Audit Procedures: Definition, Types, And Why Are

They Importance?
Types of Audit

Definition

The process of audit is considered one of the most important aspects of an organization.

Auditing financial statements are required by law, and therefore, companies have to hire an

independent external lawyer that can help them comply with the required rules and

regulations. It is then the responsibility of the external auditor to make sure that they are

able to identify the best possible audit strategy to make sure that are able to gather

reasonable evidence based on which they can issue an opinion.

During the audit process, auditors are required to define the audit procedures that will help

them execute the auditing job with relative ease. Audit Procedures are used by auditors in

order to determine the extent to which the financial statements have been prepared in an

accurate manner. The main aspect that they need to gauge is the quality of financial

information that is provided by clients so that they can duly express the auditors’ opinion in

this regard.

Audit Procedures are therefore set in place in order to test the relevant assertion across

transaction types, in addition to the process itself, as well as the reason for testing the

particular transaction or account. In order to seamlessly conduct an audit to gather

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reasonable evidence, it is important for auditors to plan out the process, and have a clear

idea regarding the procedures they can use.

Types Of Audit Procedures

Given the fact that audit in itself is a considerably cumbersome task, it needs to inculcate a

wide variety of tasks and objectives to ensure that there is no stone left unturned in

gathering reasonable evidence on the basis of which auditors can issue their statements

accordingly.

Therefore, these audit procedures are used in order to gather substantial evidence. The main

types of audit procedures that are commonly used are given below:

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All these audit procedures are really important, and they should cover substantial ground in

helping auditors reach a substantial conclusion regarding the audit of the stated

organization. Subsequent details of these audit procedures are given below:

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Analytical Review

The analytical procedure simply requires the auditor to ensure that they are able to analyze

transactions that come off as unusual to them. Therefore, in these particular analytical

procedures, they are supposed to ensure that all transaction-related balances are properly

analyzed in order to pinpoint inconsistent balances or errors. After this preliminary review,

other audit procedures are used in order to further gather evidence that can somewhat

justify these inconsistencies or list balances.

Inquiry

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The audit procedure about inquiry simply requires auditors to ask around in the case where

they need some clarity regarding any matter pertaining to the audit. In this regard, the

management, as well as the employees are able to cooperate with the auditor in order to

make sure that the issues are properly addressed, and the inquiry is answered in a proper

manner.

Observation

The audit procedure of observation requires the auditors to observe their internal, as well as

their external environment in order to ask for substantial questions. In this regard, it is

important to ensure that auditors can properly observe the general norm of the industry, as

well as the general norm of the organization. The main element that needs to be tested in

this regard is pertaining to consistency across all years and formats. Therefore, a lot of the

audit work pertains to observation which should also incorporate professional skepticism

and total independence.

Inspection

Inspection mainly refers to verification of all the balances, and other related invoices within

the organization. It is imperative for auditors to ensure that they are able to back up all the

relevant resources to make sure that no information is missed out upon.

Recalculation

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Recalculation is referred to as the audit procedure where the auditor makes sure that there

have been no mathematical errors in the computation of totals, or list balances. It is

important for auditors to ensure that there are no errors in the calculation of bad debts,

depreciation, or amortization.

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Why Are Audit Procedures Important?

There are numerous different reasons as to why audit procedures are considered to be

important. These reasons mainly lie in the realms of ensuring that proper ground has been

covered in the audit process based on which auditors can issue their opinion regarding the

financial statements. The reasons as to why audit procedures are imported are given below:

It acts as an aid towards audit planning: Since financial year-end audits are

considered to be highly crucial, they require an extensive amount of work. Having

clarity regarding audit procedures, and how they are going to be used in order to test

the audit assertions helps in the audit planning process.

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 Audit Procedures are a blueprint in case auditors are stuck – this implies that in cases

where auditors are unclear regarding how to test a particular assertion, they can

apply all of the relevant procedures in order to get clarity regarding the assertion

they are dubious about.

Audit Procedures help in streamlining the audit process: Audit is a time-consuming

task. Audit procedures help to reduce the time that would otherwise be taken in

planning. For all the relevant balances and transactions, there is a specified

procedure that can be tested for proper clarity. Therefore, these processes help

streamline the process, and complete it in a shorter time frame.

Audit Assertions

There are several different types of audit procedures that are used by auditors in order to

get clarity regarding what needs to be done in terms of determining the best possible course

of action.

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Factually, either one, or several of these procedures can be used in order to test the required

assertions for the particular transaction. The following assertions are tested using audit

procedures:

Subsequent explanation of these assertions that are tested in the process is given as

follows:

Classification Testing: The audit procedures should be designed in order to ensure

whether transactions are classified in a correct manner in the accounting records. The

audit procedure is going to be designed in order to ensure that the assertion of

classification is properly tested.

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 Completeness Testing: The audit assertion of completeness is tested by designing

procedures that help to identify if the transactions that have been recorded are

complete in nature.

Cutoff Testing: The audit procedure must be designed to ensure that a proper cut-off is

made pertaining to cutoffs. It is important to ensure that financial statements include

lists and balances that relevant to that particular year.

Occurrence Testing: This is to ensure that the transactions pertaining to sales and

expenses have actually occurred within the company.

Existence Testing: The audit procedure designed to test this particular transaction

should focus on assets and transactions to make sure they actually exist on the

financial statements.

Rights and Obligations Testing: The audit procedures must include a protocol to make

sure that the declarations that have been made by the organization in the financial

statement are actually true, and if the organization holds the legal light towards the

declared assets.

Valuation Testing: Valuation testing is the act of auditors to ascertain that the assets

are being valued at correct terms and conditions. It is important to ensure that all

accounting principles are followed with proper ease.

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Audit Procedures And Audit Evidence

How Often Audit Procedures Need To Be Updated?

How Do Audit Procedures Prepare And Approve?

What Are The Risks Of Preparing And Performing Incorrect

Audit Procedures?

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Should Audit Procedures Be Review At The
Conclusion/Completion Stages Of The Audit?

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