Professional Documents
Culture Documents
A. Permanent File
The permanent file is audit work papers containing all the data which are of
continuing interest from year to year.
Permanent audit working paper file contains information obtained by the auditor,
which is relevant on a permanent basis. Therefore such information is relevant not
only to current year under audit but also for future audits.
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Temporary Audit file
The current work paper file contains all documentation applicable to the year under
audit.
The current file ordinarily includes client summary information such as description
of the client, client industry, client internal controls and the auditor’s materials.
The current file work papers will usually contain accounting-related information
such as trial balances, lead schedules, analyses of transactions and balances and, if
necessary, recommended journal entries to correct the accounts records.
The largest portion of working papers includes the detailed schedules prepared by
the client or the auditors in support of specific amounts on the financial statements.
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Job administration data:
partner and staff employed;
dates audit areas completed;
time summaries;
Performance monitored against budget.
Working papers of results of tests, evaluation of systems, control weakness and
action taken.
Schedule of results of audit tests on transactions and balances and conclusions
reached (indexed and cross-referenced to demonstrate sufficient audit evidence).
Completed audit program.
Accounts completion checklist.
B. The term “audit scope” refers to the audit procedures deemed necessary in the
circumstances to achieve the objective of the audit. The procedures required to
conduct an audit in accordance with SLAuS should be determined by the auditor
having regard to the requirements of SLAuS, the Institute of Chartered Accountants
of Sri Lanka, legislation, regulations and, where appropriate, the terms of the audit
engagement and reporting requirements.
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Limitation of audit scope arising in the course of an audit
If the auditors become aware, after accepting an audit engagement, that the directors
of the entity or those who appoint the auditors, have imposed the limitation on the
scope of their work which they consider likely to result in the need to issue a
disclaimer of opinion on the financial statement,they should request removal of the
limitation, if the limitation is not removed they should consider resigning from the
audit engagement
The same is true for non physical assets such as accounts receivable, important
documents and records.
Safeguarding certain assets and records has become increasingly important since the
advent of computer systems. Large amounts of information stored on computer
media such as magnetic tape can be destroyed if can destroy if care is not taken to
protect them. Safeguarding of accounting records also affects the reliability of
financial reporting.
2. Reliability of financial reporting
It is the management responsibility preparing financial statements to meet the
common needs of most users. Therefore financial statements need to be reliable, but
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do not require to provide all the information that users may need to make economic
decisions.
Management also has a legal responsibility to be sure that the information is fairly
prepared in accordance with reporting requirements such as generally Accepted
Accounting Principles.
• Cost Vs Benefits
Resources always have constraints, and entities must consider the relative costs and
benefits of establishing controls. In determining whether a particular control should
be established, the risks of failure and potential effect on the entity are considered
along with the related costs of establishing a new control.
In other cases, however it may be more difficult to quantity costs. it may be difficult
to quantity time and effort related, for example, to certain control environment
factors, such as management’s commitment to ethical values or the competence of
personnel; risk assessments; and capturing certain external information such as
market intelligence on evolving customer preferences. the benefit side often requires
an even more subjective valuation. for example, the benefits of effective training
programs are usually readily apparent, but difficult to quantify.
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• Non Routine Transaction are not covered
Most internal controls tend to be directed at routine transactions rather than non-
routine transactions.
AUDITING
•Human Errors
The potential for human error due to carelessness, distraction, mistakes of judgment
and the misunderstanding of instructions.
Even if internal controls are well designed, they can break down. Personnel may
misunderstand instructions. They may make judgmental mistakes or they may
commit errors due to carelessness, distraction or fatigue.
•Collusion
The possibility of circumvention of internal controls through the collusion of a
member of management or an employee with parties outside or inside the entity.
Individual acting collectively to perpetrate and conceal an action from detection
often can alter financial data or other management information in a manner that
cannot be identified by the control system.
For example, there may be collusion between an employee performing an important
control function and a customer, supplier or another employee. On a different level,
several layers of sales or divisional management might collude in circumventing
controls so that reported results meet budget or incentive targets.
Management override
The possibility that a person responsible for exercising an internal control could
abuse that responsibility, for example, a member of management overriding an
internal control.
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The term “management override” is used here to mean overruling prescribed
policies or procedures for illegitimate purposes with the intent of personal gain or an
enhanced presentation of an entity’s financial condition or compliance status.
Answer: 2
A. In developing the audit strategy, the auditor also should consider the following
factors
a. Determine the characteristics of the engagement that define its scope, such as the
basis of reporting, industry-specific reporting requirements, and the locations of the
entity;
b. Ascertain the reporting objectives of the engagement to plan the timing of the
audit and the nature of the communications required, such as deadlines for interim
and final reporting, and key dates for expected communications with management
and those charged with governance; and
c. Consider the important factors that will determine the focus of the audit team's
efforts, such as determination of appropriate materiality levels, preliminary
identification of areas where there may be higher risks of material misstatement,
preliminary identification of material locations and account balances, evaluation of
whether the auditor may plan to obtain evidence regarding the operating
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effectiveness of internal control, and identification of recent significant entity-
specific, industry, financial reporting, or other relevant developments.
B. The process of establishing the overall audit strategy assists the auditor to
determine, subject to the completion of the auditor’s risk assessment procedures,
such benefit as:
• The resources to deploy for specific audit areas, such as the use of appropriately
experienced team members for high risk areas or the involvement of experts on
complex matters;
• The amount of resources to allocate to specific audit areas, such as the number of
team members assigned to observe the inventory count at material locations, the
extent of review of other auditors’ work in the case of group audits, or the audit
budget in hours to allocate to high risk areas;
• When these resources are to be deployed, such as whether at an interim audit stage
or at key cutoff dates; and
• How such resources are managed, directed and supervised, such as when team
briefing and debriefing meetings are expected to be held, how engagement partner
and manager reviews are expected to take place (for example, on-site or off-site), and
whether to complete engagement quality control reviews.
Obtain an understanding of the entity’s business and its industry and environment,
its acconting policies and practices, and its financial performance.
Understand and evaluate the design and the implementation of entity level controls
relevant to the audit.
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Assess risk of material misstatement of the financial statements, including risk of
fraud and error.
Develop audit strategy in response to those risks.
Determine significant accounts and disclosures, and develop planned audit
approach for significant accounts and disclosures.
Audit program for specific topics-fraud, going concern, related parties.
Evaluation of internal audit function.
Evaluation of service organization function and Evaluation of external experts.
D. The following audit procedure can be applying in achieving the objectives of motor
vehicle verification.
1. Completeness
-Accumulated depreciation
Compare the motor vehicle in the general ledger with the motor vehicle register and
obtain explanations for differences.
For a sample of assets which physically exist agree that they are recorded in the
motor vehicle register.
Confirm that the physically inspects all item in the motor vehicle register each year.
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Inspects assets, concentrating on high value items and additions in-year. Confirm
that item inspected.
-Exist
-Are in use
-Experience of valuer
-scope of work
Reference:
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WWW.Google.Com
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