Audit work on the records and financial statements
relating to a financial year are carried out at various times during, at the
end and after the end of the financial period.
relating to a financial year are carried out at various times during, at the
end and after the end of the financial period.
Audit visits
Audit work will be carried on at the client’s
premises. Where the client has branches,
premises. Where the client has branches,
this can create problems of travelling
for the auditor but in such cases some branches are visited as samples or all
the branches are visited by rotation.
In the majority of cases, three extended visits are
made by the auditor to the client’s premises to carry out audit work:
made by the auditor to the client’s premises to carry out audit work:
·
During
the year-the interim audit.
During
the year-the interim audit.
·
At the
years end.
At the
years end.
·
After the
year end-the final audit.
After the
year end-the final audit.
Clearly on audits of very large organizations there
may be almost a permanent audit presence at the client. For example, the audit
of a very large multinational may warrant almost a full presence on site.
may be almost a permanent audit presence at the client. For example, the audit
of a very large multinational may warrant almost a full presence on site.
If this is the case it is important that the staff
be rotated regularly. The reason for this is that it is very easy for audit staff
that is almost permanently in contact with their client to lose their
objectivity and to begin to feel that they are, in fact, part of the client and
not its auditors. The most notorious case oft his was audit of Enron in the USA
by Arthur Andersen, where it was noted that visitors to Enron could not tell
the difference between Arthur Andersen staff and Enron personnel.
be rotated regularly. The reason for this is that it is very easy for audit staff
that is almost permanently in contact with their client to lose their
objectivity and to begin to feel that they are, in fact, part of the client and
not its auditors. The most notorious case oft his was audit of Enron in the USA
by Arthur Andersen, where it was noted that visitors to Enron could not tell
the difference between Arthur Andersen staff and Enron personnel.
Interim audit
The interim audit will be carried out during the
financial year. Very often the interim audit will be about two-thirds of the
way through the year, e.g. September or October for a December year end.
financial year. Very often the interim audit will be about two-thirds of the
way through the year, e.g. September or October for a December year end.
The work done includes:
·
Ascertain
the system of accounting and internal control or review and changes from the
previous year.
Ascertain
the system of accounting and internal control or review and changes from the
previous year.
·
Records
the system or update systems records using flow charts or other methods.
Records
the system or update systems records using flow charts or other methods.
·
Evaluate
the systems for adequacy and presence of apparent weaknesses.
Evaluate
the systems for adequacy and presence of apparent weaknesses.
·
Design
and carry out compliance tests to determine if the system is operated at all
times in accordance with the description of the system evaluated by the
auditor.
Design
and carry out compliance tests to determine if the system is operated at all
times in accordance with the description of the system evaluated by the
auditor.
·
Design
and carry out tests to dertimine if, in areas where controls are weak or
non-existent, the records can be relied upon.
Design
and carry out tests to dertimine if, in areas where controls are weak or
non-existent, the records can be relied upon.
·
Draw
conclusions on the adequacy of the systems and hence of the reliability of the
looks of account and other records.
Draw
conclusions on the adequacy of the systems and hence of the reliability of the
looks of account and other records.
·
Seek
evidence by substantive tests, that unusual or one-off transactions have been
fully and correctly recorded.
Seek
evidence by substantive tests, that unusual or one-off transactions have been
fully and correctly recorded.
·
Where
possible carry out tests on assets and liabilities. Test on assets and
liabilities should be carried out after the year end but with clients with
strong systems, some verification can be done at the interim stage. Examples
are physical verification of stock records and debtors circularization.
Where
possible carry out tests on assets and liabilities. Test on assets and
liabilities should be carried out after the year end but with clients with
strong systems, some verification can be done at the interim stage. Examples
are physical verification of stock records and debtors circularization.
Year-end work
On the last day of the client’s year end it will be
possible to verify some year-end assets and liabilities in a way impossible at
any other time. Thus attendance will be required for:
possible to verify some year-end assets and liabilities in a way impossible at
any other time. Thus attendance will be required for:
·
Observation
and testing of any stock count. This is now mandatory under ISA 501 audit
evidence-additional considerations for specific items.
Observation
and testing of any stock count. This is now mandatory under ISA 501 audit
evidence-additional considerations for specific items.
·
Observation
and testing of cut-off procedures.
Observation
and testing of cut-off procedures.
·
Counting
of cash balances where these are a material figure on the balance sheet.
Counting
of cash balances where these are a material figure on the balance sheet.
Final audit
The final audit will take place after the year end
and is designed to seek evidence that financial statements give a true and fair
view and comply with statutory and other requirements.
and is designed to seek evidence that financial statements give a true and fair
view and comply with statutory and other requirements.
The timing of the final audit varies from client.
Some final audits are commenced within days of the year end and the financial
statements are published within as short a period as two months after the year
end. The advantage of an early audit and early publication of the accounts is
that the information given to members and others is up to date.
Some final audits are commenced within days of the year end and the financial
statements are published within as short a period as two months after the year
end. The advantage of an early audit and early publication of the accounts is
that the information given to members and others is up to date.
From the audit point of view, transaction in
progressa t the year end is often not resolved and estimates of outcome have to
be made and evaluated. The advantage do a late audit is that transactions in progress
at the year end are often resolved and fewer estimates need to be made. For
example, after a few months it will have become clear whether or not a doubtful
debt is in fact bad. The disadvantage of a late audit is that information reaching
members and others is out of date. The accounts will have become truly
historical.
progressa t the year end is often not resolved and estimates of outcome have to
be made and evaluated. The advantage do a late audit is that transactions in progress
at the year end are often resolved and fewer estimates need to be made. For
example, after a few months it will have become clear whether or not a doubtful
debt is in fact bad. The disadvantage of a late audit is that information reaching
members and others is out of date. The accounts will have become truly
historical.
The work carried out after the year end will be:
·
Updating
of the auditor’s review of the systems of accounting and internal control.
Updating
of the auditor’s review of the systems of accounting and internal control.
This will involve:
·
Determine
if the systems changed between the interim audit and the year end by
interviewing officials and a few ‘walk-through’ tests.
Determine
if the systems changed between the interim audit and the year end by
interviewing officials and a few ‘walk-through’ tests.
·
Thoroughly
testing new systems.
Thoroughly
testing new systems.
·
Compliance
tests of the unchanged systems from the interim audit to the year end.
Compliance
tests of the unchanged systems from the interim audit to the year end.
·
Drafting
a letter of weakness for management regarding any
Drafting
a letter of weakness for management regarding any
·
Drawing
conclusions on:
Drawing
conclusions on:
·
Adequacy
of the accounting system and the system of internal controls thereon.
Adequacy
of the accounting system and the system of internal controls thereon.
·
Whether
proper books of account have been kept.
Whether
proper books of account have been kept.
·
Whether
the book of account and other records form a reliable base for the preparation
of the financial statements.
Whether
the book of account and other records form a reliable base for the preparation
of the financial statements.
·
Comparing
the financial statements with the underlying records and books of accounts to
see that they correspond.
Comparing
the financial statements with the underlying records and books of accounts to
see that they correspond.
·
Performing
substantive tests on assets and liabilities.
Performing
substantive tests on assets and liabilities.
·
Performing
the final analytical review.
Performing
the final analytical review.
·
Preparing
and signing the auditor’s report.
Preparing
and signing the auditor’s report.
Audit planning memorandum
These records, in a standard format, all the
decisions Jane has taken and the reasons why she has taken them. This will then
have to be agreed with and signed off by the audit engagement partner.
decisions Jane has taken and the reasons why she has taken them. This will then
have to be agreed with and signed off by the audit engagement partner.