PRINCIPLE & PRACTICE OF

AUDItING
Assignment 1:
Develop and design a audit plan program
for joint stock company

Creating an audit plan for a joint stock company

involves a series of steps to ensure that financial
statements and business practices are accurate, reliable,
and in compliance with applicable regulations. Below is
a comprehensive audit plan program tailored for a joint
stock company:
1. Define the Scope and Objectives
Objective: To provide assurance on the accuracy,
completeness, and reliability of financial statements,
and ensure compliance with applicable laws and
regulations.
Scope:
Financial statements (balance sheet, income statement,
cash flow statement, equity statement).
Internal controls over financial reporting.
Compliance with relevant laws and regulations (e.g.,
corporate laws, tax laws, SEC regulations).
2. Understand the Company and Its Environment
2.1. Company Background:
Gather information on the company’s history, structure,
business model, and market position.
Review the joint stock company’s articles of
incorporation, bylaws, and other foundational
documents.
2.2. Internal Environment:
Evaluate the company’s organizational structure and
governance framework.
Review key business processes and controls in place.
2.3. External Environment:
Analyze industry trends, economic conditions, and
regulatory changes affecting the company.
3. Risk Assessment
3.1. Identify Risks:
Financial Risks: Assess risks related to financial
reporting, such as fraud, misstatements, or errors.
Operational Risks: Evaluate risks affecting operational
efficiency and effectiveness.
Compliance Risks: Identify risks related to non-
compliance with laws and
regulations.
3.2. Risk Evaluation:
Use risk assessment tools (e.g., risk matrix) to evaluate
the likelihood and impact of identified risks.
Prioritize risks based on their significance.
4. Develop Audit Strategy
4.1. Materiality:
Determine materiality levels for financial statement
components based on quantitative and qualitative
factors.
4.2. Audit Approach:
Substantive Testing: Direct testing of financial
statement balances and transactions.
Control Testing: Evaluation of internal controls and
their effectiveness.
4.3. Resource Allocation:
Assign audit team members based on their expertise
and the areas of risk.
Determine the need for specialists (e.g., IT auditors, tax
experts).
5. Detailed Audit Plan
5.1. Planning and Preparation:
Audit Schedule: Develop a timeline for audit
procedures, including milestones and deadlines.
Preliminary Review: Conduct preliminary meetings
with management to discuss the scope and expectations.
5.2. Fieldwork:
Internal Controls Testing: Assess the design and
effectiveness of internal controls.
Substantive Testing: Perform detailed testing of
transactions, account balances, and disclosures.
Revenue Recognition: Verify the accuracy of revenue
and its recognition.
Asset Valuation: Check the valuation of assets and
review depreciation methods.
Liabilities and Provisions: Ensure that all liabilities are
recorded and provisioned correctly.
Equity Transactions: Review equity-related transactions
and disclosures.
5.3. Audit Documentation:
Maintain comprehensive documentation of audit
procedures, findings, and conclusions.
Ensure all documentation supports the audit opinions
and recommendations.
6. Reporting
6.1. Drafting the Report:
Prepare a draft audit report detailing findings,
conclusions, and recommendations.
Include an opinion on the fairness of financial
statements and compliance with laws.
6.2. Review and Finalization:
Review the draft report with senior audit team members
and management.
Address any feedback and finalize the audit report.
6.3. Presentation:
Present the audit findings to the Board of Directors
and/or Audit Committee.
Discuss key issues, recommendations, and follow-up
actions.
7. Follow-Up
7.1. Implement Recommendations:
Work with management to develop an action plan for
addressing audit findings and recommendations.
7.2. Monitor Progress:
Schedule follow-up reviews to ensure that corrective
actions are implemented effectively.
7.3. Continuous Improvement:
Evaluate the audit process and identify opportunities for
improvement in future audits.
8. Compliance and Ethical Considerations
8.1. Compliance:
Ensure adherence to auditing standards (e.g., GAAS,
ISA) and regulatory requirements.
8.2. Ethics:
Maintain independence, objectivity, and professional
skepticism throughout the audit.
9. Communication Plan
9.1. Stakeholder Communication:
Develop a communication plan to keep stakeholders
informed about the audit process and outcomes.
9.2. Feedback Mechanism:
Establish a mechanism for receiving feedback from
stakeholders to improve the audit process.
10. Quality Assurance
 10.1. Review Process:
Implement a quality review process to ensure audit
work meets professional standards and the audit plan’s
objectives.
10.2. Continuous Training:
Provide ongoing training for audit team members to
stay updated on auditing standards and industry
developments.
This audit plan provides a structured approach to
auditing a joint stock company, ensuring that key areas
are addressed and that the audit process is thorough and
effective. Adjustments may be needed based on the
specific circumstances of the company and regulatory
requirements.

