Audit Quick Revision
Notes
Basic Principle of Auditing Interim Audit
● Integrity, objective and Advantages Disadvantages
Independence
● Quarterly Result ● Expensive
● Confidentiality
● Interim Dividend to Share ● Audit in Instalments
● Skill and Competence
Holders ● Errors and Fraud In
● Materiality
● Quick Preparation of final Book Already
● Work Performed by others
Account Checked
● Documentation
● Up-to-date Accounts for ● Disrupts Accounts
● Planning
Banks/ Investors Work
● Audit Evidence
● Check on Employees
● Accounting System and
● Prevent Errors and Fraud
Controls
● Through final Audit
● Audit Conclusion
● Utilisation of Audit Staff
● Audit Report
Different Types of Error Give Objections against Secret legal and Professional
Reserve Requirement of materiality
1. Error of Principle ● No True and Fair View 1. Material items
2. Clerical Errors ● Shareholders Suffer 2. Non-recurring Items
▪ Errors of Omission ● Undue benefit to 3. Percentage Cut-offs
▪ Errors of Commission Management. 4. Previous Year’s
▪ Mathematical ● Frud by Management Figure
Error ● No Check on Assets 5. Quantitative
▪ Casting Error ● Against Companies Act,2013 Information
▪ Posting Error 6. Extraordinary Items
▪ Compensating Errors 7. Ordinary Items
▪ Errors of Duplication 8. Prior-period Items
9. Changes In
Accounting Policies
Fraud
Fraudulent Financial Reporting Misappropriation of Cash Misappropriation of Goods
● Not Recording Transaction ● Cash Received ● Goods Received
● Recording Dummy Transaction ● Cash Paid ● Goods Dispatched
● Misapplication of Accounting ● Cash Balance ● Stock in hand
Policies
Continues Audit Annual Audit
Advantages Disadvantages Advantage
● Quick Preparation Of Final ● Expensive ● Inexpensive
Accounts. ● Audit in Instalments ● Audit at a Stretch
● Early Dividend to Shareholders ● Errors and Frauds In Books ● Less Errors and
● Up-to-date Account for Already Checked Frauds
Bank/Investor ● Disrupts Accounts Work ● Does not Disrupt
● Check on Employees ● Undue Reliance on Auditor Accounts Work
● Prevents Errors & Frauds
● Familiarity with Clients
Business
● Through Audit
● Utilisation of Audit Staff
Balance Sheet Audit. Annual Audit
Advantages Disadvantages Disadvantages
● No Change in Accounts ● No Check on Employees ● Delay in Final
● No interruption ● No review of internal Accounts
● No loose links Controls ● Late Dividend to
● Less time and Cost ● Post-mortem Shareholders
● Comparison ● Programming Errors ● Stale Accounts for
● Analysis ● Ignores Event after BS Banks/investors
● Decisions ● Ignores causes of Changes ● No Moral Check on
● No information about Employees
Profit/loss ● No Familiarity with
Clients Business
● Sample Check
● Uneven Work-load
for Audit Staff
Audit Plane Importance of Audit Working Paper Contents of a permanent
Audit file as per Audit Note
Book
● Reason/Meaning ● Main Function ● Meaning
● Basis ● Plan and Perform ● Form
● Coverage/Objectives ● Direct, Supervise and Review ● Contents
● Revision ● Record Evidence ● Identification
● Overall Plan and Programme ● Inspection ● Queries
● Benefits ● Accountability ● Adjusting Journal
● Responsibility ● Proves in Courts Entries
● Factors ● Importance of Audit
● Knowledge of Client Business Notes.
● Previous Years Matters ● Working Paper vs.
● Discussion With Clients Audit Note Book.
● Overall Audit Plane/Approach
Audit programme Audit Evidence
Advantages Disadvantages Evidence About Internal
Control
● Guidance to Assistance ● Mechanical Work
● No Omission or Repetition of ● Work to Rule ● Existence
Work ● Defence Against Deficiency ● Effective
● Checklist of Procedures ● Insufficient Evidence in ● Operative
● Direction to Assistance Court
Evidence About
● Delegation and Supervision of ● Rigid Time Table
Transaction During the
Work ● Fixed Audit Programme
Year
● Distribution of Work – Routine
work, Quality work and Joint ● Occurrence
Work ● Complete
● Allocation and Responsibility ● Amount
of Work ● Disclosure
● Evidence in Court
Evidence About Year end
● Timely Completion of Audit
balances of Assets &
● Flexible Audit Programme
Liabilities
● Existence
● Rights and
Obligations
● Valuation
● Disclosure
Essential of Good Audit
Evidence
● Sufficient Evidence
● Reliable Evidence
● Relevant Evidence
Test Checking Precautions Internal Audit Principles Internal Control Limitations
● Classify Transaction ● Integrity, objective and ● Cost
● System and Procedures Independence ● Human Error
● Internal Controls ● Confidentiality ● Collusion
● Test Check Plane ● Due Professional Care, Skills ● Misuse
● No Bias in Selection and Competence ● Manipulation by
● Avoid Unsuitable Areas ● Work performed by Others management
● Decide No. of Transaction ● Documentation
● Decide Significance of Errors ● Planning
● Evidence
● Internal Control and Risk
management System
● Reporting
Auditor’s liability/Precaution for using Audit Sampling Management Responsibility
sample and Review of Internal
Control
● Reasonable Basis Meaning Management Responsibility
● Designing Sample
Purpose ● Basic Principles of
● Sample Size
Management
● Selection of Items Factors for Designing Audit Sample
● Policies for Orderly
● Audit Procedure
● Audit Objectives and Efficient
● Deviations or Misstatements
● Population Conduct of Business
● Projections
● Audit Evidence ● Adequate
● Evaluation
Accounting System
Sample Size ● Supervision and
● Basic Principle Modification
● Methods ● Budgetary Controls
● Basic Factors and Internal Audit
● Type of Test ● Corrective Action
o Sample Size for Test on Weaknesses.
