F INANCIAL S TATEMENT A UDIT A PPROACH TO F INANCIAL S TATEMENTS A UDIT CA. S RIPRIYA K UMAR Practical/ Article Training

L EARNING O BJECTIVES Approaches to Audit Assertions Internal Control Evaluation VerificationDocumentation Conclusion and Reporting 2

A UDIT A PPROACHES

4 Substantive Approach Balance Sheet Approach Risk based Approach HYBRID

S UBSTANTIVE A PPROACH 5 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

B ALANCE S HEET A PPROACH 6 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

R ISK BASED APPROACH 7 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 4 Used in professionally managed organisations with robust IT systems and Control frameworks

A UDIT P ROCESS

5. Reporting4. Documentation3. Verification 2. Internal Control Evaluation 1. Understanding Assertions A UDIT P ROCESS

A UDIT P ROCEDURES

11 Risk Assessment Procedures Compliance Procedures Substantive Procedures The audit procedures described in paragraphs A14-A25 below may be used as risk assessment procedures, tests of controls or substantive procedures, depending on the context in which they are applied by the auditor.

A UDIT P ROCEDURES IN P ARA A14 TO A25 True & Fair InspectionObservationEnquiryConfirmationRecalculationReperformance Analytical procedures 12

A UDIT E VIDENCE OR D OCUMENTATION

H OW DO I DECIDE ON AN A UDIT P ROCEDURE 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 14

W HAT N EXT ? W HAT DO I D O ? I understand Audit Risk!

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