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How to Follow Risk Assessment Procedures in an Audit
When performing an audit, you use risk assessment procedures to assess the risk that material misstatement exists. This step is very important because the whole point of a financial statement audit is [more…]
How to Determine What Is Material in an Audit
Auditors refer to financial statement information that’s not 100 percent correct as a misstatement. You’ll probably never see a set of financial statements that’s completely accurate. But misstatements [more…]
Auditing Basics: How to Distinguish Between Errors and Fraud
When you find misstatements as you perform an audit, you’re responsible for making an assessment. You alone must determine whether the misstatement represents an error or fraud. Errors aren’t deliberate [more…]
How to Recognize the Triangle of Fraud
You’ll hear auditors referring to the triangle of fraud. That’s because in most fraudulent acts, three circumstances lead to the commission of fraud: the incentive to commit fraud, the opportunity to carry [more…]
How to Tailor Your Audit to a Low-Risk Situation
After completing your risk assessment procedures and deciding if any misstatements are material, you need to evaluate your findings. You must decide if you can use normal audit procedures [more…]
How to Document Audit Risk Results
As you do your investigative work getting to know your audit client, following your risk assessment procedures, and assessing the risk of material misstatement, you must extensively document everything [more…]
Assessing Financial Statement Presentation and Disclosure
As an auditor you have to assess management’s financial statement presentation and disclosure. The financial statements (income statement, balance sheet, and statement of cash flows) and notes to the financial [more…]
Monitoring Classes of Transactions
When you are performing an audit, you are responsible for assessing management assertions about classes of transactions. Five management assertions are related to classes of transactions. Four of them [more…]
What to Look for When You Analyze Account Balances
As an auditor you have to analyze your client’s account balances. Management assertions address the correctness of balance sheet account balances at year-end. These account balances include the company’s [more…]
How to Assess Audit Evidence
Audit evidence documents give you the substantiation for your professional audit opinion. When performing an audit, you must assess the nature, competence, sufficiency, and evaluation of the audit evidence [more…]
Applying Professional Judgment When Performing an Audit
In addition to being thorough and unbiased when evaluating audit evidence, you also want to apply professional judgment by adopting an attitude of professional skepticism. When exercising professional [more…]
How to Brainstorm with Audit Team Members
When you are performing an audit, it’s a good idea to discuss how your client may be perpetrating fraud with your team members. Brainstorming is a very useful tool, as one member of the team may have an [more…]
How to Document Audit Evidence
From the initial client interview all the way down to issuing the audit report, as an auditor you have to keep a record of all the work you do. This information is kept in the audit file and shows the [more…]
How to Identify the Five Components of Internal Controls
When you are performing an audit, to judge the reliability of a client’s internal control procedures, you first have to be aware of the five components that make up internal controls. For each client, [more…]
When Do You Need to Audit Internal Controls?
When you audit publicly traded companies, federal regulations dictate that you must audit internal controls that affect financial reporting. But what about audits of privately owned companies? Do you always [more…]
How to Assess Internal Control Procedures
During an audit, you have to assess your client’s control risk. This audit procedure involves evaluating control risk, which means you need to find out as much as you can about your client’s internal control [more…]
How to Use Sampling to Test Internal Controls
Even a very small company produces voluminous records; no auditor could ever audit all the records available and still get the audit done in time for the data obtained to be relevant. Sampling allows you [more…]
How Large Should an Audit Sample Be?
For many audits, looking at 10 percent of the records that a company has produced during the past year may be just right. But that number isn’t always going to work. Your job as an auditor is to choose [more…]
What Types of Evidence Should You Sample During an Audit?
Because businesses generate so much paperwork, auditors can’t possibly sort through all of it. Instead you review a sample. You don’t include every type of client information in an auditing sample. Here [more…]
How Does Attribute Sampling Work?
Auditors choose from several types of sampling when performing an audit. Attribute sampling means that an item being sampled either will or won’t possess certain qualities, or attributes. An auditor selects [more…]
How Does Monetary Unit Sampling Work?
Auditors use monetary unit sampling, also called probability-proportional-to-size or dollar-unit sampling, to determine the accuracy of financial accounts. With monetary unit sampling, each dollar in a [more…]
How Does Classical Variables Sampling Work?
When using classical variables sampling, auditors treat each individual item in the population as a sampling unit. This method is most like the statistics classes you had to take in high school and college [more…]
How to Use Nonstatistical Sampling in Your Audits
You can choose your audit sample without using any type of specific statistical sampling method. The basic premise of statistical and nonstatistical sampling is the same. However, when performing an audit [more…]
How to Deal with Sampling Risk During an Audit
Although you can never guarantee that an audit is 100-percent accurate, the sample of records you choose is crucial to helping you achieve as much accuracy as possible. The choices you make when determining [more…]
Different Ways to Set Sample Size In an Audit
You can use several methods to determine the size of an audit sample. You can set the audit sample size based on tolerable and expected error or the previous year’s policy. You can use tables and software [more…]
