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
Part A: What are the five inter-related components of internal control? Briefly discuss them. Part B: A file maintained by the Accounts Department for one of Sharp's s


Planning for Stock taking Stock taking should be planned well in carried out and advance carefully and systematically through persons fully informed of the duties involved. Th

Provision and Accruals Previous to we consider the audit procedures along with regard to accruals and provisions, it is essential to clarify the meaning of two words in genera

IAS 40 Investment Properties Audit work common to all kinds of land and building will be used to establish ownership, existence and price. IAS 40 requires such companies may a

Advantages and disadvantages

should your test for unrecorded liabilities be affected by the fact that a letter is obtained in which a responsible management official certifies that to the test of his knowledge

The International Auditing and Assurance Standards Board The IAASB is a Board familiar by IFAC. The associates of the IAASB are selected by the IFAC Board to serve on IAASB. IA

Types of Transaction - Related Party Fundamentally two types of transactions which arise between a related party and a company as: A. It is usual for members of a collectio

Assessment tasks: This assignment requires you to revisit the case of the collapse of US energy giant Enron Ltd. Your revisit starts with a reading of the excerpts from memos