Please discuss the criteria that an auditor uses to make a decision to either ap
ID: 2400845 • Letter: P
Question
Please discuss the criteria that an auditor uses to make a decision to either apply analytical procedures as substantive tests or to perform substantive tests of transactions and account balances. There will be environmental and control criteria to be discussed. Please discuss the criteria that an auditor uses to make a decision to either apply analytical procedures as substantive tests or to perform substantive tests of transactions and account balances. There will be environmental and control criteria to be discussed.Explanation / Answer
Answer :
There are two types of Procedures to obtain Sufficient and Appropriate Audit Evidence (SAAE). They are i) Compliance Procedure(Test of Control) and ii) Substantive Procedure.
Compliance Procedure : It is called as test of Internal controls which play an important role within the organization as it is a check of internal process and every adminstration activity.
It includes test of i) Whether Internal Control exist in the entity?
ii) Whether internal controls are effective or efficient ?
iii) Whether internal controls are exist and effective during the year or not.
Substantive Procedure :
It is known as detailed or indepth procedure.
It is of two (2) types: a) Analytical Review procedure and b)Test of transactions/ Test of Details procedure.
a) Analytical review procedure: Analytical procedures consist of ‘evaluations of financial information through analysis of possible relationships among both financial and non-financial data.
b) Test of Details: It is more reliable than analytical procedure but it is time consuming. It is of two types Vouching for test of occurance of transactions and Verification for test of Account Balances ( Assets and liabilities)
Criteria of Auditor to decide Analytical procedures or Test of transaction: