work
Papers
Complete
Concise
Accurate
Organised
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Characteristics
Completeness:
Each Work Paper should be completely self
standing and self explanatory. All questions
must be answered, all points raised by the
reviewer must be cleared and a logical, well
thought-out conclusion reached for each
audit segment.
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Characteristics
Accurate:
High quality work papers include
statements and computations that are
accurate and technically correct.
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Characteristics
Organisation:
Work papers should have a logical system
of numbering and a reader friendly layout
so a technically competent person
unfamiliar with the project could understand
the purpose, procedures performed, and
results.
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Characteristics
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Work Paper Elements
Work papers should include the following
key elements:
Name of audit area
Source: The name and title of the individual
providing the documentation should be recorded
to facilitate future follow-up questions or audits.
Scope: The nature, timing, and extent of
procedures performed should be included on
each work paper for completeness.
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Elements of W/Papers
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Working Paper-Example
ABC Pension Audit as of 30/06/2011
Comparison of HRD 20 Forms to Master Files
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Working Paper Example2
Summary of Audit Findings (RAF)
ABC Ltd Pension Audit as of 30th June 2011
RAF No. C-3 Scope:
W/P Ref: A-3
Audit Objective:
Method of Sample Selection
Results (Condition, effect, cause)
Conclusion
Recommendation:
Risk Grade: Medium
Prepared by: Date:
Reviewed by: Date:
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Elements
Tick mark legend. A concise definition of all
tick marks (symbols) should be included on
each audit work paper to clearly describe
the work performed during the engagement.
Exceptions. Audit exceptions should be
documented and explained clearly on each
work paper using logical numbering that
cross reference to other work papers.
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Tick Mark -Example
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Storage of Work Papers
Permanent File:
Keeps information that is relevant for
multiple years on recurring engagements.
Current File:
Information relevant for a given audit
project/engagement.
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Working Paper Storage
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Working Papers Mgt
Policies
The CAE must control access to engagement
records Std 2330.A1.
The CAE must obtain the approval of senior
management and/or legal counsel prior to
releasing such records to external parties, as
appropriate-Std 2330.A2.
The CAE must develop retention
requirements for audit records consult legal
counsel.
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END
QUESTIONS?
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END
THANK YOU!
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