Assignment 2:
List the various documents necessary to be
verified in the audit process
In the audit process, a variety of documents are essential
for verifying financial statements, internal controls, and
compliance with regulations. The specific documents
required can vary depending on the nature of the audit and
the company's industry. Here is a comprehensive list of
documents typically verified during an audit:
1. Financial Statements
 Balance Sheet: To verify the company's assets,
liabilities, and equity.
 Income Statement (Profit and Loss Statement): To
check revenues, expenses, and profit.
 Cash Flow Statement: To review cash inflows and
outflows.
 Statement of Changes in Equity: To verify changes
in equity accounts.
2. General Ledger and Journals
 General Ledger: To review all transactions recorded
in various accounts.
 Subsidiary Ledgers: For detailed transaction records
related to specific accounts (e.g., accounts receivable,
accounts payable).
 Journals: For details on individual transactions and
adjustments.
3. Bank Documents
 Bank Statements: To reconcile bank accounts with
the company’s records.
  Bank Reconciliations: To verify the accuracy of
reconciliations between bank statements and general
ledger.
 Bank Confirmations: For external confirmation of
account balances and terms.
4. Accounts Receivable and Payable
 Accounts Receivable Aging Report: To assess
outstanding customer balances and their aging.
 Accounts Payable Aging Report: To review
outstanding supplier invoices and their aging.
 Invoices and Sales Orders: To verify sales and
receivables.
 Supplier Statements: For confirmation of amounts
due to suppliers.
5. Payroll Records
 Payroll Reports: To verify employee compensation
and deductions.
 Time Sheets/Attendance Records: To ensure
accuracy in recorded work hours.
 Employee Contracts: For review of salary
agreements and employment terms.
6. Inventory Records
 Inventory Listings: To verify inventory quantities
and valuations.
  Stock Count Sheets: For physical verification of
inventory counts.
 Inventory Valuation Reports: To assess the
valuation method used (e.g., FIFO, LIFO).
7. Fixed Assets
 Fixed Asset Register: To review and verify the
details of fixed assets, including acquisition costs and
depreciation.
 Purchase Agreements: For verifying asset
purchases.
 Lease Agreements: If applicable, to review terms
and conditions of asset leases.
8. Legal and Compliance Documents
 Articles of Incorporation and Bylaws: For
verification of company structure and governance.
 Contracts and Agreements: To review terms and
obligations (e.g., sales contracts, service agreements).
 Licenses and Permits: To ensure compliance with
regulatory requirements.
 Minutes of Board Meetings: For understanding
significant decisions and approvals.
9. Tax Documents
 Tax Returns: To verify tax liabilities and
compliance with tax laws.
  Tax Payment Receipts: For confirmation of tax
payments made.
 Correspondence with Tax Authorities: For any
ongoing issues or clarifications.
10. Internal Control Documents
 Internal Control Policies and Procedures: To
review the company's internal control framework.
 Control Testing Documentation: For evidence of
tests performed on internal controls.
 Audit Trails: To trace transactions and ensure
accuracy in recording.
11. External Confirmations
 Customer Confirmations: To verify the accuracy of
accounts receivable.
 Vendor Confirmations: For confirmation of
accounts payable and terms.
 Legal Confirmations: For verification of legal
matters or pending litigation.
12. Management and Financial Reports
 Budgets and Forecasts: To compare actual
performance against projections.
 Management Reports: For insights into financial
and operational performance.
  Analytical Review Reports: For comparing
financial ratios and trends.
13. Miscellaneous Documents
 Insurance Policies: To verify coverage and terms.
 Investment Statements: For verification of
investment balances and valuations.
 Correspondence and Memos: For understanding
significant transactions and decisions.
14. Digital and IT Documents
 IT System Access Logs: To ensure the security and
integrity of financial systems.
 Backup and Recovery Plans: To assess the
adequacy of data protection measures.
15. Other Supporting Documents
 Receipts and Vouchers: For verifying individual
transactions and expenses.
 Petty Cash Records: To review petty cash
transactions and balances.
These documents collectively provide the basis for an
audit and ensure that all aspects of the company’s
financial and operational activities are thoroughly
examined. Depending on the audit's focus and the
company’s specific circumstances, the list may be
adjusted to include additional or specialized documents.

Assignment 3:
Draft a qualified audit report
imaginary data
A qualified audit report is issued when an auditor
concludes that the financial statements are fairly
presented, except for specific areas where there is a
limitation or a disagreement with management. Below is
a draft of a qualified audit report using imaginary data
for illustration purposes.

