Auditing procedures: 1) As an auditor, how would you verify adequacy of accumula
ID: 2579816 • Letter: A
Question
Auditing procedures:1) As an auditor, how would you verify adequacy of accumulated depreciation?
2) A client found that land and buildings have been revalued during the year. What procedures would an auditor perform to verify the revaluation?
3) When auditing for many years, should auditors use the same audit procedures every year? Why or why not?
4) How can an auditor introduce unpredictability in his audit procedure?
5) Auditing procedures generate evidence for the auditor. Compare and contrast the evidence generated by the following seven types of auditing procedures: Inquiry, Observations, Examination of documentation, Confirmation, Physical examination, Reperformance, Analytical procedures, and Recalculation. Auditing procedures:
1) As an auditor, how would you verify adequacy of accumulated depreciation?
2) A client found that land and buildings have been revalued during the year. What procedures would an auditor perform to verify the revaluation?
3) When auditing for many years, should auditors use the same audit procedures every year? Why or why not?
4) How can an auditor introduce unpredictability in his audit procedure?
5) Auditing procedures generate evidence for the auditor. Compare and contrast the evidence generated by the following seven types of auditing procedures: Inquiry, Observations, Examination of documentation, Confirmation, Physical examination, Reperformance, Analytical procedures, and Recalculation.
1) As an auditor, how would you verify adequacy of accumulated depreciation?
2) A client found that land and buildings have been revalued during the year. What procedures would an auditor perform to verify the revaluation?
3) When auditing for many years, should auditors use the same audit procedures every year? Why or why not?
4) How can an auditor introduce unpredictability in his audit procedure?
5) Auditing procedures generate evidence for the auditor. Compare and contrast the evidence generated by the following seven types of auditing procedures: Inquiry, Observations, Examination of documentation, Confirmation, Physical examination, Reperformance, Analytical procedures, and Recalculation.
Explanation / Answer
1. First of all an auditor should verify the balance of accumulated depreciation brought forward from previous year to check whether it is in line with audited Financial statements of Previous year.
Auditor should calculate Accumulated depreciation on some assets on sample basis to ensure that methods applied to calculate depreciation is in agreement with Financial reporting framework and consistently applied.
Auditor should verify class of assets , rate of depreciation and carrying value of assets.
In case any error or discrepancies found during the verification, he should consult with managment of the company and should try to resolve the discrepancies.
2. When financial statements are prepared on a basis other than historical cost basis, it is necessary that depreciation should also be computed accordingly on the revised book value of the assets.
Auditor should verify the basis and need for revaluation of assets, whether it is appropriate and it is supported by Valuation report or Expert report.
further auditor should verify that revaluation in books has been done as per valuation report and GAAP and has been appropriately shown in Auditor's report.
If Revaluation of assets is carried out in the year then the the revalued amounts of fixed assets are presented in financial statements either by restating both the gross book value and accumulated depreciation so as to give a net book value equal to the net revalued amount or by restating the net book value by adding therein the net increase on account of revaluation.
An upward revaluation does not provide a basis for crediting to the Statement of Profit and Loss the accumulated depreciation existing at the date of revaluation. A decrease in net book value arising on revaluation of fixed assets is charged to Statement of Profit and Loss.
On disposal of a previously revalued item of fixed asset, the difference between net disposal proceeds and the net book value is charged or credited to the Statement of Profit and Loss.
3.While auditing for many years auditor gain sufficient significant knowledge about client's businees & it's operations.
Auditor should obtain sufficient & Appropriate audit evidence to conclude that Financial statemnts taken as whole are free from material mis-statement.
Auditor may decide not to change audit procedure every year for the same client if procedures applied are giving the True & Fair view of Financial statements, but for Material items he should deploy appropriate audit procedures to establish that Financial statements are free from fraud or error.
Following indicators may warrant change in audit procedures:
a. Change in Client's business.
b. Change in Financial reporting framework.
c. Change in Goverment policies & Laws and Regulations.
d. Change in ownersship or Management of the company.
4. The auditor should incorporate an element of unpredictability in the selection of auditing procedures to be performed from year to year to obtain sufficient & appropriate audit evidence. Examples of ways to incorporate an element of unpredictability include:
a. Performing audit procedures related to accounts, disclosures, and assertions based on their materiality.
b. Changing the timing of the audit procedures;
c. Selecting items for testing that have lower amounts or are otherwise outside customary selection parameters;
d. Performing surprise check; and
e. In multi-location audits, varying the location or the nature, timing, and extent of audit procedures at related locations or business units from year to year
5. in nutshell meaning of above given method of obtaining audit evidence is given below :
Inquiry: it means get the information from knowledgeable person whoes are working within the entity and the people from outside entity. Inquiries may be formal written and can be informal oral. Evaluating responses to inquiries is an integral part of the inquiry process.
observation: It means looking at a process or procdure being performed by others. Observation provides audit evidence about the performance of process or procedure.
Examination of documentation: it involves examining records or documents. documents can be internal or external ,oral or written, physical or electronic form. it provides audit evidence of varying degree of reliablity , depending on their nature and source.
Confirmation : an external confirmation represents audit evidence obtained by the auditor as a direct written response to the auditor from a third party in paper form or by electronic or by any other medium.
Physical examination : it refers to verifying existence of the assets by physical verifying the assets & their condition.
Reperformance: it involves the auditor's independence execution of procedures and controls that were originally performed as a part of the entity's internal control
Analytical procedures: it consist of evaluation of financial information made by a study of relationships among both financial and non financial data.
Recalculation : it consist of checking the mathematical accurcy of documents or records. recalaculation may be performmed manually or electronically.
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