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îAuditing means

 g eratigns fgr the ur gse tg get true and fair
view gf cgm any g eratigns.
îAuditing is an inde endent   
    and related financial
infgrmatign gf an entity whether    gr .
îAn external auditgr is a third    . Auditgr audits the whgle cgm any and gives
his re grt and  that this cgm any is giving    in his financial accgunts.
îAfter the audit auditgr will send letter tg    whg a gint him that cgm any is
dealing fairly.


î0he basic gbjective gf the auditgr is tg ex ress an g inign in all material as ects abgut the
cgm any whether the firm¶s financial statements are re ared accgrding tg identified financial
re grting framewgrk IFRF).

º When auditgrs find the fake invgices in urchase gf inventgry gr in sale then auditgr
will fgrm his g inign and send it tg the sharehglders because they a gint him and want re grt
gn the dealings gf the cgm any.

î0he auditgr gnly gives his g inign gn firm¶s financial statements gn the basis gf his judgments
and kngwledge. He will             abgut its future dealings and

º A cgm any a gints an auditgr and he audit the firm and find rgblem in the sales
area. 0hen auditgr will give his recgmmendatign and g inign gn this rgblem at the end gf the
audit. But auditgr will never give the assurity that this cgm any will make fraud gr
misre resentatign in future.

îAn auditgr will gbtain    

by identifying the rgblem accuracy gf sgurce gf
data fgr re aratign gf financial statements and by deciding whether relevant infgrmatign is
  gr ngt.

º A cgm any writes his all sales directly in incgme statements and ngt give any ngte
abgut it which can tell the sgurce gf sale. 0he absence gf ngte will create dgubt in the mind gf
auditgr that may be the numbers gf sales are ngt cgrrect then he will start wgrking gn it.



Auditgrs always dg his wgrk    . He dgesn¶t wgrk under management. Auditgr is
hired by the sharehglders rather than the management.
ºvery cgm any ex ects that the auditgr a ginted gn them will be an     gf
integrity with high character whg will ngt indulge in mal ractices.

Auditgr will cgllect that infgrmatign which    gr    in fgrming an audit g inign:
which is the basic gbjective gf the audit.
º An auditgr main fgcus in a cgm any is the inventgry checking but he is fgcusing gn
the gther activities which are ngt relevant tg his audit. 0hese activities can increase the
cgm lexity gf wgrk.
Auditgr shguld have the required rgfessignal qualificatign and necessary ractical ex erience
tg carry gut the audit wgrk. 0he auditgr must be a   !

  (CA) and in certain

cases a "  !


º CA and ACMA are qualified fgr auditing the firm

 all the secret infgrmatign gf the client tg third arty gr tg anygne else
ex ect as ermitted/allgwed by law.
0he auditgr shguld      during his audit rgcess. 0he auditgr
behavigr with the client gr with the ersgn he is interacting shguld reflect higher standard gf

º Auditgrs send his team in the cgm any where gne team member has relatigns with the
em lgyee gf the cgm any and when he sees his friend he said hellg quite distance. Su ervisgr gf
the team called him and asked him what is this and then su ervisgr request the auditgr tg change
the team.


Auditgr has tg audit the firm accgrding tg    and
acce table auditing ractices.

º Accgrding tg ISAs, GAAP, IAS


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0he auditgr shguld erfgrm an audit with an attitude gf Prgfessignal Ske ticism (Questigning
mind). 0he auditgr shguld ask questigns in detail tg analyze the cgm any and dgn¶t believe gn
the management.

An attitude gf rgfessignal ske ticism is necessary thrgughgut the audit rgcess fgr the auditgr tg
reduce the risk gf gverlggking sus icigus circumstances and gver generalizing when drawing
cgnclusigns frgm audit gbservatigns.

º Management gf cgm any says tg auditgr that gur sales are gk; there is ng need tg
check. But auditgr will ngt believe gn them and will use his rgfessignal ske ticism and ask
questigns gn sales frgm sales de artment;

î What are the sgurces gf sales?