[Auditor’s Firm Letterhead]

Independent Auditor’s Report

To the Board of Directors and Shareholders of XYZ

Joint Stock Company
Report on the Audit of the Financial Statements

Opinion

We have audited the accompanying financial statements

of XYZ Joint Stock Company (the "Company"), which
comprise the balance sheet as of December 31, 2023,
and the related statements of income, changes in equity,
and cash flows for the year then ended, and the notes to
the financial statements.

In our opinion, except for the effects of the matter

described in the Basis for Qualified Opinion section, the
financial statements present fairly, in all material
respects, the financial position of the Company as of
December 31, 2023, and its financial performance and
cash flows for the year then ended in accordance with
International Financial Reporting Standards (IFRS).

Basis for Qualified Opinion

The Company has not consolidated its subsidiary, XYZ
Subsidiary Ltd., which is 100% owned by the Company.
As of December 31, 2023, the subsidiary had assets of
$5,000,000, liabilities of $2,000,000, and reported
income of $500,000 for the year. The exclusion of this
subsidiary from consolidation results in a departure
from IFRS 10 – Consolidated Financial Statements. The
effect of this non-consolidation on the financial
statements is material but not pervasive.

Our audit opinion is not modified in respect of this

matter.

Key Audit Matters

Key audit matters are those matters that, in our

professional judgment, were of most significance in our
audit of the financial statements for the current period.
These matters were addressed in the context of our audit
of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate
opinion on these matters.
Revenue Recognition

We identified revenue recognition as a key audit matter

due to the significance of revenue to the financial
statements and the complexity of the related accounting
policies. Our audit procedures included testing revenue
transactions, evaluating the appropriateness of revenue
recognition policies, and ensuring compliance with
IFRS 15 – Revenue from Contracts with Customers.

Valuation of Inventory

The valuation of inventory was considered a key audit

matter because of its complexity and the significant
judgment involved in estimating net realizable value.
We performed procedures including inspecting
inventory records, testing valuation calculations, and
reviewing inventory write-downs.

Responsibilities of Management and Those Charged

with Governance for the Financial Statements
Management is responsible for the preparation and fair
presentation of the financial statements in accordance
with IFRS, and for such internal control as management
determines is necessary to enable the preparation of
financial statements that are free from material
misstatement, whether due to fraud or error.

In preparing the financial statements, management is

responsible for assessing the Company's ability to
continue as a going concern, disclosing, as applicable,
matters related to going concern, and using the going
concern basis of accounting unless management either
intends to liquidate the Company or to cease operations,
or has no realistic alternative but to do so.

Those charged with governance are responsible for

overseeing the Company’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial

Statements

Our objectives are to obtain reasonable assurance about

whether the financial statements as a whole are free
from material misstatement, whether due to fraud or
error, and to issue an auditor’s report that includes our
opinion.

Reasonable assurance is a high level of assurance, but is

not a guarantee that an audit conducted in accordance
with International Standards on Auditing (ISAs) will
always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate,
they could reasonably be expected to influence the
economic decisions of users taken on the basis of these
financial statements.

We have fulfilled our responsibilities in accordance with

ISAs and the ethical requirements of the relevant
professional bodies.

Report on Other Legal and Regulatory Requirements

In our opinion, the financial statements comply with the

requirements of the applicable legal and regulatory
framework, except for the non-consolidation of XYZ
Subsidiary Ltd., as described in the Basis for Qualified
Opinion section.

[Auditor’s Signature]

[Auditor’s Name]

[Auditor’s Firm]

[City, Country]

[Date]

This draft represents a basic structure of a qualified

audit report with fictional data and context. Adjustments
may be necessary based on actual audit findings and
specific regulatory requirements.

Assignment 4:
Record the verification procedure with respect
to any one fixed asset
verification procedure for a fixed asset—say, a company
vehicle. The verification process will include a series of
steps to confirm the existence, valuation, and proper
recording of the asset in the financial statements.
Verification Procedure for a Company Vehicle
Asset Details:
 Asset: Company Vehicle (e.g., a delivery truck)
 Model: Ford Transit 350
 Year of Purchase: 2022
 Purchase Price: $50,000
 Depreciation Method: Straight-line
 Expected Useful Life: 5 years
 Residual Value: $5,000

1. Review of Acquisition Documents

Objective: Confirm the asset was acquired and properly
recorded.
Procedure:
1. Obtain Purchase Invoice:
 o Document: Purchase invoice from the vehicle
supplier.
o Verification: Check that the invoice matches the

asset details recorded in the fixed asset register

(e.g., purchase price, date of acquisition).
2. Review Purchase Agreement:
o Document: Purchase agreement or contract.

o Verification: Ensure the agreement includes

terms and conditions that match the purchase

invoice and asset description.
3. Confirm Payment:
o Document: Payment records (bank statement or

check stub).
o Verification: Verify that payment was made and

corresponds to the amount on the invoice.

