Importance of Audit Procedures
Audit procedures are used by auditors to show the quality of the financial information being provided by their clients, which results in the expression of an auditor’s opinion. The exact procedures used will vary by client, depending on the nature of the business & the audit assertions that the auditors want to prove.
Audit procedures are employed to decide whether transactions were categorized appropriately in the accounting records. For instance, purchase records for fixed assets can be reviewed to check if they were correctly categorized within the right fixed asset account.
The audit is a very important step that helps create trust in the market. It also helps to verify that there are no material misstatements in the company’s financial statements, & the company is free & fair from all types of fraudulent activities.
Classifications of Audit Procedures:
• Classification testing. Audit procedures are required to determine whether transactions were grouped properly in the accounting records.
• Completeness testing. Audit procedures can examine to see if any transactions are missing from the accounting records. For instance, the client’s bank statements could be scrutinized to see if any payments to suppliers or cash receipts from customers were not recorded in the books of accounts. As another example, inquiries can be made with management & third parties to see if the client has other obligations that have not been established in the financial statements.
• Cut-off testing. Audit procedures can be used to determine whether transactions have been recorded within the appropriate reporting period. For example, the shipping log can be evaluated to see if shipments to customers on the last day of the month were documented within the right period.
• Occurrence testing. Audit procedures can be structured to determine whether the transactions claimed by a client have been ensued occurred. For example, one procedure might involve the client to show certain invoices that are recorded on the sales ledger, along with supporting documentation such as a customer order & shipping documentation.
• Existence testing. Audit procedures can determine the existence of assets. For example, the auditors can perceive an inventory being taken, to see if the inventory itemized in the accounting records actually exists.
• Rights and obligations testing. Audit procedures can be observed to see if a customer possesses all of its assets. For instance, inquiries can be scheduled to see if inventory is primarily owned by the client, or if it is instead being held on consignment from a third party.
• Valuation testing. Audit procedures are used to examine whether the estimates at which assets & liabilities are recorded in a client’s books are accurate. For example, one process would be to check market pricing data to see if the ending values of marketable securities are correct.
Audit Procedures are procedures executed by auditors to get all the information regarding the quality of the financials provided by the company, which facilitate them to form an opinion on financial statements whether they reflect the true & fair view of the organization financial position.
Procedures to acquire audit evidence can also include inspection, observation, confirmation, recalculation, reperformance, & analytical methodologies, in addition to just inquiry.
A complete set of audit procedures is required before the auditor has enough information to decide whether a client’s financial statements truly represent its financial results, financial position, & cash flows.
How can we help?
Our experts at Spicer-Pegler serve our clients by offering innovative methods that help them evaluate the effectiveness of their operational functions & processes.
Spicer-Pegler works with companies large and small alike, where our experts are keen to design specific audit functions from conducting a comprehensive risk assessment across the organization, to communicating results to management & other stakeholders. Where our experts not only identify problems but also work on setting appropriate controls to make corporate managements able to face current & future challenges.