AUDIT EVIDENCE BY GROUP 6

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                                                  GROUP MEMBERS 

                                   

                                    NURHANI AMIRAH BINTI R.AZMI         (10DAT19F1062)

                                    

                                    NUR IZZATI BINTI ABDUL RASHID       (10DAT19F1015)

                                    NURUL AINASAFFIYA BINTI NAZELI   (10DAT19F1033)

                                    VISALINI A/P MURUGAN                         (10DAT19F1038)

          

INTRODUCTION

DEFINITION  : AUDIT PROCEDURES 

Audit procedures are the processes, techniques, and methods that auditors perform to obtain audit evidence, enabling them to conclude the set audit objective and express their opinion. Sometimes we call audit procedures audit programs.

These two terms are referring to the same thing.

Auditors normally prepare audit procedures at the planning stages once they identified audit objectives, audit scope, audit approach, and audit risks.

Auditors design audit procedures to detect all kinds of risks identified and ensure that the required audit evidence is obtained sufficiently and appropriately.

Normally, audit partners need to approve audit plans and audit procedures before the audit team performs their testing. This is to make sure that all concerns or risks are address in the procedures.

Audit procedures might be different from client to client and period to period. This is because internal control over financial reporting is different from one client to another, and the control might be change from time to time.

The auditor might need to update audit procedures from time to time even though its firm or team had audited current financial statements.

DEFINITION  : AUDIT RISK 

Audit risk is defined as ‘the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. Audit risk is a function of the risks of material misstatement and detection risk’. Hence, audit risk is made up of two components – risks of material misstatement and detection risk.

Risk of material misstatement is defined as ‘the risk that the financial statements are materially misstated prior to audit. This consists of two components ,inherent risk and control risk.

Inherent risk is ‘the susceptibility of an assertion about a class of transaction, account balance or disclosure to a misstatement that could be material, either individually or when aggregated with other misstatements, before consideration of any related controls.’

LET'S SEE THE QUESTIONS 

  FIRST QUESTION

When an entity does not adequately segregate duties, the possibility of cash being stolen before it is recorded is increased .If the auditor suspects that this type of defalcation is possible , what type of audit procedures can he or she use to test this possibility ?

ANSWER

1. Possibility of a defalcation is increased. 

2. Employee who has access to both the cash receipts and the accounts receivable records has the ability to steal cash and manipulate 

3. Sometimes referred to as lapping

4. If the auditor suspects that this has occurred, the individual cash receipts have to be traced to the customers' accounts receivable accounts 

           SECOND QUESTION

The auditor needs to understand how selected inherent risk factors affect the transactions processed by the revenue process. Discuss the potential effect that industry related factors and misstatements detected in prior periods have on the inherent risk assessment for the revenue process.

ANSWER 

>INDUSTRY RELATED FACTORS THAT AFFECT THE POTENTIAL FOR MISSATEMENTS IN REVENUE :

 1.Profitability and health of the industry in which the entry operates

 2.The level of competition within the industry

 3.The industry’s rate of technological change

Industry related factors directly impact the auditors assessment of inherent risk for assertions such as        authorization and accuracy

>THE COMPLEXITY AND CONTENTIUSNESS OF REVENUE RECOGNITION ISSUES

- Some revenue recognitions require complex calculations, such as;

1.Long - term construction contracts

2.Long - term services contracts

3.Lease contracts

4.Instalment sales

-  The difficulty of auditing transactions and account balances 

    

  *  Management estimate for allowance for doubtful accounts and sales returns can be difficult because of subjectivity 

  * RMM for these estimates is a function of factors such as complexity of the customer base and the reliability of the data available to test the accounts

> MISSTATEMENTS DETECTED IN PRIOR AUDITS 

- Prior year misstatements imply the next year audit will contain mistakes

            THIRD  QUESTION

In understanding the accounting system in the revenue process, the auditor typically performs a walkthrough to gain knowledge of the system. What knowledge should the auditor try to obtain about the accounting system?

ANSWER

Revenue Process

 MFRS 118 defines revenue as:

“Revenue is the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants”.

The revenue also comes from sales of goods and providing services. The revenue also known as fees, interest, dividends and royalties.

Purpose of auditing the revenue components: To enhance the detection of significant weaknesses and check financial statements whether the statements are in accordance with regulatory standards and generally accepted accounting principles.

The auditor needs to obtain the following knowledge:

• How sales, cash receipts, and sales returns and allowances transactions are initiated.

• The accounting records, supporting documents, and accounts that are involved in processing sales, cash receipts, and sales returns and allowances transactions.

• The flow of each type of transaction from initiation to inclusion in the financial statements, including computer processing of the data.

• The process used to prepare estimates for accounts such as the allowance for uncollectible accounts and sales returns.

Examples: 

1. Cash receipts transactions. The accounts affected are cash, trade receivables and cash discount. 

2. Sales transactions. The accounts affected are sales account, trade receivable account and bad debt expense.

CONCLUSION 

In the conclusion and opinion formulation stage, audit evidence is information that the auditor is to consider whether the financial statements as a whole presents with completeness, validity, accuracy and consistency with the auditor's understanding of the entity.

WE SINCERELY WOULD LIKE TO PRESENT ABOUT AUDIT EVIDENCE 

LET'S SEE SOME VIDEOS BASED ON OUR TOPIC 

 AUDIT EVIDENCE VIDEO : 

 REVENUE PROCESS VIDEO : 

INHERENT RISK VIDEO :

DON'T FORGET TO FILL UP YOUR ATTENDANCE 

LINK FOR ATTENDANCE : https://forms.gle/JaQPQxL6QKQFDw9aA

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