î What art gf ygur tgtal sales based gn lgcal sales?
î What are ygur gtential custgmers?
î Hgw ygu increase/decrease ygur sales this year?
î Amgunt gf bad debts
î Why ygu ngt gg fgr ex grt sales?

0hese are the sgme questigns that auditgr may ask frgm the sales de artment. Auditgr will
generate questign frgm questign by using his rgfessignal ske ticism. 0hese questigns and
answer will hel the auditgr tg draw reasgnable cgnclusigns gn which tg base the audit g inign.


Reasgnable assurance is a cgnce t relating tg the accumulatign gf the audit evidence necessary
fgr the auditgr tg cgnclude that there are ng material misstatements in the financial statements
taken as a whgle.

$   6     



Persuasive evidence is the gne 


% In sim le wgrds, ersuasive evidence is that which we lead gr assist the auditgr tg
believe that transactign has carried gut gr an

º an auditgr has dgubt abgut the sales transactign and tg verify it he will see different
evidence (i.e. dgcuments, recgrds, bggks etc.) that su grt the transactign and which eruse him.



Cgnclusive evidence is the   

which is easily gr 
  at first sight by
hysical ins ectign gr cgnfirmed sgurces.

º  Auditgrs ask the cgm any that these custgmers ays ygu cgm any says yes ygu can
ask the bank. 0he auditgr will ask the bank and if bank say yes these custgmers ays every
mgnth then auditgr will be satisfied.

º & A building has been cgnstructed and this activity can be hysically ins ected by an
inde endent auditgr.

ºvery cgm any faces different risks and its management res gnsibility tg identify these risks and
res gnd them but is gnly res gnsible fgr thgse risks which may affect the financial statements.
0here are three ty es gf risks which are given belgw;
Inherent risk is defined as the material misstatement in the absence gf related internal cgntrgl. In
sim le wgrds, risk that exists in each line gf business withgut cgnsideratign gf the level gf
management cgntrgl in lace.
º Cgm any has the inherent risk in the cgunting gf chemicals at the end gf the year
which canngt be cgntrglled.

Cgntrgl risk is defined as the material misstatement in the resence gf cgntrgl. Cgntrgl risk is the
risk that a misstatement that cguld gccur in an assertign and that cguld be material, individually
gr when aggregated with misstatement in gther balances gr classes, will ngt be revented gr
detected and cgrrected gn timely basis by the entity¶s internal cgntrgl.

º rgbbery gf mguse frgm the cgm any in the resence gf cameras gr cgntrgl and this
risk can be minimized by tightening the cgntrgl.


Detectign risk is defined as the material misstatement because auditgr¶s sam les exclude items
with errgrs. Detectign risk is the risk that the auditgr will ngt detect a misstatement that exist in
an assertign that cguld be material, individually gr when aggregated with gther misstatements.

º Auditgr check the 90% custgmers but the ngt the remaining 10%. 0here is a risk that
if these 10% custgmer invglved in its 50% sales than there may be material misstatement gr fake
sales with these custgmers gr the fake custgmers.

' It¶s the management res gnsibility tg re are the financial statements.

^ ! 

îInternal auditgr means an a raisal activity established within an entity as a service tg the
entity. Its functigns include, amgngst gther things, (   the
adequacy and effectiveness gf the accgunting and internal cgntrgl system.


î0he ur gse gf internal audit is the     the internal cgntrgl. Internal
auditgr alsg examine the financial (bggks gf accgunts) and g erating (inventgry, marketing,
sales etc.) infgrmatign.
îInternal auditgr shguld have the u dated kngwledge gf the 
 tg dg their
functigns efficiently (exchange rates, inflatign, etc.).
îInternal auditgr has tg    

tg make sure that all the glicies gf the cgm any
are im lementing rg erly gr ngt.
îIf any assignment is given tg internal auditgr as 
  by the management gr
chairman gf meeting then he has tg erfgrm it efficiently.

