20. Audit Documentation
Audit documentation provides the auditors' record of compliance with
generally accepted auditing standards. The documentation (usually in the
form of either electronic files or hard copy workpapers) should contain
support for the decisions regarding planning and performing the audit,
procedures performed, evidence obtained, and conclusions reached.
Even though the auditors legally own the audit documentation,
professional ethics require that the files not be transferred without
consent of the client because of the confidentiality.
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21. Audit Planning
Planning the audit is an important step to conduct the audit. Auditor uses
different planning methods to determine risk assessment, assessment of
internal controls etc. The auditor either internal or external cannot
complete all the aspects of the audit in one year. The auditors plan the
audit is such a way they can cover the audit over a period of time.
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23. AUDIT EVIDENCE USED TO TEST CASH
Cash Receipts Journal
The cash receipts journal contains all of the detailed entries for all
receipts of cash by the entity (debits to the cash account), including cash
deposits. It contains the population of credit entries that should be
reflected in the credits to accounts receivable for customer payments. It
also contains the adjusting and correcting entries that can result from the
bank account reconciliation.
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24. Substantive Procedures
Audit of Cash.
THE AUDIT OF CASH
The first procedure in an audit of cash is to obtain the entity-prepared
bank reconciliations and audit them, focusing on some of the reconciling
items.
The cash disbursements journal is the company's checkbook. It contains
all detailed entries for checks written during the period being audited.
The company's bank reconciliation is the primary document used to test
the cash balance in the financial statements.
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28. Letter of acceptance
for an audit.
Dear Mr Faulkner,
With regards to our previous discussion, held on February 7, 2013, and in response to
your request for audit in letter no xxxx, we are pleased to inform you that your proposal
for External Auditing of financial statements has been approved by our auditing
committee and our company will be carrying out the audit for the financial year
2012/2013.
We will be auditing the financial statements of your company, with the main objective
of reaching an opinion which will be in accordance with the International Standards of
Accounting/Auditing.
However, it is likely that some of the information may be left undiscovered, and for that
we expect full co-operation from your staff, experts and internal auditors. Apart from
analyzing and giving an unbiased opinion, we expect to provide assistance in areas
where we find material weaknesses in your accounting system.
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29. Audit Risk
Audit risk is the probability that an
audit team will express an inappropriate
audit opinion when the financial
statements are materially misstated (i.e.,
give an unqualified opinion on financial
statements that are misleading because
of material misstatements that the
auditors failed to discover). Such a risk
always exists, even when audits are
well planned and carefully performed.
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30. Audit Risk
Audit risk can be broken down into the risks that (1) a material
misstatement occurs (inherent risk), (2) is not prevented or detected by
client internal controls (control risk), and (3) is not detected by the
auditor's procedures (detection risk). Inherent risk and control risk are
combined into risk of material misstatement (RMM)
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31. Information Risk
Information risk is the probability
that the information distributed by
an entity will be materially false
and misleading. Auditors' evidencegathering and reporting reduce this
risk to financial statement users,
but the team itself faces the risk of
issuing an incorrect opinion on the
financial statements
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32. Materiality in the audit
Materiality is a concept or convention
within auditing and accounting relating to the
importance/significance of an amount, transaction, or discrepancy.
The objective of an audit of financial statements is to enable
the auditor to express an opinion whether the financial
statements are prepared, in all material respects, in conformity
with an identified financial reporting framework such as Generally
Accepted Accounting Principles (GAAP).
The assessment of what is material is a matter of professional
judgment.
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33. Internal Control
Internal control is the process, effected by an entity's Board of Trustees,
management, and other personnel, designed to provide reasonable
assurance regarding the achievement of objectives in the following
categories:
• Reliability of financial reporting,
• Effectiveness and efficiency of operations, and
• Compliance with applicable laws and regulations.
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34. Internal Control Objectives
Internal Control Objectives
Internal Control objectives are desired goals or conditions for a specific
event cycle which, if achieved, minimize the potential that waste, loss,
unauthorized use or misappropriation will occur. They are conditions
which we want the system of internal control to satisfy. For a control
objective to be effective, compliance with it must be measurable and
observable.
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35. Analytical Procedures
Auditors can evaluate financial statement accounts by studying and
comparing relationships among financial and nonfinancial data. The
methods of study and comparison are known as analytical procedures.
Auditors are required to use them when planning the audit and when
performing the final review of the financial statements before the audit
report is issued.
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