Audit grounds is a important construct which underlying the full audit procedure. In order to pull a decision, audit grounds is the of import information that used by hearer in geting at the decisions which audit sentiment is a base in this procedure. ( ISA 500 ) , ( Messier, Glover, Prawitt & A ; Poh, Margaret, 2007 ) , ( Proposed SAS )
However, harmonizing to AU subdivision 326, audit grounds is the informations used by the hearer semen to the decision base on the sentiment of audit and consist the information contained in the accounting records underlying the fiscal statements and other informations. Hearers are non required to look into all informations that may be. No affair the audit grounds are obtained by proper audit processs or obtained from other beginnings, the audit grounds is consider as cumulative in nature. ( AU subdivision 326 [ AICPA, Professional Standards, vol. 1 ] )
Audited account processs are the specific Acts of the Apostless that perform by hearer to roll up grounds in order to geting at the sensible decisions on which to establish on the audit sentiment are audit processs. ( Messier, Glover, Prawitt & A ; Poh, Margaret, 2007 ) , ( AI 500 @ ISA 500 )
Auditor need to understand the entity and entity ‘s environment, it is include hazard appraisal of material misstatement at the fiscal statement, internal control and degrees of averment. Auditor has to prove the effectivity of operating of controls in observing or forestalling and rectifying and detect stuff misstatements at the degree of averment as good. ( AI 500 @ ISA 500 )
Harmonizing to AU subdivision 326, the hearer must get equal proper audit grounds by carry throughing audit processs to supply a sensible footing for a position sing the fiscal statements under audit. ( AU subdivision 326 [ AICPA, Professional Standards, vol. 1 ] )
Circumstance is one of the factors that will act upon the obtaining of audit grounds. Therefore, the hearer ought to plan and transport out audit processs that are suited for the certain circumstance for the intent of geting equal appropriate audit grounds. ( ISA 500 @ AI 500 )
20. The hearer ever performs hazard appraisal processs to supply a satisfactory footing for the appraisal of hazards at the fiscal statement and averment degrees. Risk appraisal processs by themselves do non supply sufficient appropriate audit grounds on which to establish the audit sentiment, nevertheless, and are supplemented by farther audit processs in the signifier of trials of controls, when necessary, and substantial processs.
21. Trials of controls are necessary in two fortunes. When the hearer ‘s hazard appraisal includes an outlook of the operating effectivity of controls, the hearer is required to prove those controls to back up the hazard appraisal. In add-on, when substantial processs entirely do non supply sufficient appropriate audit grounds, the hearer is required to execute trials of controls to obtain audit grounds about their operating effectivity.
22. The hearer programs and performs substantial processs to be antiphonal to the related appraisal of the hazards of stuff misstatement, which includes the consequences of trials of controls, if any. The hearer ‘s hazard appraisal is judgmental, nevertheless, and may non be sufficiently precise to place all hazards of material misstatement. Further, there are built-in restrictions to internal control, including the hazard of direction override, the possibility of human mistake and the consequence of systems alterations. Therefore, substantial processs for stuff categories of minutess, history balances, and revelations are ever required to obtain sufficient appropriate audit grounds.
23. The hearer uses one or more types of audit processs described in paragraphs 26 to 38 below. These audit processs, or combinations thereof, may be used as hazard appraisal processs, trials of controls or substantial processs, depending on the context in which they are applied by the hearer. In certain fortunes, audit grounds obtained from old audits may supply audit grounds where the hearer performs audit processs to set up its go oning relevancy.
24. The nature and timing of the audit processs to be used may be affected by the fact that some of the accounting informations and other information may be available merely in electronic signifier or merely at certain points or periods in clip. Beginning paperss, such as purchase orders, measures of cargo, bills, and cheques, may be replaced with electronic messages. For illustration, entities may utilize electronic commercialism or image processing systems. In electronic commercialism, the entity and its clients or providers use affiliated computing machines over a public web, such as the Internet, to transact concern electronically. Purchase, transportation, charge, hard currency reception, and hard currency expense minutess are frequently consummated wholly by the exchange of electronic messages between the parties. In image processing systems, paperss are scanned and converted into electronic images to ease storage and mention, and the beginning paperss may non be retained after transition. Certain electronic information may be at a certain point in clip. However, such information may non be retrievable after a specified period of clip if files are changed and if backup files do non be. An entity ‘s informations keeping policies may necessitate the hearer to bespeak keeping of some information for the hearer ‘s reappraisal or to execute audit processs at a clip when the information is available.
25. When the information is in electronic signifier, the hearer may transport out certain of the audit processs described below through CAATs.
There are many ways are used to roll up audit grounds, there are observation, enquiry, analytical processs, inspecting, physical scrutiny, verification, recalculating, rapprochement and item testing. ( Franklin, n.d. )
Four constructs of audit grounds are underlying under this subject, which is the nature of audit grounds, the rightness of audit grounds, the sufficiency of audit grounds and the rating of audit grounds. All of these constructs are of import to grok the behavior of the audit.
The nature of audit grounds contains accounting records. The subordinate legers, the general legers, bills, contracts, and journal entries are illustrations of accounting records. Actually accounting records are back uping records and records of initial entries.
Furthermore, proceedingss of meeting, analysts ‘ studies and verification from 3rd party besides see as accounting records.
Harmonizing to the Companies Act, Section 167, subdivision 1 reference that the managers and the direction demanded to maintain proper accounting that sufficiently clarify the fiscal place and minutess of the company every bit good as to enable the fiscal statement reflect true and just position. Besides, the companies act besides requires that those accounting records must be continuing in such modes so that enable them to be suitably and easy audited.
Except accounting records, other signifiers of informations and information besides can be used as grounds for illustration comparable informations from outside resources, verification from outside 3rd parties and other stuff develops by the hearer to pull decisions through illation. The audit grounds, which is cumulative in nature, includes information from old audits. While confirming grounds is the information obtained through review, enquiry or physical scrutiny.
In order to be able to pull sensible decisions, sufficient appropriate audit grounds is needed. The audit grounds is considered appropriate when the grounds is both dependable and relevant.
The sufficiency of grounds can be measured by measure of audit grounds. More audit grounds is required when measure the greater hazard. And the higher the quality of audit grounds, the less grounds that may be required. The relationship between rightness and sufficiency is an opposite.
Another of import accomplishment that must be developed by hearer is the capableness to measure suitably. The hearer can merely understand the grounds merely when the hearer knows the proper rating of grounds. The hearer can more clearly about types of grounds that are comparative dependability and available through proper rating. The intent of proper rating is to find whether the direction ‘s averment can be supported. ( Messier, Glover, Prawitt & A ; Poh, Margaret,2007 )
However, Risk appraisal procedures refers to a set of processs in measuring statements which are materially misstated and presented in fiscal studies by deriving an apprehension of the entity, and hence farther audit processs could be created. Examples of these processs are such as enquiry, analytical processs, observation and review.
Test of control refers to a set of processs that performed by hearer to guarantee the effectivity of the operation inside the entity. Examples of these processs are such as enquiry, review of papers, observation, walkthroughs, and re-performance.
Substantial processs refer to a set of processs to undercover material misstatement at the degree of averment. Normally is observing pecuniary mistakes in the fiscal statement. Substantial processs can split into two classs. There are trials of inside informations of history balances, minutess and revelation.