The audit procedures that will be conducted by the auditor are contained in the
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What are Audit Procedures?Audit procedures are used by auditors to determine the quality of the financial information being provided by their clients, resulting in the expression of an auditor’s opinion. The exact procedures used will vary by client, depending on the nature of the business and the audit assertions that the auditors want to prove. Several general classifications of audit procedures are noted below. A complete set of audit procedures is needed before the auditor has enough information to decide whether a client's financial statements fairly represent its financial results, financial position, and cash flows. Classification TestingAudit procedures are used to decide whether transactions were classified correctly in the accounting records. For example, purchase records for fixed assets can be reviewed to see if they were correctly classified within the right fixed asset account. Completeness TestingAudit procedures can test to see if any transactions are missing from the accounting records. For example, the client's bank statements could be perused to see if any payments to suppliers were not recorded in the books, or if cash receipts from customers were not recorded. As another example, inquiries can be made with management and third parties to see if the client has additional obligations that have not been recognized in the financial statements. Cutoff TestingAudit procedures are used to determine whether transactions have been recorded within the correct reporting period. For example, the shipping log can be reviewed to see if shipments to customers on the last day of the month were recorded within the correct period. Occurrence TestingAudit procedures can be constructed to determine whether the transactions that a client is claiming have actually occurred. For example, one procedure might require the client to show specific invoices that are listed on the sales ledger, along with supporting documentation such as a customer order and shipping documentation. Existence TestingAudit procedures are used to determine whether assets exist. For example, the auditors can observe an inventory being taken, to see if the inventory stated in the accounting records actually exists. Rights and Obligations TestingAudit procedures can be followed to see if a client actually owns all of its assets. For example, inquiries can be made to see if inventory is actually owned by the client, or if it is instead being held on consignment from a third party. Valuation TestingAudit procedures are used to determine whether the valuations at which assets and liabilities are recorded in a client's books are correct. For example, one procedure would be to check market pricing data to see if the ending values of marketable securities are correct. Audit DocumentationSupersedes AU sec. 339, Audit Documentation; and AU sec. 9339, Auditing Interpretations of Section 339Effective Date: For audits of financial statements, which may include an audit of internal control over financial reporting, with respect to fiscal years ending on or after November 15, 2004. For other engagements conducted pursuant to the standards of the PCAOB, including reviews of interim financial information, this standard takes effect beginning with the first quarter ending after the first financial statement audit covered by this standard.Final Rule: PCAOB Release No. 2004-006Summary Table of Contents
Introduction1. This standard establishes general requirements for documentation the auditor should prepare and retain in connection with engagements conducted pursuant to the standards of the Public Company Accounting Oversight Board ("PCAOB"). Such engagements include an audit of financial statements, an audit of internal control over financial reporting, and a review of interim financial information. This standard does not replace specific documentation requirements of other standards of the PCAOB. Objectives of Audit Documentation2. Audit documentation is the written record of the basis for the auditor's conclusions that provides the support for the auditor's representations, whether those representations are contained in the auditor's report or otherwise. Audit documentation also facilitates the planning, performance, and supervision of the engagement, and is the basis for the review of the quality of the work because it provides the reviewer with written documentation of the evidence supporting the auditor's significant conclusions. Among other things, audit documentation includes records of the planning and performance of the work, the procedures performed, evidence obtained, and conclusions reached by the auditor. Audit documentation also may be referred to as work papers or working papers .
3. Audit documentation is reviewed by members of the engagement team performing the work and might be reviewed by others. Reviewers might include, for example:
[The following subparagraph is effective for audits of fiscal years beginning on or after December 15, 2010. See PCAOB Release No. 2010-004. For audits of fiscal years beginning before December 15, 2010, click here.]
