FINANCIAL STATEMENT AUDIT APPROACH TO FINANCIAL STATEMENTS AUDIT

CA. SRIPRIYA KUMAR

Practical/ Article Training

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LEARNING OBJECTIVES

Approaches to Audit Assertions

Internal Control

Evaluation

Verification Documentation

Conclusion and

Reporting

AUDIT APPROACHES

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AUDIT APPROACHES

Substantive

Approach

Balance Sheet

Approach

Risk based

ApproachHYBRID

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SUBSTANTIVE APPROACH

1• Focus on Transaction audit. High volume of transactions are

checked

2

• Systems and processes are not very mature and significantly owner driven with little or no professional approach to risk management controls

3

• Used in organisations where internal controls are not strong ( proprietorship / partnerships ) or in case of small organisations

4• No particular focus area, all transactions are attempted

to be tested in P & L and Balance Sheet areas

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BALANCE SHEET APPROACH

1• Focus on Transaction audit. High volume of transactions are

checked but only in Balance Sheet Components

2

• Systems and processes are not very mature and significantly owner driven with little or no professional approach to risk management controls

3

• Used in organisations where internal controls are not strong ( proprietorship / partnerships ) or in case of small organisations

4

• The presumption is that if all Balance Sheet Component assertions are found to be in order based on audit, the income and expenditure is bound to be correct

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RISK BASED APPROACH

1• Financial Statement components broken down

as Processes and Sub processes

2• Risks in each process is mapped and controls

as existing are also identified

3• The controls are tested using Tests of Controls

and Substantive procedures are limited

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• Used in professionally managed organisations with robust IT systems and Control frameworks

AUDIT PROCESS

5. Reporting

4. Documentation

3. Verification

2. Internal Control Evaluation

1. Understanding Assertions

AUDIT PROCESS

AUDIT PROCEDURES

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AUDIT PROCEDURES

Risk Assessment Procedures

Compliance Procedures

Substantive Procedures

The audit procedures described in paragraphs A14-A25 below may beused as risk assessment procedures, tests of controls or substantive procedures, depending on the context in which they are applied by the auditor.

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AUDIT PROCEDURES IN PARA A14 TO A25

True &

Fair

Inspection

Observation

Enquiry

Confirmation Recalculation

Reperformance

Analytical procedures

AUDIT EVIDENCE OR DOCUMENTATION

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HOW DO I DECIDE ON AN AUDIT PROCEDURE

• Audit Evidence is the key driver in deciding an audit procedure

Audit Evidence

• The quantity of the evidence should be sufficient to draw a conclusion

Sufficient

• Quality of the evidence – the evidence should be relevant and reliable

Appropriate

WHAT NEXT? WHAT DO I DO?I understand Audit Risk!

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