2. Physical Verification
Objective: Confirm that the asset physically exists and is
in use.
Procedure:
1. Locate the Vehicle:
o Document: Vehicle registration and location

details.
 o Verification: Physically inspect the vehicle to
ensure it is present at the location indicated in the
records.
2. Check Vehicle Identification Number (VIN):
o Document: Vehicle title or registration.

o Verification: Match the VIN on the vehicle to

the VIN recorded in the fixed asset register.

3. Inspect Condition:
o Document: Maintenance records or service logs.

o Verification: Assess the condition of the vehicle

and review maintenance records to ensure it is in

operational condition.

3. Review Depreciation and Valuation

Objective: Ensure accurate depreciation and valuation of
the asset.
Procedure:
1. Calculate Depreciation:
o Document: Depreciation schedule or fixed asset

register.
o Verification: Confirm that depreciation is

calculated using the straight-line method as per

the company’s policy. Calculate the accumulated
depreciation to date and verify it matches the
amount recorded in the financial statements.
 2. Review Residual Value:
o Document: Fixed asset register.

o Verification: Ensure the residual value of

$5,000 is correctly recorded and aligns with the

company’s depreciation policy.
3. Verify Asset Valuation:
o Document: Fixed asset register and financial

statements.
o Verification: Confirm that the recorded value of

the vehicle in the fixed asset register matches the

purchase price minus accumulated depreciation.

4. Assess Compliance with Internal Controls

Objective: Ensure that internal controls over the asset are
adequate.
Procedure:
1. Review Control Procedures:
o Document: Internal control policies related to

fixed assets.
o Verification: Ensure that procedures for the

acquisition, maintenance, and disposal of fixed

assets are followed.
2. Check Authorization:
o Document: Approval documents for the vehicle

purchase.
 o Verification: Verify that the purchase was
authorized by the appropriate level of
management as per the company’s approval
hierarchy.
3. Ensure Proper Documentation:
o Document: Documentation related to the asset

(e.g., purchase invoice, registration, insurance).

o Verification: Confirm that all necessary

documents are properly filed and accessible.

5. Review Financial Statement Disclosure

Objective: Ensure accurate and complete disclosure in
the financial statements.
Procedure:
1. Examine Financial Statement Footnotes:
o Document: Financial statement footnotes and

disclosures.
o Verification: Check that the vehicle is properly

disclosed in the notes to the financial statements,

including details on depreciation methods, useful
life, and residual value.
2. Verify Consistency:
o Document: Fixed asset register and financial

statements.
 o Verification: Ensure that the details in the
financial statements (e.g., cost, accumulated
depreciation) are consistent with the fixed asset
register.

6. Evaluate Asset Disposal (if applicable)

Objective: Verify the accuracy of asset disposal (if the
vehicle has been disposed of during the period).
Procedure:
1. Review Disposal Documentation:
o Document: Disposal records or sales agreement.

o Verification: Confirm that the vehicle was

disposed of properly and that the disposal is

recorded accurately in the financial statements.
2. Check Proceeds of Disposal:
o Document: Sales proceeds or disposal records.

o Verification: Ensure that proceeds from the

disposal match the recorded amount and are

appropriately recorded.

Summary
The verification procedure for the company vehicle
involves reviewing acquisition documents, performing
physical inspections, verifying depreciation and valuation,
assessing internal controls, ensuring proper financial
statement disclosures, and evaluating asset disposal if
applicable. Each step ensures that the fixed asset is
accurately recorded, valued, and reported in the financial
statements, aligning with accounting standards and
company policies

Assignment 5:
prepare an E-content on professional ethics
of an auditor
Creating an e-content module on the professional ethics of
an auditor involves presenting key concepts and
principles in an engaging and informative way. This
module can be designed as a series of slides, interactive
elements, or a written document with multimedia support.
Here’s a structured approach to developing the e-content:

Professional Ethics of an Auditor

1. Introduction to Auditor Ethics
What is Professional Ethics?

 Definition: Professional ethics are the moral

principles and standards that guide behavior and
decision-making in professional settings.
  Importance for Auditors: Ethical conduct is crucial
for maintaining trust, integrity, and public
confidence in the audit profession.
Why Ethics Matter in Auditing:

 Trust: Auditors must uphold public trust by providing

unbiased and accurate financial information.
 Integrity: Ethical behavior ensures that auditors act
with honesty and transparency.
 Regulatory Compliance: Adherence to ethical
standards helps in complying with legal and
regulatory requirements.

