The External Institutions of Corporate Governance: regulators, markets, auditors and others Essay
The External Institutions of Corporate Governance: regulators, markets, auditors and others
The author must decide the extend of testing or the number of items to audit. For example when auditing cash receipts, an auditor may decide to examine every cash disbursement or only a sample of them. The sufficiency of the evidence needed determines the number of items to test.
Timing of Testing
Another decision that the auditor must make is when to perform each audit procedures.
Year-end work – audit procedures performed between year-end and completion of audit. For example confirming accounts receivable at December 31 for a client with a December 31fiscal year-end.
Interim work – audit procedures performed before year-end. For example confirming accounts receivable one month before year-end.
The auditor should consider the following in deciding whether and when to perform interim work in a particular account balance The internal control associated with the account,
How rapidly business condition might change,
Management’s predisposition to misstate the financial statements and the potential impact of such misstatement on the account , and The predictability of the account balances at year-end.
Timing of test of controls
The auditor shall test controls for the particular time, or throughout the period for which the auditor intends to rely on those controls in order to provide an appropriate basis for the auditor’s intended reliance. When the auditor obtains evidence about the operating effectiveness of control during an interim period, the auditor shall: Obtain audit evidence about significant changes to those controls subsequent to the interim period; and Determined the additional audit evidence to be obtained for the remaining period. When using audit evidence obtained in previous audit, the auditor should consider the following The effectiveness of other elements of internal control, including the control environment, the entity’s monitoring of controls, and the entity’s risk assessment process; The risk arising from the characteristics of control, including whether it is manual or automated; The effectiveness of general IT control;
The effectiveness of the control and its application by the entity, including the nature and extent of deviations in the application of the control noted in previous audit, and whether there have been personnel changes that significantly affect the application of control; Whether the lack of a change in a particular poses a risk due to changing circumstances; and The risk of material misstatement and the extent of reliance on the control.
Irrespective of the assessed risk of material misstatement, the auditor shall design and perform substantive procedures for each material class of transactions, account balance, and disclosure.
The auditor’s substantive audit procedures shall include the following audit procedures related to the financial statement closing process: Agreeing or reconciling the financial statement with the underlying records; and Examining material journal entries and other adjustment made during the course of preparing the financial statements. When substantive procedures are perform at an interim date, the auditor shall cover the remaining period by performing : Substantive procedure, combined with test of controls for the intervening period; and
If the auditor determines that it is sufficient, further substantive procedures only, that provide a reasonable basis for extending the audit conclusions from the interim date to the period end.
Selecting the audit procedures that will be applied
After the auditor has develop specific audit objectives in relation to the assertions for a particular account balance or class of transaction, the next step is to select audit procedures to achieve these objectives. The selection of particular procedures to achieve a specific audit objectives is influenced by the following considerations;
The nature and materiality of the particular component of the financial statement (account balance or transaction). The nature of audit objective to be achieved
The reliance that can be placed on internal control structure. The relative risk of material errors or irregularities.
The kinds and competence of available evidence.
The expected efficiency and effectiveness of possible audit procedures.
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 7 March 2016
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