December 21, 2021

While conducting an audit, the auditor comes across various matters in respect of which he is not able to obtain sufficient appropriate audit evidence. One such area involves verification of liabilities, in general, and contingent liabilities in particular. In such cases, it is advisable for the auditor to obtain a written representation from the management […]

The surprise checks also constitute an important part of normal audit procedures as per the Guidance Note on” “Surprise Checks”. Audit procedures cannot consist merely of any set of rules or precepts to be applied to all and every situation but must be allowed to develop in the light of experience with regard to the

AAS-13 on “Audit Materiality” requires that the auditor should consider materiality and its relationship with audit risk when conducting an audit. According to it, information is material if its misstatement (i.e., omission or erroneous statement) could influence the economic decisions of users taken on the basis of the financial information. Materiality depends on the size

Audit risk is the risk that an auditor may give an inappropriate opinion on financial information that is materially mis-stated. For example, an auditor may give an unqualified opinion on financial statements without knowing that they are materially mis-stated. Such risk may exist at overall level or while verifying various transactions and balance-sheet items. 1.

Students may recall that according to AAS-2, on “Objective and scope of Financial Statements”, there is unavoidable risk that even some material misstatements may remain undiscovered due to the test nature and other inherent limitations of any system of internal control. AAS-5 on “Audit Evidence” also makes it clear that an auditor’s judgement as to

The advantages of statistical sampling may be summarized as follows – 1. The amount of testing (sample size) does not increase in proportion to the increase in the size of the area (universe) tested. 2. The sample selection is more objective and thereby more defensible. 3. The method provides a means of estimating the minimum

Sample should be selected in such a manner that it is representative of the population from which the sample is being selected. It will necessitate that each item in the population has an equal chance of being included in the sample. Some of the important methods of selecting the sample are discussed below – 1.

As per AAS 15, “Audit Sampling”, the auditor should select sample items in such a way that the sample can be expected to be representative of the population. This requires that all items in the population have an opportunity of being selected. There are two major methods in which the size of the sample and

Generally, a large manufacturing concern is associated with a large volume of transactions. Also, the nature of the transactions is determined by the nature of the business. For example, one may find numerous purchases of raw materials, stores, spares, etc.; there may be thousands of workers to be paid wages on weekly basis; the wages

Very often we come across this term when an audit is conducted on the basis of a part checking. This, it is said, owes its origin to the statistical theory of sampling. The auditor according to his best judgment, having regard to the nature, size and materiality of transactions, picks up the entries for examination.

No conscious effort in human society is divested of economic considerations and auditing is no exception. There is a growing realisation that the traditional approach to audit is economically wasteful because all efforts are directed to check all transactions without exception. This invariably leads to more emphasis on routine checking, which often is not necessary

At the individual audit level, however, it shall be absolutely necessary that the work delegated to assistants is directed, supervised and reviewed in a proper manner. Direction: Direction involves informing assistants of their responsibilities and the objectives of the procedures they are to perform. It also involves informing them of matters, such as the nature