Audit Documentation Requirement4. The auditor must prepare audit documentation in connection with each engagement conducted pursuant to the standards of the PCAOB. Audit documentation should be prepared in sufficient detail to provide a clear understanding of its purpose, source, and the conclusions reached. Also, the documentation should be appropriately organized to provide a clear link to the significant findings or issues. 1/ Examples of audit documentation include memoranda, confirmations, correspondence, schedules, audit programs, and letters of representation. Audit documentation may be in the form of paper, electronic files, or other media. 5. Because audit documentation is the written record that provides the support for the representations in the auditor's report, it should:
6. The auditor must document the procedures performed, evidence obtained, and conclusions reached with respect to relevant financial statement assertions. 2/ Audit documentation must clearly demonstrate that the work was in fact performed. This documentation requirement applies to the work of all those who participate in the engagement as well as to the work of specialists the auditor uses as evidential matter in evaluating relevant financial statement assertions. Audit documentation must contain sufficient information to enable an experienced auditor, having no previous connection with the engagement:
7. In determining the nature and extent of the documentation for a financial statement assertion, the auditor should consider the following factors:
Application of these factors determines whether the nature and extent of audit documentation is adequate. 8. In addition to the documentation necessary to support the auditor's final conclusions, audit documentation must include information the auditor has identified relating to significant findings or issues that is inconsistent with or contradicts the auditor's final conclusions. The relevant records to be retained include, but are not limited to, procedures performed in response to the information, and records documenting consultations on, or resolutions of, differences in professional judgment among members of the engagement team or between the engagement team and others consulted. 9. If, after the documentation completion date (defined in paragraph 15), the auditor becomes aware, as a result of a lack of documentation or otherwise, that audit procedures may not have been performed, evidence may not have been obtained, or appropriate conclusions may not have been reached, the auditor must determine, and if so demonstrate, that sufficient procedures were performed, sufficient evidence was obtained, and appropriate conclusions were reached with respect to the relevant financial statement assertions. To accomplish this, the auditor must have persuasive other evidence. Oral explanation alone does not constitute persuasive other evidence, but it may be used to clarify other written evidence.
[The following paragraph is effective for audits of fiscal years beginning on or after December 15, 2010. See PCAOB Release No. 2010-004.] 9A. Documentation of risk assessment procedures and responses to risks of misstatement should include (1) a summary of the identified risks of misstatement and the auditor's assessment of risks of material misstatement at the financial statement and assertion levels and (2) the auditor's responses to the risks of material misstatement, including linkage of the responses to those risks. Documentation of Specific Matters10. Documentation of auditing procedures that involve the inspection of documents or confirmation, including tests of details, tests of operating effectiveness of controls, and walkthroughs, should include identification of the items inspected. Documentation of auditing procedures related to the inspection of significant contracts or agreements should include abstracts or copies of the documents.
11. Certain matters, such as auditor independence, staff training and proficiency and client acceptance and retention, may be documented in a central repository for the public accounting firm ("firm") or in the particular office participating in the engagement. If such matters are documented in a central repository, the audit documentation of the engagement should include a reference to the central repository. Documentation of matters specific to a particular engagement should be included in the audit documentation of the pertinent engagement. [The following paragraph is effective for audits of fiscal years beginning on or after December 15, 2010. See PCAOB Release No. 2010-004. For audits of fiscal years beginning before December 15, 2010, click here.] 12. The auditor must document significant findings or issues, actions taken to address them (including additional evidence obtained), and the basis for the conclusions reached in connection with each engagement. Significant findings or issues are substantive matters that are important to the procedures performed, evidence obtained, or conclusions reached, and include, but are not limited to, the following:
[The following note is effective for audits of fiscal years ending on or after June 1, 2014. See PCAOB Release No. 2013-007.]
13. The auditor must identify all significant findings or issues in an engagement completion document . This document may include either all information necessary to understand the significant findings, issues or cross-references, as appropriate, to other available supporting audit documentation. This document, along with any documents cross-referenced, should collectively be as specific as necessary in the circumstances for a reviewer to gain a thorough understanding of the significant findings or issues.
[The following note is effective for audits of fiscal years ending on or after June 1, 2014. See PCAOB Release No. 2013-007.]