Cgm anies interested in internal auditgrs because they want re-causatignal measures.
Cgm anies wants that when the external auditgr came, he cguld ngt find any mistakes. Internal
auditgrs a gint thgse firms whg dgn¶t want any mal ractices in their firm.

^  %   

î0he external auditgr gives  gn the basis gf his findings whether the internal auditgr
î0he M 
gf external auditgr shguld be accgrding tg ISAs (CA, ACMA) whether the
inter auditgr can be
    whg has the relevant kngwledge gr ex erience.
îºxternal auditgr is a ginted by the    whether the internal auditgrs are a ginted
by the   .
î0he   gf external auditgr are accgrding tg the ^Ý!, whether the duties gf internal auditgr
set by the   .
îºxternal auditgr re grt tg sharehglders whether the internal auditgr re grt tg the management.


îAn internal auditgr erfgrms different ty es gf assignments including    % It

means audit gf all g eratignal activities frgm urchase gf raw material tg finished gggds.
îIt alsg   
   which means audit gf all bggks gf accgunts i.e. incgme
statements, retained earnings, balance sheet.

îHe alsg   
 tg check whether all the duties gr res gnsibilities
are erfgrmed by the assigned ersgn gr ngt.
îInternal auditgr alsg erfgrms the best value audit.

! Π 

0here are fgur quarters in a financial year and at the end gf each quarter internal auditgr has tg
submit the internal audit re grt. In this re grt he will give intrgductign and 
and then he will tell his   and his im licatigns and gn the basis gf
his findings he will draw

  tg sglve that rgblems. At the
end, he will  
 gf the mistake gr fraud that he discussed in the re grt.


Internal auditgr is different frgm external auditgr in terms gf ethics and regulatigns. Sgme
regulatigns fgr inter auditgr are;

î0here are ng s ecific   M    tg hire internal auditgr.

º  Qualificatign, hiring rgcess. Management hire gnly thgse ersgns whg have the
relevant kngwledge and skills.
îInternal auditgr is wgrking under the higher management and the management cgntrgls the
internal auditgr.
î0here       the rules gf ISA in hiring the internal auditgr because it is ngt


îInternal auditgr has tg   )

      whg are running the
cgm any¶s g eratigns.
º Cº and B D gf the cgm any
îInternal auditgr has tg erfgrm gnly thgse tasks which are relating tg auditing. He is ngt
invglved in ngn-audit activities.
º Internal auditgr can¶t serve the cgm any as a sales re resentative because its jgb is
tg mgnitgr the financial infgrmatign.
îInternal auditgr shguld have the access tg necessary infgrmatign fgr auditing ur gse.
º Auditgr need the invgices tg check the uchases but management is ngt rgviding
îInternal auditgr shguld be su grted by all the management tg increase the efficiency gf
internal auditgr.
º auditgr has bad relatigns with the mangament ersgn and he is ngt giving him the
free area tg wgrk.



We can evaluate the internal audit functigns thrgugh different gints. Sgme gf these are;

In an ideal situatign internal auditing functigns re grt tg management and free frgm any
g erating res gnsibility fully with the external auditgr.

[ature and extent gf assignment cgvered by internal auditgr and then the management actign
gn his recgmmendatigns. 0ime dges¶y matter fgr internal auditgr because he is wgrking fgr
salary but it matter fgr external auditgr bacause he came fgr a shgrt erigd gf time.


0g eveluate internal audit functigns cgm any check that whether the ersgns whg ar e
erfgrming auditing functigns have the adequate kngwledge training and rgficiency as
internal auditgrs.
Whether internal auditing is rg erly lanned, su ervised, reviewed and dgcumented. 0he
existance gf adequate audit manuals, wgrk rggrams and wgrking a ers etc. whguld be


When internal and external auditgr will wgrk tggether then they can decide easily the nature,
timing and extent.

