Scribd
Upload
5 views

Seven Step Approach For Procedure

Auditing procedures

Uploaded by

azraaparuk
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
5 views

Seven Step Approach For Procedure

Auditing procedures

Uploaded by

azraaparuk
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

The seven-step approach in Developing Audit

procedures
1. Understand the Audit Objective

• Define the Purpose: Clearly understand what you are trying to achieve with the audit
procedure. For example, the objective could be to verify the accuracy of financial
records, assess internal controls, or ensure compliance with regulations.
• Align with Audit Scope: Ensure that the procedure aligns with the overall scope of
the audit. Consider what specific assertions (e.g., completeness, accuracy, existence)
need to be addressed.

2. Identify the Relevant Risks

• Risk Assessment: Identify the key risks associated with the area under audit. For
instance, if you are auditing revenue, consider the risk of revenue being misstated due
to fraud or error.
• Focus on Material Risks: Prioritize the material risks that could have a significant
impact on the financial statements or operations.

3. Determine the Audit Assertions

• Select Relevant Assertions: Choose which assertions are relevant for the area being
audited (e.g., completeness, occurrence, valuation, rights and obligations,
presentation, and disclosure).
• Tailor Procedures to Assertions: Each audit procedure should be designed to test
specific assertions. For example, testing for completeness might involve reconciling
records, while testing for occurrence might involve verifying transactions with
supporting documents.

4. Design the Audit Procedure

• Select the Type of Procedure: Decide on the type of audit procedure that will best
address the audit objective and risks. Common types include:
o Inspection: Examining records, documents, or tangible assets.
o Observation: Watching processes or procedures being performed.
o Inquiry: Asking questions to management or other relevant personnel.
o Confirmation: Obtaining direct verification from a third party.
o Recalculation: Checking the mathematical accuracy of records.
o Reperformance: Independently executing procedures that were originally
performed by the client.
o Analytical Procedures: Evaluating financial information by studying plausible
relationships among data.
• Detail the Steps: Clearly outline each step involved in the procedure. Specify what
needs to be done, how it will be done, and who will do it.

5. Consider the Sampling Methodology

• Decide on Sampling: Determine whether sampling is appropriate and if so, select a


suitable sampling method (e.g., random, stratified, or judgmental sampling).
• Define the Sample Size: Establish how many items will be tested to obtain sufficient
and appropriate evidence.

Page 1 of 2
6. Specify the Evidence to be Collected

• Identify Evidence Sources: Specify what evidence needs to be collected, such as


invoices, bank statements, contracts, or other relevant documents.
• Ensure Sufficiency and Appropriateness: Make sure the evidence collected is both
sufficient (enough to support the conclusion) and appropriate (relevant and reliable).

7. Document the Procedure

• Create Clear Documentation: Write down the audit procedure in a clear and concise
manner. This documentation should include the objective, the steps involved, the
evidence to be gathered, and the criteria for evaluation.
• Include Workpaper References: Reference any workpapers or documentation where
the evidence will be recorded.

Page 2 of 2

You might also like