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Explain 3 procedures an auditor should perform in conducting their overall review of the financial statements (3) Dec 2013
Sir this is a 3 mark question and my understanding of this area shows me that the auditor covers the following areas in the overall review of financial statements:
-compliance with law and regulations
-test of consistency and reasonableness
-treatment of misstatements
-accounting treatment issues
As a result ,there is no shortage of audit procedures an auditor will perform during the overla review stage .in answering a question like this sir, do I really have to ensure that the procedures cover different areas of consideration stated above or it could be any.For a example :-performing analytical procedures like accounting ratios ,related items etc for unusual fluctuations inorder to ascertain whether financial statements are consistent with the auditor ‘s knowledge of the entity ‘s business or industry
-review the aggregate of uncorected misstatements and determine whether they are material
-obtain written representations from management if they believe that the aggregate of uncorected misstatements is immaterial
-test the consistency and appropriateness of application of accounting policies to ensure that matters in financial statements are consistent with each other
-Ensure that the entity has complied with local legislation and accounting standards in presenting its information in accounting statements
-inquire from management for a any drift from accounting standards and consider whether it was necessary to produce statements which give a true and fair view .Does this answer the question.if now , what’s your recommendation sir?
It’s fine. Remember you only need three procedures and there are only three marks.
Thank you for your suggestions. The question you see above was pulled from the past exam paper of Dec 2013. It is an area that is covered under audit finalization. I do agree that I didn’t construct the last procedure quite well.However the idea is how do they react where the entity has somehow drifted away from an accounting standard.
To my understanding, during the overall review stage, the auditor looks at the following areas including compliance with law and regulations which you mentioned (this also covers application of accounting policies ), test for consistency and reasonableness(use of analytical procedures), treatment of misstatements, accounting treatment issues.
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