º Ygur internal auditgr had dgne lgt gf wgrk gn inventgry in a year means he check the
inventgry gn every quarter and he has gggd hand gut gn inventgry. But external auditgr has its
gwn nature that he wguld de endent gn internal auditgr gr ngt.external auditgr will de endent gn
internal auditgr when he has ng dgubt abgut him. Let say external auditgr has ng dgubt gn him
then external will check his wgrk randgmly and will gg and echeck the inventgry hysically. If
the things are cgncising then he can take his wgrk as evidence.



îScg e gf wgrk and audit rggrams are adequate

º if the internal auditgr has ngt check the sales in every quarter than external auditgr
will never believe gn his wgrk.

îWgrk is rg erly lanned, su ervised, reviewed and dgcumented

º False vgucher gf sales are dgcumented and then auditgr will give recgmmendatign gn
it and management will take actign that it will never ha en again.

îSufficient a rg riate evidence (SAAº)

º if the internal auditgr has check the inventgry hysically and he has sufficient
a rg riate evidence then external auditgr can take his wgrk.

îAny ex ectigns gr unusual matters disclgsed by internal auditgr¶s rgcedures have been
rg erly resglved.

º A new sales gfficer g en a false su lier and dging mal ractices. Internal auditgr
fgund it and clgse the su lier and alsg reverse the transactigns which he made and he
dgcumented all these things. It means he sglve the rgblem with cgnsciusly and ngw external
auditgr can believe gn his wgrk.

º ! º    

$  +  ,(&- 
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2'  (6

Dear Mr. [awaz,

0hank ygu fgr gur a gintment as auditgrs gf ygur XYZ Cgm any L0D. As it is necessary tg
clarify gur rgles and duties tg ygu, under Cgm anies grdinance act 1984, we wish tg set gut the
detail gf gur terms gf engagement as fgllgws;
We will audit the cgm any¶s balance sheet at 31st Dec. 2010, incgme statement and cash flgw fgr
the year, fgr the ur gse gf   gn them.
    are the      #
  . ur res gnsibility is tg ex ress an g inign gn the financial statements based gn
gur audit.
We will cgnduct audit gnly if the accgunts are maintained under 3!!6

because thgse standards hel s in gbtaining reasgnable assurance abgut whether the financial
statements are free gf     % An audit includes examining the financial
infgrmatign¶s. An audit alsg includes assessing the accgunting rinci les used and estimates gr
redictigns made by management, as well as       
We will give a

   as required by the   
 456. We will
erfgrm sufficient test tg gbtain reasgnable assurance that: the accgunting recgrds are reliable
and free gf material misstatements.
In grder tg cgnduct audit we need that ygu shguld give us   


dgcuments that are maintained by ygur grganizatign.
In additign tg gur g inign gn the financial re grts, we will      
gf accgunting and internal cgntrgls, which cgme tg gur ngtice. We will alsg re grt any matter as
designated by s ecific re grting res gnsibilities and requirements under Cgm anies grdinance
We will gnly give ygu the reasgnable assurance. 0here is a chance gf    which
means that there is a gssibility that sgme      
We are a ginted as ygur new auditgrs sg we shguld clearly mentign that we will

  fgr audit related infgrmatign and tg get [ C.

We will discuss and can

    and need access gver the dgcuments that
he maintained gf this grganizatign abgut the internal cgntrgls.

  3Ý0  Œ% %6 excluding the travel, and gther gut
gf gcket cgsts. ur team will b allgwed tg use the Cgm anies rinters and internet fgr gfficial
If this letter cgrrectly ex resses ygur understanding,     
 and return it
tg us.
In case gf any queries with this engagement then lease cgntact gur firm.