Retention of and Subsequent Changes to Audit Documentation14. The auditor must retain audit documentation for seven years from the date the auditor grants permission to use the auditor's report in connection with the issuance of the company's financial statements ( report release date ), unless a longer period of time is required by law. If a report is not issued in connection with an engagement, then the audit documentation must be retained for seven years from the date that fieldwork was substantially completed. If the auditor was unable to complete the engagement, then the audit documentation must be retained for seven years from the date the engagement ceased. 15. Prior to the report release date, the auditor must have completed all necessary auditing procedures and obtained sufficient evidence to support the representations in the auditor's report. A complete and final set of audit documentation should be assembled for retention as of a date not more than 45 days after the report release date ( documentation completion date ). If a report is not issued in connection with an engagement, then the documentation completion date should not be more than 45 days from the date that fieldwork was substantially completed. If the auditor was unable to complete the engagement, then the documentation completion date should not be more than 45 days from the date the engagement ceased. 16. Circumstances may require additions to audit documentation after the report release date. Audit documentation must not be deleted or discarded after the documentation completion date, however, information may be added. Any documentation added must indicate the date the information was added, the name of the person who prepared the additional documentation, and the reason for adding it. 17. Other standards require the auditor to perform procedures subsequent to the report release date in certain circumstances. For example, in accordance with AU sec. 711, Filings Under Federal Securities Statutes , auditors are required to perform certain procedures up to the effective date of a registration statement. 3/ The auditor must identify and document any additions to audit documentation as a result of these procedures consistent with the previous paragraph. 18. The office of the firm issuing the auditor's report is responsible for ensuring that all audit documentation sufficient to meet the requirements of paragraphs 4-13 of this standard is prepared and retained. Audit documentation supporting the work performed by other auditors (including auditors associated with other offices of the firm, affiliated firms, or non-affiliated firms), must be retained by or be accessible to the office issuing the auditor's report. 4/ [The following paragraph is effective for audits of fiscal years beginning on or after December 15, 2010. See PCAOB Release No. 2010-004. For audits of fiscal years beginning before December 15, 2010, click here.] 19. In addition, the office issuing the auditor's report must obtain, and review and retain, prior to the report release date, the following documentation related to the work performed by other auditors (including auditors associated with other offices of the firm, affiliated firms, or non-affiliated firms):
If the auditor decides to make reference in his or her report to the audit of the other auditor, however, the auditor issuing the report need not perform the procedures in this paragraph and, instead, should refer to AU sec. 543, Part of Audit Performed by Other Independent Auditors . 20. The auditor also might be required to maintain documentation in addition to that required by this standard. 5/ [21.][Paragraph deleted, effective for fiscal years beginning on or after December 15, 2010. See PCAOB Release No. 2010-004 . For audits of fiscal years beginning before December 15, 2010, click here .] What are the audit procedures that are conducted by the auditors?What Is the Audit Process Step-by-Step?. Inspection. In this phase, the auditor checks the accounts payable or receivable transactions for potential misstatements and other relevant reporting standards.. Observation. ... . Confirmation. ... . Recalculation. ... . Reperformance.. When May audit procedures be performed?18 Certain audit procedures can be performed only at or after period end, for example, agreeing the financial statements to the accounting records, or examining adjustments made during the course of preparing the financial statements.
What are the audit procedures for obtaining audit evidence?Audit procedures to obtain audit evidence can include inspection, observation, confirmation, recalculation, reperformance, and analytical procedures, often in some combination, in addition to inquiry.
What are the procedures in balance sheet audit?Following are main steps of Balance Sheet Audit.. 1st Step : Audit of Current Assets. ... . a) Cash and Bank Balance Audit. ... . b) Account Receivable Audit. ... . 2nd Step : Fixed Assets Audit. ... . 3rd Step : Investment Audit. ... . 4th Step : Audit of Liabilities. ... . Related : How to Reconcile Balance Sheet.. |