Chapter No.
05
Audit technique and
procedures
Audit Techniques
• Audit techniques are tools, methods or processes by means of
which an auditor collects the necessary evidence to support
his opinion in respect of the propositions or assertions
submitted by the client to him for examination.
• The techniques are concerned with the collection of
adequate, valid and relevant evidence.
Audit Procedures
• Audit procedures are ways of applying
techniques to particular phases of a particular
audit. Generally, the attainment of audit
objectives requires the collection of evidence
to support a decision.
• Therefore, audit procedures may be
considered as procedures also function as aid
in supervising audits.
Kinds of Audit Techniques
• Posting verification:
To verify posting from books of original entry to ledger account and confirm the balance, an Auditor is
required to verify the postings; for example, to verify a sale book, an Auditor may verify postings from
the sale register to the sale ledger. He may further calculate balances of the sale register and the sale
book
• Extension verification:
–Multiplying two or more amounts to prove the
accuracy of the total.
• Vouching:
–A careful examination of all original evidence such
as invoices, statements, receipts, correspondence,
minutes, contracts etc, with a view to proving the
accuracy of the entries in the books of account.
• Confirmation:
– An independent confirmation by auditor with a
third party to ascertain the correctness of the
figures and validity clients’ records. The auditor
obtains written statements and certificates from
debtors and lenders.
• Physical examination:
– This is carries out in case of tangible assets as
shown by the books of accounts of client. Physical
examination include inspection, counting,
identification, measurement and escalation of
quality.
• Reconciliation:
– This is another technique used by auditor during the
audit where two or more items are reconciled against
each other. For example rent account may be
reconciled by multiplying monthly rent by 12.
• Testing:
– This technique involves the selection of representative
items from the records and examining them for
reaching a conclusion about the trend of the whole
entity.
• Analysis of financial statements.
– This technique include the working of various financial
ratios between different audit periods ended.
• Scanning
– This technique employed by experience auditor.
Such auditor may make a wide sweeping search or
look through hastily t o find out which of the
entries are regular, consistent and which are not
so. Irregular and inconsistent entries are examined
in depth.
• Documentary examination:
– This technique more or less is same as vouching
technique. Under this method documentary
evidence is examined to test the adequacy and
reliability.
• Flow charting
– This technique is used in auditing to describe
graphically the issue of transactions through
different stages from start to end.
• Electronic data processing
– This technique simplifies the conduct of audit
because generally the number of errors are
excluded to the minimum as the human element
is eliminated.
• Inspection
– Inspection consist of examining records, documents
or tangible assets. Inspection of records and
documents provides audit evidence of varying
degrees of reliability depending on their nature and
source and effectiveness of internal control.
• Observation
– Observation consists of looking at a process or
procedure being performed by others, for instance
the observation by the auditor of counting of
inventories by the entity’s personnel or others.
• Enquiry
– The auditor before starting the actual work of
audit, should make an enquiry about the
necessary basic information such as corporate
charter and bylaws, partnership agreement,
corporate minute books, contracts, government
regulations affecting business and income tax
assessment of prior years.
• Computation
– It consists of arithmetical accuracy of source
documents and accounting records or perfrorming
independent calculations.
• Management representation
– The preparation of accounts is the responsibility
of directors and other management. Management
representation letter reminds the management of
their responsibility for overall competencies of the
accounts. The object of written representation
from management is to reduce the possibility of
misunderstanding between the auditor and
management. Management representation is a
statement by management provided to auditor to
confirm certain matters or to support other audit
evidence
• Sampling technique
– It is concerned with selecting few items from
whole accounting information. Audit sampling is
the application of a compliance or substantive
procedures to less than 100 percent of items
within an account balance or class of transactions
to enable the auditor to obtain and evaluate
evidence of some characteristics of balance or
class and to form or assist in forming a conclusion
concerning that characteristics.
• Compliance techniques
– These are designed to obtain reasonable
assurance that those internal controls on which
the audit reliance is to be placed are in effect.
• Substantive testing
– Substantive tests are designed to obtain evidence
as to completeness, accuracy and validity of data
produced by accounting system. They are two
types:
• Test of details of transactions and balances
• Analysis of significant rations and trends.
• Analytical review
– It consists of review of significant ratios and
trends and investigating unusual fluctuations and
items.
• Use of computers- assisted audit techniques.
– Computer assisted audit techniques include audit
software, test packs, embedded audit facilities,
system software and flowcharting.
End of chapter 5
Thank you!