$  +  ,(&- 


6  ! 6
0he ur gse gf audit lanning is tg im rgve the nature, timing and extent gf the audit wgrk.
Auditgrs lan their audit wgrk tg avgid the mistakes and tg use their resgurces mgre efficiently
(0ime, Human etc.).

º An auditgr whg lan their all the audit activities befgre the audit i.e. lanning abgut
their team, lanning fgr key issues, lanning fgr rgblems, hgw tg manage the time and tg meet
the client deadlines.

! 6 
î0g make better audit lanning, an auditgrs must have the   abgut the cgm any/entity
and abgut its  . Auditgr has very limited time tg erfgrm audit (almgst 3 mgnths)
and in this erigd e has tg give an g inign whether cgm any is giving fair view all material
as ects. Sg, tg give reasgnable assurance an auditgr must have the kngwledge abgut the
cgm any and the envirgnment.

º We a gint as ICI cgm any auditgr and this is gur first audit in this cgm any. We will
start gur wgrking in ctgber befgre the annual audit. 0he facts and figures will be rgvide us in
January but starting wgrking frgm ctgber will give us kngwledge abgut its cgm etitgrs, histgry
statements, abgut its ratig, majgr su lier gf the cgm any, majgr custgmer gf the cgm any,
relatign with stakehglder, dividends, any fraud gr errgr ha ened, fgllgwing cgm any grdinance,
fgllgwing financial re grting framewgrk, any case with ggvernment.

0he ur gse gf starting wgrking befgre the end gf financial year is tg get infgrmatign abgut the
cgm any and its envirgnment. We will alsg check the bank ratings abgut the cgm any which is
  . If any   had dgne wgrk gn this cgm any we can ask him.

' Auditgr shguld have tg give its full effgrts tg get full understanding abgut the entity.

îAfter analyzing the cgm any¶s envirgnment we will identify sgme  areas and make
   gf these areas.

º  A cgm any gf custgm clearance has lgcated near the grt and has a risk gf stgrm.
0hen auditgr will make different measurements after assessing the risk and rigritize these
measurements. In sim le wgrds,    is tg;

Identify the Risk = Stgrm

Measurements = Lgss gf $10 millign
Prigritize = 1) I0 ($6 millign) 2) Fixture ($3millign)
3) Machinery ($1 millign) 

îIn   the auditgr will see what I am gging tg cgver and what are the
riskinvglved in it and hgw much wgrk I have tg dg.
º  Auditgr will asses which area is risky and hgw much is it im grtant and hgw much
wgrk I have tg dg.
Planning is the basic ste fgr auditing. If an auditgr wants tg im rgve gr tg make it better the
three things nature, timing, and extent then his lanning shguld be better and dgcumented. 0here
are three ste s in lanning and these are as fgllgws;

Ste 1 Plan the audit wgrk

Ste 2 ºstablish a strategy

Ste 3 Dgcument an gverall audit lan

Ý  6  

îPlanning an audit          fgr the engagement and
develg ing an audit lan, in grder tg reduce the audit risk tg an acce tably lgw level.
î^          ºngagement artner gr gwner gf the firm has mgre
kngwledge gf the market than an auditgr. ºngagement artner invglve in the audit lanning
because he has the ex erience and kngwledge gf the market which enhance the effectiveness
and efficiency gf the lanning rgcess. ºngagement artner are mgstly invglved in the audit gf
big cgm anies because they dgn¶t want tg lgse their im grtant clients. 0hey gversee the
lanning ersgnally and add their ex erience in it and guide the auditgrs.
î Planning enables an auditgrs tg cgnduct an effective (result griented), efficient ( erfgrmance
with maximum gut ut; rgductive with minimum waste) and timely audit (meet client¶s

º if an auditgr lan his audit wgrk efficiently then he can give back the re grt tg
cgm any with reasgnable assurance gn time and cgm any can ublish its annual re grts gn time.
A cgm any has almgst three mgnths tg ublish its annual re grts.


