Phase 1: there are different ways that an auditor can collect evidence to meet the overall audit objective, two overriding considerations affect the approach the auditor select.
To satisfy the professional obligations, sufficient suitable evidence must be accumulated which is meet their professional responsibility. the first consideration is the most important but cost minimizations is necessary if cpa are to be competitive and profitable. Auditor would keep adding evidence, without concern for efficiency until they were sufficiently certain that there was no material misstatement. some the plan should result in an effective audit approach at a reasonable cost.
Phase 2 : When the try to reduced assessed control risk by the identification of control, they should spread the accuracy of the financial statement information directly related to those control must be supported through the collected the evidence. The way they tasting that known as test of control.
Auditors also justify the client transaction record by verifying of transaction. This is called substantive test of transaction.
Ex: the auditor can comparism the unit selling price on a duplicate sale invoice with the approved price list.
Phase 3: The test of balance details is a specialized process designed to test for monetary misrepresentation in the balance in the financial statement.
ex: the accuracy objective for account receivable is direct written communication with the client customer. Test of detail of ending balance are essential to the conduct of the audit because most of the evidence is obtained from a source independent of the client and therefore considered to be of high quality.
Phase 4: After completing all procedures that must be combined the information reach an overall conclusion as to where the F/S are fairly presented. The last combination is a summary at the finishing of the engagement, when the report completed CPA issues a audit report after that organization can published annual report.
1. The use of statistical technique is desirable to make analytical procedure more relevant. Many auditor use computer software to make statistical and non-statistical. These are two audit tools:
Several statically techniques that aid in interpreting result can be applied to analytical procedures. the advantage of using statistical techniques are the ability to make more so phisticated and their objectivity. The most common statistical technique for analytical procedures is regression analysis . this analysis are used evaluate the reasonableness of a recorded balance by the total to other relevant information . ex : the auditor might conclude that total selling expense should be related to total sale , the previous years selling expense , and the number of sale people . Regression analysis and other statistical methods commonly used for analytical procedures can be found in several advanced text dealing with statistical sampling techniques for auditing.
Auditor computer software: Computer based audit software is being used by auditor in wide varity of ways . all software is the ability to input the client general ledger into the auditors computer system . Adjusting entries and financial statement are thereby computerized to save time . A major benefit of computerized analytical procedures is the case of the updating when adjusting entries to the client statement are made. There are different adjusting entries to client records the analytical procedures calculations can be quickly revised . ex : A change in inventory and cost of good sold affect a large number of ratio . All affect ratio would be revised at almost no cost with computer software.