Chapter 12

Audit
Procedures
 PSA 200 (Revised and Redrafted), “Overall
Objectives of the Independent Auditor and the
Conduct of an Audit in accordance with PSA”
Establishes the independent auditor’s overall
responsibilities when conducting an audit of FS
in accordance with PSAs. It sets out the overall
objectives of the independent auditor and
explains the nature and scope of an audit
designed to enable the independent auditor to
meet those objectives which includes basically
to express an opinion on whether the FS are
prepared in all material respects, in accordance
with an applicable financial reporting framework.
 Audit Procedures
-methods or acts that auditors use to gather evidence to
determine the validity of FS assertions.
(a) Inspection / Physical Examination

(b) Observation

(c ) Inquiry and Confirmation

(d) Computation / Reperformance
(e) Tracing

(f) Reconciliation

(g) Vouching

(h) Analytical Procedures

The Relationship of Audit Techniques, Audit
Procedures and Assertions
Audit techniques are the basic tools or means employed to obtain audit evidence.
The application of these techniques constitutes the audit procedures.

Audit Illustrative Application of Audit Assertion

Technique Procedure Substantiated
1. Count Counting of inventory, cash securities, Physical Existence
unmatured promissory notes (to establish
existence and where applicable, ownership
and condition of assets).
2. Confirm Obtaining confirmation directly of details of Existence; Rights and
account balances (to verify validity and Obligations
accuracy of balances and other information
with outside parties)
3. Inquire Obtaining client’s representation letter; Completeness
explanation to many diverse questions
raised during the audit (to obtain
knowledge)
 Audit Illustrative Application of Audit Assertion
Technique Procedures Substantiated
4. Examine Examining (or vouching) paid checks, vendor’s Occurrence,
Inspect invoices, approved client documents (vouchers, Measurement
Review purchase orders, receiving reports) titles, contracts
and other documentary materials (to verify the
Trace validity and propriety of accounting treatment of
Verify transactions and account balances and compliance
Vouch with internal control).
5. Observe Observing the taking of physical inventories by Existence
Test client personnel; of actual operation of internal
Verify control (to determine compliance with prescribed
procedures).
6. Extend Rechecking clerical determinations by client (to Measurement
Foot verify the accuracy of computations and transfer of
information made by client).
7. Compare Comparing current period account balances or Completeness
Trace operating data with similar information for prior
periods and investigation of unusual data
relationship (to disclose and determine the reasons
for significant changes).
8. Analytical Compare sales with sales budget Completeness
review
Classification of Audit Tests According to Purpose
1. Compliance Tests
These are tests done to provide reasonable assurance
that accounting control procedures are being applied
as prescribed.
The auditor applies compliance tests when the
purpose is to see whether prescribed accounting
control procedures are being followed.

2. Substantive Tests
These are tests done to obtain evidence of the validity
and the propriety of the accounting treatment of
transaction and balances, or, conversely, of errors or
irregularities therein.
 Types of Compliance Tests

1) No Trail
This type does not leave a visible trail in the supporting
documents of the performance of control procedures
by the client’s employee.

2) Documentary Trail
This type leaves a visible trail in the supporting
documents.
 Types of Substantive Tests
1) Tests of Details
This type of substantive test involves obtaining evidential matter on the
items (or details) involved in an account balance or class of transactions.
It is also referred to as follows:
Tests of Transactions
These are tests of the processing of individual transactions by inspection
of the documents and accounting records involved in processing.
Tests of Balances
These are tests applied directly to the details of balances in general
ledger accounts.

2) Analytical Review Procedures

These involve study and comparison of relationships among accounting
data and related information.

Activity: Watch a video on “The Audit Process” – (16:05)