îAudit strategies are established by engagement artners and gther key members gf engagement
îDevelg ing an gverall audit lan, its scg e and cgnduct

º  Auditgr will check the cgm any¶s financial statements whether they fgllgwing IAS
(Internatignal Auditing Standards) and re grting framewgrks and alsg its lanning will be
accgrding tg IAS.

îIt invglves develg ing an auditing rggrams shgwing nature, timing extent.

! ! 6 

îºnsures attentign tg key areas

º when ygu gg in the firm with the audit lanning then ygu will ensure abgut the key
areas i.e. attentign gn inventgry and sales areas.
îIdentificatign gf gtential rgblems
º Prgblem gf fake su liers gr custgmers and rgblem gf treatment gf investment in
îºx edite finalizatign
º when an auditgr lans his audit wgrk then he erfgrm it in mgre s eed and alsg meet
the client¶s deadline.
îºfficient utilizatign gf audit staff
º An auditgr lan his audit wgrk tg better utilizatign gf their audit staff because
lanning enables the auditgr tg manage their staff accgrding tg the key areas in audit.
îFacilitate wgrk cggrdinatign between gther auditgrs gf cgm gnents and ex erts.
º an auditgr will lan that where he is gging fgr audit is a arent cgm any gr whether
a subsidiary gf that cgm any. If I am the auditgr gf arent cgm any then I will lan that gn
which dates I will meet with the auditgrs gf his subsidiary cgm any but if I have any query
then I will call him gtherwise I will meet him ersgnally.


îSize gf the entity

º 0he attitude gf lanning will be different in small and large cgm anies.
îCgm lexity gf the audit
º Audit lanning will be different in the cgm any whg has cgm lex im act system,
cash system, sales and urchases are recgded cgrrectly, and alsg they have fake su lier and
custgmers. All these things increase the cgm lexity gf audit and the lanning will be different
in this situatign.
îPrevigus ex erience and kngwledge
º If an auditgr has revigus kngwledge and ex erience abgut the cgm any then his
lanning will be different frgm the cgm any abgut which an auditgr has ng ex erience.
îChange in circumstances that gccur during the audit engagement
º An auditgr lan his all audit wgrk but during the audit due tg change in
circumstances auditgr has tg change its lanning.



Audit gf the cgm any is a twg way cgmmunicatign between auditgr and the cgm any. In
engagement letter auditgr will never enfgrce any thing which is ngt acce ted by the client. If ygu

are im gsing each and every thing gn client than client can refuse gr can say that I am ngt gging
in this way. Auditgr and Client have tg finalize the engagement letter with mutual cgnsultatign.
Sgme time an auditgr and client have issue gf audit fee but if client says that we will increase
ygur audit fee in the next audit but ngt ngw then auditgr will see the im grtance gf client and
make a decisign.

º Auditgrs whg want tg increase his audit fee (15%) in his current audit but client reject
it. 0hen bgth the arties (i.e. Client and auditgr) will neggtiate and find the sglutign gn which
bgth the arties will agree. Client says that we will ngt increase ygur audit fee in current audit
but we will increase it 15% as ygu said in ygur next audit. 0hen auditgr will acce t it due tg the
im grtance gf the client.

Ý &  ! Ý 

0he gverall audit strategy sets the scg e, timing and directign gf the audit, and guides the
develg ment gf the mgre detailed audit lan. 0he establishment gf the gverall audit strategy

a) In the audit strategy auditgr will     

 gf the audit and scg e means hgw much a
cgm any is fgcusing gn IAS, financial re grting framewgrks, and industry-s ecific re grting
b) ºstablishment gf gverall audit strategy invglves that auditgr will lan the  gf
cgmmunicatign between auditgr and management tg achieve the re grting gbjectives and
alsg lan the   gf that cgmmunicatign such as deadlines fgr interim and final re grting
and key dates fgr ex ected cgmmunicatign with management.
c) 0g establish the effective audit strategy an auditgr must have the fully understanding gf the
cgm any tg kngw abgut the scg e whether they are fgllgwing the financial re grting
framewgrks and kngwledge abgut the  
 gf the cgm any tg check the re ute gf
the cgm any. If the cgm any was invglved in the   in ast then gur audit strategy will
be different and we will gg in mgre dgubts. After getting the understanding gf the cgm any
we will make lanning mgre carefully.

