Audit Procedures and Tests

Audit Procedures

• A series of steps used to obtain audit evidence and reach conclusions about the fairness and accuracy of financial statements
• Types of audit procedures:
  • Test of transactions: examination of individual transactions to ensure accuracy and validity
  • Test of balances: examination of account balances to ensure accuracy and validity
  • Substantive procedures: tests performed to obtain sufficient appropriate audit evidence
  • Compliance procedures: tests performed to ensure compliance with laws and regulations
• Audit procedures may include:
  • Inspection of assets and records
  • Confirmation of transactions with third parties
  • Recalculation of amounts and totals
  • Observation of inventory counts and physical inspections

Financial Statement

• A statement that presents the financial position and performance of an organization
• Components of a financial statement:
  • Balance sheet: presents the organization's financial position at a specific point in time
  • Income statement: presents the organization's revenues and expenses over a specific period of time
  • Cash flow statement: presents the organization's inflows and outflows of cash over a specific period of time
  • Notes to the financial statements: provide additional information and explanations about the financial statements
• Financial statements are used to:
  • Evaluate an organization's financial performance and position
  • Identify trends and anomalies
  • Make informed decisions about investments and financing

Risk Assessment

• The process of identifying, assessing, and prioritizing risks that could impact an organization's ability to achieve its objectives
• Steps in the risk assessment process:
  • Identify potential risks: determine what could go wrong and how it could impact the organization
  • Assess the likelihood and impact of each risk: determine the probability and potential impact of each risk
  • Prioritize risks: determine which risks to focus on based on their likelihood and impact
  • Develop risk mitigation strategies: create plans to reduce or eliminate risks
• Risk assessment is used to:
  • Identify and manage risks that could impact the organization
  • Develop strategies to mitigate or eliminate risks
  • Improve internal controls and governance

Compliance

• The process of ensuring that an organization is adhering to laws, regulations, and standards
• Types of compliance:
  • Regulatory compliance: adherence to laws and regulations
  • Financial compliance: adherence to financial laws and regulations
  • Operational compliance: adherence to operational policies and procedures
• Compliance is important because:
  • Ensures adherence to laws and regulations
  • Reduces the risk of fines and penalties
  • Improves internal controls and governance
  • Enhances reputation and credibility

Internal Control

• A process designed to provide reasonable assurance that an organization's objectives will be met
• Components of internal control:
  • Control environment: the tone and atmosphere of the organization
  • Risk assessment: the process of identifying and assessing risks
  • Control activities: policies and procedures that help to mitigate risks
  • Information and communication: the process of capturing and communicating information
  • Monitoring: the process of reviewing and updating internal controls
• Internal control is used to:
  • Ensure the accuracy and reliability of financial statements
  • Safeguard assets and resources
  • Promote operational efficiency and effectiveness
  • Ensure compliance with laws and regulations

Public Service Rules

• A set of rules and regulations that govern the behavior and conduct of public servants
• Examples of public service rules:
  • Code of ethics: a set of principles that guide the behavior and conduct of public servants
  • Conflict of interest rules: rules that govern the personal and financial interests of public servants
  • Disclosure rules: rules that require public servants to disclose certain information
  • Reporting rules: rules that require public servants to report certain information
• Public service rules are important because:
  • Ensure accountability and transparency
  • Promote ethical behavior and conduct
  • Reduce the risk of corruption and fraud
  • Enhance public trust and confidence in government

Audit Procedures

• A series of steps to obtain audit evidence and reach conclusions about financial statements' fairness and accuracy
• Four types of audit procedures: • Test of transactions: examining individual transactions for accuracy and validity • Test of balances: examining account balances for accuracy and validity • Substantive procedures: tests to obtain sufficient appropriate audit evidence • Compliance procedures: tests to ensure compliance with laws and regulations
• Audit procedures may include: • Inspection of assets and records • Confirmation of transactions with third parties • Recalculation of amounts and totals • Observation of inventory counts and physical inspections

Financial Statements

• Present the financial position and performance of an organization
• Four components of a financial statement: • Balance sheet: presents financial position at a specific point in time • Income statement: presents revenues and expenses over a specific period • Cash flow statement: presents inflows and outflows of cash over a specific period • Notes to the financial statements: provides additional information and explanations
• Financial statements are used to: • Evaluate an organization's financial performance and position • Identify trends and anomalies • Make informed decisions about investments and financing

Risk Assessment

• The process of identifying, assessing, and prioritizing risks that could impact an organization's objectives
• Four steps in the risk assessment process: • Identify potential risks: determining what could go wrong and how it could impact the organization • Assess the likelihood and impact of each risk: determining probability and potential impact • Prioritize risks: determining which risks to focus on based on likelihood and impact • Develop risk mitigation strategies: creating plans to reduce or eliminate risks
• Risk assessment is used to: • Identify and manage risks that could impact the organization • Develop strategies to mitigate or eliminate risks • Improve internal controls and governance

Compliance

• The process of ensuring adherence to laws, regulations, and standards
• Three types of compliance: • Regulatory compliance: adherence to laws and regulations • Financial compliance: adherence to financial laws and regulations • Operational compliance: adherence to operational policies and procedures
• Compliance is important because: • Ensures adherence to laws and regulations • Reduces the risk of fines and penalties • Improves internal controls and governance • Enhances reputation and credibility

Internal Control

• A process designed to provide reasonable assurance that an organization's objectives will be met
• Five components of internal control: • Control environment: the tone and atmosphere of the organization • Risk assessment: identifying and assessing risks • Control activities: policies and procedures to mitigate risks • Information and communication: capturing and communicating information • Monitoring: reviewing and updating internal controls
• Internal control is used to: • Ensure the accuracy and reliability of financial statements • Safeguard assets and resources • Promote operational efficiency and effectiveness • Ensure compliance with laws and regulations

Public Service Rules

• A set of rules and regulations governing the behavior and conduct of public servants
• Examples of public service rules: • Code of ethics: guiding principles for public servants' behavior and conduct • Conflict of interest rules: governing personal and financial interests of public servants • Disclosure rules: requiring public servants to disclose certain information

Learn about the various types of audit procedures, including tests of transactions, balances, and substantive procedures, to ensure the accuracy and fairness of financial statements.