Controls Review of Internal Control
o Sample Size for Test
of Details. ● Why Auditor
Should review
Internal Controls
● How Auditor
Should Review
Internal Controls
Auditors Duties towards Internal Internal Control for Credit Sales Internal Control for Debtors
Controls
● Responsibility of Management ● Division of Work ● Credit Limits
● Auditor’s Duty ● Procedures ● Prompt Reporting
● Need for Evaluation ● Cross Check ● Prompt Adjustment
● Steps in Evaluation ● Change in Duties ● Age Wise Schedule
● Communicate Weakness to ● Annual Leave ● Statement of
Management ● Access to Books Accounts
● Proper Recording ● Discount & write-
● Prompt Recording offs
● Accounting Policies ● Reconcile Control
● Safeguarding Accounts
● Errors and Frauds
● Reconciliation and
Confirmations
Internal Control for Purchase Internal Control for Salaries and Vouching of Rental Income
Wages
● Division of Work ● Division of Work ● Supporting
● Procedures ● Procedure for Payments Documents
● Cross- Checking ● Cross-check ● Name
● Change in Duties ● Change in Duties ● Date
● Annual Leave ● Annual Leaves ● Sr. No.
● Access to Books ● Access to Books ● Amount
● Proper Recording ● Proper recording ● Period
● Prompt Recording ● Prompt recording ● Signature
● Accounting Policies ● Accounting Policies ● Errors
● Safeguarding ● Safeguarding ● Proper Accounting
● Errors and Frauds ● Errors and Frauds ● Reconciliation
● Reconciliation and ● Disclosure vide
Confirmation Revised Schedule
III
● Income -tax Act.
Points to be Consider in Vouching
Checking the Voucher Checking The Supporting Checking the Entry in the Books
Documents
● Name of The Concern ● Clients Book
● Date if the Voucher ● Pertains to Client ● Date of Entry
● Serial Number of Voucher ● Pertains to Current year ● Serial number of Voucher
● Heads of Accounts Debited ● Serial Number of Bill ● Heads of Accounts Debit
and/or Credited ● Details of Transaction or Credited
● Description of Transaction ● Quantity ● Quantity
and Name of Parties Involved ● Amount ● Amount
● Amount in Figure and words ● Signature of Party
● Signature of Authorised ● Approval of Bill
Official
● Signature of Person Preparing
the Voucher
● Signature of Person Making
Entry in Day Book
● Signature of the Payee
Vouching of Sales Vouching of Sales Return Vouching of Dividend Income
● Supporting Document ● Supporting Document ● Supporting Document
● Name ● Name ● Name
● Date ● Date ● Date
● Sr. No ● Sr. No ● Sr. No
● Amount ● Amount ● Amount
● Quantity ● Quantity ● Errors and Frauds
● Signature on Bills ● Signature on Credit Note ● Accounting Principle and
● Signature and Stamp of Party & GRN Practice
● Errors and Frauds ● Errors and Frauds ● Comparison with
● Proper Accounting ● Proper Accounting Investment Register
● Guidelines by ICAI ● Disclosure vide Revised
● Comly with Companies Act – Schedule III
Sales to Related Concern ● Income Tax Act
● Disclosure vide Revised
Schedule III
Vouching of Payments Vouching of Purchase Objectives of Verification
Checking Voucher and Entry ● Supporting Document ● Existence
● Name ● Possession
● Name
● Date ● Legal Ownership and
● Date
● Sr. No Obligation
● Number
● Amount ● Subject to Change or Line
● Heads of Accounts Debited
● Quantity Complete records
● Narration of Description of
● Signature on Voucher & ● Audit Report
the transaction and names of
GRN ● Events After Balance
Parties Involved
● Signature and Stamp of Sheet Date
● Amount in Figures and
Party
Words
● Cut-off Procedure
● Signature of Authorised ● Test Check Purchase
Official ● Cost of Purchase
● Signature of Person Preparing ● Test Check Goods
the Voucher Received, Return
● Signature of Person Making ● Imports
entry in Cash Book ● Analytical Procedure
● Signature of the Payee ● Unrecorded Purchase
● Errors Frauds
Checking – Supporting Document
● Reconciliations
● Pertains to Client ● Payment to Related
● Date of Document Concern
● Reference or Serial Number ● Disclosure vide Revised
of Document Schedule III
● Details of Transaction ● Income – Tax Act
● Amount
● Signature of Party
Importance of Valuation Verification of Inventory Verification Land & Building
● Methods of Valuation ● Verify Existence ● Verify the Records
● No Change in Method ● Procession ● Verify the Existence
● Correct Computation ● Cut-off Transaction ● Verify the Ownership
● Revaluation ● Subject to Charge or Line ● Verify the Valuation
● Foreign Exchange ● Audit Report Under ● Verify the Disclosure
● Recognised Accounting Companies Act
Practices ● Duty Prescribe by ICAI
● Companies Act
● Schedule III
● Event After Balance Sheet
Date
Verification of Outstanding Verification of Creditors
Expenses
● Accrual Accounting ● Why & How
● Security of Expenses A/c ● Ledger Balances
● General Rule ● Confirmation
● Service Charges ● Analytical Review
● Interest Due ● Cut-off Transactions
● Rent ● Checking Summary and
● Royalty Grouping
● Salaries & Wages ● Disclosure Vide Revised
● Commission on Sales Schedule III
● Commission to Director ● Management Certificate
● Opening Balance
● Prior Period Balances