0he gverall audit strategy sets gut clearly, in res gnse tg the matters identified abgve, and subject
tg the cgm letign gf the auditgrs risk assessment rgcedures:


In trading firms sales are very im grtant area fgr the audit because sgme time firms create fake
invgices tg maximize the rgfit. 0hen auditgr will give mgre time tg s ecific audit areas.
º A small cgm any wants tg get lgan gf Rs. 4 millign frgm the bank and they shgw their
financial statements. Actually the cgm any creates the false invgices gf sales tg increase the
rgfit fgr the ur gse gf lgan. But bank said that 26"3 (an audit firm) will audit ygur cgm any

again. KPMG identify that this cgm any statements are M   because they create false
invgices gf sales tg increase rgfits tg get the lgan.



We shguld better kngw that what amgunt gf resgurces we have tg allgcate tg every audit area.
0hrgugh the lanning gf gur resgurces we can utilize them efficiently.

º An auditgr brings the team gf 29 ersgns and identifies the key area that is sales and
auditgr ut all the team in this area which is tgtally wrgng. Auditgr has tg ut gnly 4 gr 5 ersgns
gn the sales and gther team members will ut gn remaining key areas.


Auditgr will lan when he will de lgy its resgurces whether at interim gr at the final audit.
Mgstly auditgrs ut less resgurce at the   audit and just review the things because they
kngw that they have tg cgme gn   . In the interim, auditgrs have shgrt time and they
have tg check gnly half yearly accgunts but in the final they have tg check the full year and in
mgre detail. 3  always maintain the interim    that hel them in the final


We have tg kngw hgw senigrs manage the resgurces, su ervised it and hgw we can give them
directigns. 6  
 tg audit manager and audit manager will give directign tg
su ervisgr and su ervisgr will give directign tg team members. 0he auditgr shguld have tg
maintain the quality gf its a ers because their a ers will be checked thrgugh the ^ !6.

Ý 7 $

0he auditgrs shguld dgcument the gverall audit strategy and the audit lan, including any
significant changes made during the audit engagement. Auditgr has tg maintain the quality gf the
dgcuments gr a ers because their a ers will be checked by the ICAP. Auditgr will file all the
dgcuments given tg him and the dgcuments that he re ared himself as the evidence.

º Auditgr gf a large firm whg has 200 em lgys but auditgr can¶t check the salary gf
each em lgyee then he makes a analytical sheet. He will write the average salary gf em lgyees,
number gf em lgyees hired and number gf em lgyees fired that is checked thrgugh ercentage
and deviatign and alsg cgnsgle the quantitative number gf em lgyees. 0hen he will file all the
dgcuments fgr rggf tg shgw the ICAP.



Auditgr has tg cgmmunicate with the Bgard gf directgrs and the management tg clear his
lanning and gther activities.

º I am auditing the cgm any frgm last three years but this year they change their CF
and we need tg cgmmunicate with him because he will rgvide us the accgunts. During the
cgmmunicatign I will judge him tg kngw abgut his ersgnality.


0g a ly the analytical rgcedures as risk assessment rgcedures tg gbtain an understanding gf

the entity and its envirgnment and in the gverall review at the end gf the audit.

îWe can alsg a ly the analytical rgcedures as     

   (Detailed testing in
which sam le size is large). 


It means evaluatigns gf financial infgrmatign made by a study gf lausible relatignshi s amgng

bgth financial and ngn-financial data. Analytical rgcedures alsg encgm ass the investigatign gf
identified fluctuatigns and relatignshi s that are incgnsistent with gther relevant infgrmatign gr
deviate significantly frgm redicted amgunts.

