Advantages and Disadvantages of an audit

Advantages Application for loans is easier
Major changes in ownership are easier

Advice is free
Disputes between directors can be resolved

Disadvantages Disruption to client Cost

Ethics
Fundamental principle (OPTIC) Objectivity Professional behavior Technical competence Integrity Confidentiality Threats to independence (FULLSTOP)- (Self review, Self interest, Familiarity,
intimidation, Advocacy)

Family and friends Undue dependence in fee Loans to and from client Litigation Shares in client Taking gifts from client Overdue frees Provision of other services Pre Appointment (PLACE)-The things we need to do before taking a client. Professional clearance Legal Consideration Auditor consideration Commercial consideration Ethical consideration Engagement Letter (SOFAR)

Scope of work Other Services Fee Calculation Acceptance Responsibilities Planning 1. Asses Risk Analytical procedures Knowledge of business Audit risk Audit strategy a) Risk based Audit plan 2 b) Procedural based 3 Materiality and tolerate error Analytical procedures Risk Audit (IR*Cr*Dr) Knowledge of business Staff Audit approach Timing Documentation of planning process PAF CAF 2 Main files Permanent Audit file Current audit file Internal Control Objective of company Maximize profit + Accurate accounting records Safe guards the assets of company Prevent fraud and error Internal policies followed Efficient running of company Control System a) Control environment procedures b) Control .

g. Testing (Numbers) that a balance in amount is T&F (True & Fair) Stock Count (PACE) People Administration Counting End of Count General Test: (AEIOU) Analytical procedures Enquiring Inspection Observation U > Re -Calculation + General test for any balance in B/S or P&L Confirmation Re performance What the Auditor Needs to Test: (DADA 3) Documents + records Assets Directors + Staff . sage Specific Authorization Computer controls Comparisons Arithmetic/adding Maintain a trail balance Accounting reconciliation Physical Controls Segregation of duties Limitations of controls (FAME) Fraudulent collusion Abuse of authority Management override Error Control test: Substantive: Testing (Procedures) that control is working.General Overall approach to controls Management by example Attitude Awareness Action Good Recruitment Entry e.

Accounting Statements 3rd parties (Outside Clients) Auditor’s objectives/assertions: (V COD RACE) Valuation Cut off Occurrence Disclosure Rights and Obligation Accuracy Completeness Existence Audit Procedures: (A TOAD) General tests: Add up Trail balance Opening balance Audit software Disclosure check Bank & Cash: (2B’s) Bank Letter Bank reconciliation Receivables: (3C’s) Circulation Cash paid after the year end Cut off Financial statement Assertions Bad debt provision: ( PAPA ) Prior year comparison + investigate any difference Ask management about each provision Post balance sheet events Analytical procedures .

If not.Payables: (CRAP) Cut off testing Reconcile Analytical procedures Post year end invoice review Inventory: (STOCK without K) Sales price at the year end Trace the cost to the invoice Observe the stock count Cut off testing Subsequent event review: (MAPLE) Minutes of the board meeting after the year end Accounts prepared after the year end Procedures the client has picking up post B/S event Letter of representation Enquiry – ask management Going Concern The auditor needs to make sure that the right basis has been used. the opinion in the audit report may be incorrect Letter of representation Written confirmation from the directors to the auditors confirming certain matters Relying on internal auditor/experts: (STRIP) Scope of work Technical competence Report Quality Independence Professionalism Difference between Internal auditors and External auditors: (I SO REAL) Independence Scope of work Objective Responsible to Employed .

Appointed by Legal requirements .