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Procedures, Analysis, Conclusions and Documentation (Working papers…

- - - - Examples of contrary conditions include unusual or nonrecurring transactions or events; accounting, organizational, operational, environmental and technological changes; inefficiencies; ineffectiveness; errors; fraud; or illegal acts.
    - - Unexpected differences 2. Absence of differences when they are expected 3. Potential errors 4. Potential fraud or illegal acts 5. Other unusual or nonrecurring transactions or events
    - - Significance of the area being audited
      - Assessment of risk management in the area being audited
      - Adequacy of internal control system
      - Availability and reliability of financial and nonfinancial information
      - Precision with which the results of analytical audit procedures can be predicted
      - Availability and comparability of information regarding the industry in which the organization operates
      - Extent to which other procedures provide evidence
  - - - Current ratio
        
        Current assets/ Current liabilities
      - Accounts receivable turnover ratio
        
        Net credit sales/ Average accounts receivable
        
        Average accounts receivable=(Opening AR+Ending AR)/2
      - Inventory turnover ratio
        
        Cost of goods sold/Average inventory
        
        Average inventory= (Opening Inv+ Ending Inv)/2
    - - Gross profit margin
        
        Gross profit/Sales
      - Operating profit margin
        
        Operating profit/ Sales
      - Net profit margin
        
        Net profit/Sales
    - - Trend analysis
        
        Tracks the changes in a ratio over time
      - Period to period analysis
      - Industry analysis
    - - Regression analysis
        
        Determines the degree of relationship if any between two variables
      - Variance analysis
        
        Studies the difference between an amount based on an actual result and the corresponding budgeted amount
- - - - Organization in the same industry
    - - Operations of organizations with similar processes regardless of industry
    - - Search for successful competitive strategies
    - - Application of best practices in one part of the organization to its other parts
  - - - Must understand its critical success factors and business environment to identify key business processes and drivers and to develop parameters defining what processes to benchmark.
    - - Provides 1. fair division of labor 2. Participation by those responsible for implementing changes 3. Inclusion of a variety of functional expertise and work experience
    - - Setting up databases
      - Choosing information gathering methods
      - Formatting questionnaires
      - Selecting benchmarking partners
    - - Identifying performance gaps
      - Understanding reasons
      - Prioritizing key activities
- - - - Conclusions are used to determine 1. Controls are designed poorly that testing them will have no purpose 2. Controls should be tested to determine whether they are operating as intended.
  - - - Performed to understand entity and its environment including internal controls
    - - Tests of controls+Substantive procedures
        
        Tests of controls
        
        Test operating effectiveness of controls in preventing, detecting and correcting noncompliance, material misstatements, breaches of law or regulations or other undesired outcome
        
        Required when 1. Risk assessment is based on an expectation of operating effectiveness 2. Substantive procedures alone do not provide enough evidence
        
        Substantive procedures
        
        Used to detect material misstatements. Include 1. tests of details 2. Substantive analytical procedures
    - - Individual or organization with expertise in a field other than accounting or auditing that assists in preparing financial statements. May help preparing audit evidence.
      - Auditor should
        
        Evaluate competence, capability, and objectivity
        
        Understand their work
        
        Evaluate its appropriateness
  - - - Scanning-Type of analytical procedure used to review accounting data
- - - - Sometimes root cause analysis may be as simple as asking 5 "why"s
- - - - Help planning, performance and review of engagements
      - Provide the principal support for results
      - Document whether objectives were achieved
      - Support accuracy and completeness
      - Provide a basis for QAIP
      - Facilitate 3rd party reviews
    - - Standardized engagement working papers(Ex:-questionnaires, audit programs) may improve efficiency and facilitate delegation of work.
        
        Can be categorized as permanent or carry forward
  - - - Should be signed and dated by internal auditor and contain an index or reference number.
    - - Neat, not crowded, written on one side
      - Uniform size and appearance
      - Economical, avoid unnecessary copying, listing or scheduling (Copies of engagement clients records should be used if applicable)
      - Arranged in a logical and uniform style
      - Clear, concise and complete
      - Restricted to matters relevant and significant
      - Written in simple style
  - - - Helps supervisory review
  - - - Uniform format
      - Easy to store
      - Searchability and electronic cross indexing
      - Back up and recovery functions
      - Built-in audit ,methodologies such as sample routines
    - - Should be protected from unauthorized access and change
      - Information should be controlled to ensure integrity
      - Retention policies
- - - - Results of certain engagement procedures may be shared with client to encourage corrective action.
  - - - CAE must develop retention requirements for engagement records, regardless of the medium in which each record is stored. These retention requirements must be consistent with the organizations guidelines and any pertinent regulatory or other requirements.
    - - Retention requirements vary among jurisdictions and legal environments.
      - CAE develops a written retention policy that meets organizational needs and legal requirements of jurisdictions within which organization should operate
      - Retention policy should include appropriate arrangements for retaining records of engagements by external service providers.
- - - - Monitoring by IT personnel is crucial
  - - - Transactions are processed and auditor observes results
  - - - Designed to identify and report actual transactions and other information that have audit significance
      - Advantage is it permits continues monitoring of online, real time systems
      - Disadvantage is that audit hooks should be programmed into operating system and application program