º An auditgr is a gint in the cgm any where he saw the file gf wgrking a ers gf last
auditgrs he fgund that the em lgyee turngver ratig gf this cgm any is high. 0his is im grtant fgr
auditgrs because if the em lgyee turngver gf the cgm any is high it means that cgm any has bad
re utatign in the market and eg le are reluctant tg invest in it. Auditgr will ask the reasgns gf
high turngver frgm the management. 0hen he fgund the reasgn gf that rgblem and re grt tg the
sharehglders whg a gint him. Auditgr is res gnsible tg audit the whgle cgm any rather than the
audit gf gnly the accgunts gf the cgm any. 0      M  


'    !


Analytical rgcedures include the cgm arisgn gf the entity¶s financial infgrmatign with,

îCgm arable infgrmatign fgr rigr erigds

º  Auditgr will subtract the current year data frgm the last year data and get the
ercentage and sg gn.
îAntici ated results gf the entity, such as budget gr fgrecast, gr ex ectatigns gf the auditgr, suc
as an estimatign gf de reciatign.

º  0he grgss rgfit gf the cgm any frgm last 10 years is 15% tg 20% but if the Grgss
rgfit increases tg 24% then auditgr will think and ask fgr the justificatign. Auditgr ask
different questigns gn grgss rgfit thrgugh its rgfessignal ske ticism tg get the reasgn gf
increase in grgss rgfit. If the valid justificatign is available gtherwise we will find the reasgn
gf increase in grgss rgfit.
º & If the market share gf Mgbilink is 55% then auditgr will think that their market
share will be rgund abgut 56% but if the accgunt shgws that the sales gf 70% market then
dgubt will cgme in the mind gf the auditgr. !

îSimilar industry infgrmatign
º In telecgmmunicatign industry ygu kngw the share gf every cgm any than the share
gf Mgbilink will be frgm the tgtal market share gf the industry. We will add the market share
gf all the cgm anies if the tgtal gf this is 100% than it will be ngrmal but if the tgtal is greater
than the 100% it means they made sgme false statement tg increase the market share.

" !

1) Sim le cgm arisgn

&9 Cgm lex analysis using advanced statistical techniques w  (  (  (


Analytical rgcedures will be a lied gn bgth the cgnsglidated and individual firms. 0he
cgm anies whg have shares in mgre than gne cgm any they mgstly re are cgnsglidated

º Auditgr gf arent cgm any will cgnduct all the analysis and find all the ratigs fgr him
as well as fgr its subsidiary cgm any.



Fgr risk assessment an auditgr must have the gggd ex gsure gf that cgm any if ygu did ngt have
the gggd ex gsure gf the cgm any than it is difficult fgr the auditgr tg assess the risk and check
their accgunts within three mgnths erigd.

º I a gint as auditgr gf ABC Cgm any and my audit will start in January but I will
start my wgrking in ctgber. I will find all the ratigs all the analysis including vertical analysis
gf that cgm any. I will dg it befgre my audit start and when I will start my audit then these things
will hel me.


0 Π 

0he reliability gf data is influenced by its  

and by its    and is      the

Infgrmatign is grdinarily reliable when it is gbtained frgm      
 gutside the
º Data frgm different , data frgm   

  may be
Brgad industry may need tg be su lemented tg be ex ected rather than as ggals tg be
º if an auditgr has the average gf the telecgmmunicatign   than he can

 the cgm any data with the industry average data 

Whether budgets have been established as results tg be ex ected rather than as ggals tg be
º We make gur     
 gur sales that gur sales will be increase 20%
next year. [gw gur attentign is whether tg achieve this  this is just gur . In
gther wgrds the budget ygu make gr fgrecast the sales, ygu are taking it as ggal gr it¶s just ygur