How can make an audit effective by coordinating audit aspects & audit procedures

Before stating anything I have two words to explain aspects and procedures. Now if we want to do any work perfectly than we should know the aspects and procedures related to that particular work. To be professional in our work we should analyze first what we have to do and how it can be done in a professional manner?

As far as audit is concerned we should know the different audit procedures and audit aspects.

Now what are audit aspects and procedures? In short it is nothing but the areas which we have to cover in the course of our audit and the audit procedures are the steps which we have to take to complete the different audit aspects.

So both audit aspects and audit procedures are inter related to each other.

Now to discuss the relationship between audit procedures and aspects first we should analyze them separately.

The audit aspects cover the following:

Examination of the system of Accounting and Internal control

An examination of the system of accounting and internal control to ascertain whether it is appropriate for the business and helps in properly recording of all the transaction. This is followed by such test and enquires as are considered necessary to ascertain weather the system is in actual operation.

Review of the system and procedures

Reviewing of the system and procedures to find out whether they are adequate and comprehensive.

Checking the arithmetical accuracy

Checking the arithmetical accuracy of the books of accounts and verification of postings, balances etc.     

Verification of authenticity & validity of transaction

Verification of authenticity and validity of transaction entered into by making an examination of the entries in the books of account with relevant supporting documents.

Proper distinction between items of capital & revenue nature

Ascertaining that proper distinction has been made between items of capital and revenue nature and that the amounts of various items of income and expenditures adjusted in the accounts corresponding to the accounting period.

Comparison of the balance sheet and profit and loss account or other statement with the underlining records in order to see that they are in accordance therewith.

Verification of the title, existence and value of the assets appearing in the balance sheet.

Verification of the liabilities stated in the balance sheet.

Checking the results shown by the profit and loss account and see weather the results shown are true and fair.

Compliance of statutory requirements

The audit procedures includes

1.       Compliance Procedures.

2.     Substantive procedures

Compliance procedures are the test designed to obtain reasonable assurance that those internal control on which audit reliance is to be placed are in effect.

On the other hand the substantive procedures are designed to obtain evidence as to the completeness, accuracy and validity of the data produced by the accounting system. The substantive procedures are of two types

(a)              Test of details.

(b)      Analysis of significant ratios and trends, including the resulting enquiry of unusual fluctuation and items.

Relation ship with Audit Aspects and Audit Procedures

As far as the audit aspects are concerned before starting the audit we should know the internal control and the accounting system prevails in the client’s organization. Now by adopting the compliance procedure we cover the same. In compliance procedure we have to check the internal control and the accounting system of the client to ascertain the effectiveness of the internal control system as well as to determine the nature, timing and extent of the substantive audit procedures.

Again we have to check the authenticity and validity of the transaction and account balance after giving some expected degree of reliance on the internal control and accounting system of the organization on the basis of our compliance procedures. Now in substantive procedures we will check the same through vouching and verification.

Again we have to compare different ratios, trends to ascertain that is there any major fluctuation or inadequacy in the financials results as compare to the previous year results and industry standards. Again in substantive procedures we can analyze the same through analytical procedures.