Audit procedures considered necessary to achieve objective of audit is called scope of an audit. The audit procedures should meet legal requirements and regulations of relevant professional bodies and terms of audit engagement and reporting requirements.
1. Legal requirements:
The auditor can determine the scope of an audit of financial statements in accordance with the requirements of relevant professional bodies. The state can frame governs for finding the scope of audit work. The professional bodies can also make principles to conduct the audit in the same way. The auditor can follow all the rules applicable on the audit work while checking the accounts of a business concern.
2. Reliable information:
The auditor should obtain reasonable assurance that information in accounting records is reliable and sufficient as the basis of preparation of financial statements. The auditor can use various methods to test the validity of data. The information becomes reliable when figures appearing financial statements tally with figures in ledger.
3. Proper communication:
The auditor should decide whether the relevant information is properly communicated in the financial statements. Accounting is an information system through which facts and figures must be so presented that reader can get information about the business entity.
4. Evaluation of accounting record:
The auditor checks that information in accounting records is sufficient and reliable. He studies and evaluates accounting system and internal controls to determine the nature, extant, and timing of other auditing procedure.
5. Substantive tests:
The auditor evaluate the reliability and adequate of the information in the accounting record by carrying out other tests, enquiries and other verification procedures of accounting transactions and account balances as he considers appropriate in the particular circumstances.
6. Comparison of financial statements:
The auditor determines whether the relevant information is properly communicated. He compares the financial statements with financial records and other source date. He checks whether they properly summaries the transactions and events therein. The auditor can compare the accounting record with financial statements in order to check that same data has been processed for preparing the final accounts of a business concern.
7. Testing management judgements:
The auditor determines whether the relevant information is communicated properly. He considers the judgements that managements has made is preparing the financial statements. The assesses the selection and consistent application of accounting policies. He checks the manner in which the information has been classified and the adequacy of disclosure. The auditor must have the quality of judgement when accounting books do not provide the true data.
8. Judgement increase work:
Judgements increase the work of auditor. He determines the extent of audit procedures. He checks estimates made by management in preparing financial statements. He accounting data is based on personal judgements of accountant and mangers in preparing final accounts. Such judgement also increase work of an auditor.
9. Evidence is persuasive:
The audit evidence available to auditor is persuasive rather than conclusive in nature. Absolute certainty in auditing is rarely attainable due to judgements and persuasive evidence. The personal judgements affect the value of many items. The value of such of such items becomes an opinion so cent per cent accuracy is note there.
10. Indication of errors:
The auditor may get an indication that some fraud or errors have occurred which clouds result in material misstatement. The auditor should extend procedures to confirm or disperse his distrust. Check cent percent items is the duty of auditor. He must try to discover the errors in accounting books and other records when the find any doubt. He should clear the doubt or confirm it while going through the record.
11. Expressing opinion:
The auditor can express unqualified opinion if he is satisfied about financial information of business. When he finds weaknesses in accounting record then he should express qualified opinion or disclaimer of opinion.
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