2. Key Ethical Principles

2.1 Integrity

 Definition: Being honest and straightforward in all

professional and business relationships.
 Application: Avoid conflicts of interest, refrain from
misrepresenting facts, and ensure truthful reporting.
2.2 Objectivity

 Definition: The principle of remaining impartial and

free from conflicts of interest.
  Application: Avoid situations where personal
interests or relationships could influence audit
decisions or judgments.
2.3 Professional Competence and Due Care

 Definition: Maintaining professional knowledge and

skill at the required level to ensure competent
service.
 Application: Continuously update skills, apply
professional judgment, and perform work with
diligence.
2.4 Confidentiality

 Definition: Respecting the confidentiality of

information acquired during the course of
professional work.
 Application: Do not disclose confidential information
without proper authority, and avoid using
information for personal gain.
2.5 Professional Behavior

 Definition: Conducting oneself in a manner that

upholds the reputation of the profession.
 Application: Avoid actions that discredit the
profession, comply with laws and regulations, and
 act in a manner that reflects positively on the
profession.

3. Ethical Challenges in Auditing

3.1 Conflicts of Interest

 Examples: Personal relationships or financial

interests that could compromise objectivity.
 Mitigation: Disclose potential conflicts and recuse
oneself from situations where conflicts are present.
3.2 Pressure from Clients

 Examples: Requests to overlook discrepancies or

adjust reports.
 Mitigation: Adhere strictly to ethical guidelines and
report any unethical demands.
3.3 Independence Threats

 Examples: Financial dependence on a client or long-

term relationships.
 Mitigation: Implement safeguards such as rotation
of audit partners and maintain a clear separation of
duties.
4. Ethical Guidelines and Standards
4.1 International Standards on Auditing (ISA)

 Overview: Guidelines and standards set by

international bodies to ensure consistent and high-
quality audits.
 Relevance: Provides a framework for ethical conduct
and audit quality.
4.2 Professional Codes of Conduct

 Examples: Codes issued by professional

organizations like the AICPA, ICAEW, or IFAC.
 Relevance: Detailed ethical requirements and
professional conduct expectations.

5. Case Studies and Scenarios

5.1 Case Study: Conflict of Interest

 Scenario: An auditor discovers that a close family

member is employed by the client’s competitor.
 Discussion: How should the auditor handle this
situation to maintain objectivity?
5.2 Scenario: Client Pressure

 Scenario: A client pressures the auditor to alter the

financial statements to present a more favorable
position.
 Discussion: What actions should the auditor take to
adhere to ethical principles?

6. Ethical Decision-Making Framework

6.1 Identify the Ethical Issue

 Process: Recognize and clearly define the ethical

dilemma.
6.2 Evaluate the Alternatives

 Process: Consider various courses of action and their

impact on stakeholders.
6.3 Make the Decision

 Process: Choose the course of action that aligns with

ethical principles and professional standards.
6.4 Monitor and Review

 Process: Review the decision and its outcomes, and

adjust as necessary to ensure ongoing ethical
compliance.

7. Resources and Further Reading

7.1 Professional Organizations

 Examples: International Federation of Accountants

(IFAC), American Institute of CPAs (AICPA), Institute
of Chartered Accountants in England and Wales
(ICAEW).
7.2 Key Publications

 Examples: Ethical guidelines and standards

publications, auditing textbooks, and professional
ethics journals.
7.3 Online Courses and Webinars

 Examples: Continuing professional education

resources on ethics in auditing.

8. Conclusion and Summary

  Recap of Key Principles: Integrity, Objectivity,
Professional Competence and Due Care,
Confidentiality, and Professional Behavior.
 Importance of Ethics: Maintaining ethical standards
is crucial for ensuring the reliability and credibility of
audits.
 Call to Action: Commit to upholding the highest
ethical standards in your auditing practice.

Interactive Elements:
 Quizzes: Test understanding of ethical principles and
scenarios.
 Discussion Forums: Engage in discussions about
ethical dilemmas and solutions.
 Interactive Case Studies: Analyze and solve real-
world ethical issues through simulated scenarios.
This e-content structure covers the essential aspects of
professional ethics for auditors, providing a
comprehensive overview, practical insights, and
interactive learning opportunities.