Relevance, Auditing

Relevance

The auditor obtains evidence either through compliance testing of the internal controls or through substantive tests of the information contained in the financial statements and the underlying records. When management establish a system of internal control they make certain assertions. As far as internal controls are concerned, these assertions are:

  1. Existence: that the controls exists;
  2. Effectiveness: that not only does the control exist but that it is effective;
  3. Continuity: not only does it exists and is effective but the control operates throughout the period of intended reliance. So when the auditor is carrying out the compliance tests, any evidence to confirm these assertions is relevant.

 

The relevance of audit evidence has to be considered in relation to the overall objective of forming an opinion and reporting on the financial statements. To achieve this objective, the auditor needs evidence to enable him to draw reasonable conclusions. Compliance tests alone cannot provide him with this evidence.  He therefore has to use substantive tests. Here also there are certain assertions that the management is making and the auditor seeks evidence to confirm this.

a) Existence:  do the recorded assets and liabilities exist at the balance sheet date.

b) Rights and obligations: are the assets possessed by the enterprise and are the liabilities appropriately those of the enterprise.

c) Occurrence: did the recorded transactions in fact occur and do they relate to the enterprise.

d) Completeness: have all the assets and liabilities been recorded. Have all income and expenditures been recorded.

e) Valuation: have the amounts attributed to the assets and liabilities been arrived at in accordance with stated accounting policies on an acceptable and consistent basis.

f) Measurement: Have the income and expenses been measured in accordance with stated accounting policies on an acceptable and consistent basis.

g) Representation and disclosure: have the assets, accountability, capital and reserves been right disclosed.  Have income and expenditures been appropriately disclosed where appropriate.

Answers to these questions provided by audit evidence obtained are relevant in confirming the assertions made by the management.  Remember that audit evidence obtained in confirming one assertion cannot compensate for failure to obtain evidence to confirm another assertion.

Posted Date: 12/3/2012 6:35:18 AM | Location : United States







Related Discussions:- Relevance, Assignment Help, Ask Question on Relevance, Get Answer, Expert's Help, Relevance Discussions

Write discussion on Relevance
Your posts are moderated
Related Questions
what is the impact of judgemental sampling on the quality of a financial report

Examination of Deeds Make Sure that the mortgage is in the name shown in the advance records; That there is a document of title to the property within mortgage and that


Audit of Assets- Audit Process Non current assets have the fundamental characteristic which they are held for require in the business and not about resale. IAS 1 Presentation


am happy to pay someone to do my acc assignment which is more auditing one

problems associated with intangible asset audit

Selection of a Sample - Audit Process The following accounts must be involved in debtor's circularisation: 1) Large balances since they are large and the moreover you can sub

ILLEGAL ACTS Auditors may uncover criminal offences committed by a client or an employee of the client. This puts them in a difficult place, though the auditor must act careful

Question : (a) Describe the following terms: 1) Forensic Accounting; 2) Forensic Investigation; 3) Forensic Auditing. (b) Explain the basic elements to consider for