Actual Practice & Problems of Audit Procedure
The purpose of audit procedures is to provide detailed audit steps to be performed during the audit fieldwork that will achieve the specific audit objectives. The auditor’s work will be divided into several distinct phases. . A schematic representation of these phases is as follows:- 1. Accepting the Audit Engagement 2. Planning of Audit 3. Performing Audit Tests 4. Reporting the Findings Figure: – “Standard Audit Procedure at a glance. First Phase of the Audit Process: Accepting the Audit Engagement. At first auditor develops a general strategy and a detailed approach for the expected nature, timing and extent of the audit.
At the same time they also set out the nature, timing and extent of planned audit procedures required to implement the overall audit plan. The considerations are- * Client intimation to be appointed as auditor. * Evaluate integrity of management. * Identify special circumstances and unusual risk. * Assess competence to perform audit. * Evaluate independence. * Determine ability to use due care. * Preparation of engagement letter. Second Phase of Audit Process: Planning the Audit. Adequate planning of the audit work helps to indentify the important areas and provide appropriate attention of the audit.
The purpose of planning are identified potential problems and proper assignment of work to assistants. Familiarization: Here auditor obtains understanding of client’s business and industry and evaluate the MGT’s use of the going concern assumption in the preparation of Financial Statement. Following steps are followed- * Review prior year’s working papers. * Review industry and business data. * Visit client operations. * Make inquiries of management. * Determine existence of related parties. * Consider impact of applicable accounting and auditing pronouncements.
Performance of Analytical Procedures: The analysis of significant ratios and trends including the resulting investigation of fluctuations and relationships that are inconsistent with other relevant information or deviate from predicted amounts. Making Preliminary Judgments about Materiality: It is the omission or misstatement of information that influence the economic decision of users those are taken on the basis of the financial statements. Consideration of Audit Risk Exposure: The risk that the auditor expresses on inappropriate audit opinion when the financial statements are materiality misstated.
Components of audit risk- * Inherent Risk. * Control Risk. * Detection Risk Understanding Client’s Internal Control System (ICS): Understanding of the internal control is a prerequisite to identify and assess the risks of material misstatement of the Financial Statement whether due to fraud or error. According to Para 43 of BSA, IC consists of the following components- * Control environment * The entity’s risk assessment process. * Control activities. * Monitoring the control. Third Phase of Audit Process: Performing Audit Tests
The process of collection and evaluation of evidence related to various audit tests. The phase of performing audit tests involves following steps- 1) Obtain evidential matter through audit tests. 2) Evaluate the evidence obtained for sufficiency and appropriateness and 3) Document the audit evidence in working paper. Vouching: The selecting entries are the accounting records and inspecting the documentation that served as the basis for the entries with a view to ascertaining the propriety and validity of the recorded transaction. Audit Samplings: It involves the application of audit procedures to less than 100% f items within as account balance or class of transactions such that all sampling units have a chance of selection. Last Phase of Audit Process: Reporting the Finding. After performing audit test the auditor prepare a report that includes the expression of an independent and expert opinion on the fairness of Financial Statements. This opinion provides users of F/Ss with reasonable assurance that the statements are in conformity with GAAP. The auditor should review and assess the conclusions drawn from the audit evidence obtained as the basis for the expression of an opinion on the Financial Statements.
Different types of audit reports or opinions are- * Standard Unqualified Audit Report. * An Unqualified opinion with explanatory Language. * A Qualified Opinion and * An Adverse Opinion. Actual Procedure Followed by CPA Firm. When we asked to Mr. Abul Kashem FCA about the actual audit procedure, he clearly shows that in this stage the auditor examines records, documents, or tangible assets. The auditor also examines the physical existence of material negotiable assets and the terms and conditions of agreements. Then he specifically mentioned following steps are followed to conduct an audit to garments organization.
Step 1 A. Offering: At first the garments organization offer the CPAs firm to audit there financial statements through the open advertisement in newspaper or websites. Also sometimes the garments organization makes a contract with some specific CPAs firm to conduct the audit. The garments organization specifies the time to perform the audit. B. Submission of Proposal: We find out the interested CPAs firm submit a proposed to the garments organization/AMTRANET GROUP along with some specifies issues related to potential audit practice. * Draft plan of the audit practice. * Cost of audit. Human resources that may be used in performing audit and * The Logistic supports that should be needed in performing audit. Then AMTRANET group /any garments organization analyze the disclosed terms and conditions provided by the numbers of interested CPAs firm. After completing the analysis the AMTRANET group or any garments organization selects a CPAs firm in term of low cost and the goodwill of the firm. But there is the matter of fact that most garments /AMTRANET group prefer the personal relation with the CPAs firm to select a CPA firm. C. Acceptance of Latter:
In this stage, the AMTRANET/any garment industry send an acceptance letter to the selected CPA firm that Specifying the CPA firm is selected for conducting the audit practice. D. NOC Letter: After accepting the appointment letter, the potential CPA firm collects the NOC from the prior auditor about the clearance by them. Here it is must be mentioned that this letter must be collected within by15 days after providing the acceptance letter. E. Risk Assessment: Here the selected CPA firm assures the prospected risk that may arise during the course of audit. CPA firm consider the following issue: * Any internal constraints. Any political issue and * Insufficient evidence. F. Consent: In this stage, the selected audit firm fills up and submits a form to RJSC and notifying that they are appointed as auditor of AMTRANET group/any garment organization. STEP 2 Actually in this stage the certified public accountants firm makes a plan to perform the audit. 1. Initial Meeting: Before planning the audit the owner of the certified public accountants (CPA) firm i. e. , MR ABUL KASEM Fca Partner, Rahman Kasem & Co make a preliminary meeting with the Board of Directors (BOD) of that garments (Like Amtranet Group) and discuss about the audit plan.
Here the garments (Like Amtranet Group) describes 1) The unit or system to be reviewed, 2) The organization, 3) Available resources (personnel, facilities, equipment, funds), 4) Other relevant information. 2. Preliminary Survey: After the initial meeting the audit firm conducts a preliminary survey in the garment organization to collect some information in order to obtain a general overview of operations. Auditor talks with key personnel and reviews reports, files, and other sources of information 3. Planning the Audit: