THE NATURE, PURPOSE AND SCOPE

OF AUDIT AND REVIEW 1

· THE NATURE OF AUDIT
· THE EXTERNAL AUDIT PROCESS
· MATERIALITY
 THE NATURE OF AUDIT
! DEFINITION ! Compare an audit with a review:

An audit is the independent

examination of the evidence
AUDIT REVIEW
from which the financial Requirement Required by law No legal
statements are derived, in in many requirement
countries for
order to give the reader of public Co. and
those statements confidence large companies
as to the truth and fairness of
Assurance Reasonable Moderate
the state of affairs which they
assurance assurance
disclose
Opinion Positive Negative
opinion opinion
Compare an external audit with a internal audit

External audit Internal audit

ROLE External auditors are appointed to Internal auditors exist to
report to the shareholders whether assist management, by
the financial statements give a true advising on the
and fair view
organisation’s risk
management processes
and systems of control
REQUIREMENT Legal requirement in many countries No legal requirement, but
for public companies, large corporate governance
companies and many public bodies guidelines recommend that
the need for internal audit is
regularly assessed

SCOPE OF WORK Determined by the auditor in order Determined by management,

to carry out his statutory duty to covers both operational and
report. Financial focus only financial matters
THE EXTERNAL AUDIT PROCESS
Assessment of the accounting
6 and internal control systems
and the level of audit risk
Stage
Invited to Good controls
1
become auditor
Testing of
7 Weak controls
internal controls Not operating
Operating satisfactorily
Do you wish to satisfactorily
No
2 accept Decline Reduced testing Extensive testing
appointment 8 of transactions of transactions
Yes and balances and balances

Send professional
3 etiquette letter to Problems Decline Overall review of
outgoing auditor 9 the financial
No problems statements

Send
10 Audit report
4 engagement
letter to directors
Report to those charged
11 with governance
5 Plan the audit (management letter)
 STATUTORY AUDITS
2
· APPOINTMENT AND REMOVAL OF AUDITORS
· THE AUDITOR’S RIGHTS AND DUTIES
· REGULATION OF THE AUDITING PROFESSION
· IAASB PRONOUNCEMENTS
 APPOINTMENT AND THE AUDITOR’S RIGHTS AND
REMOVAL OF AUDITORS DUTIES

The external auditor must be Rights

appointed/removed and must carry • of access at all times to all books and records
out his role in accordance with: • to receive information and explanations from
the officers of the company
• to receive notice of and attend company
• localstatutory requirements meetings
• professional regulations,
• to receive notice of any intention to propose
particularly the auditing standards their removal
(ISAs) issued by the International • to requisition an Extraordinary General Meeting
(EGM) on their resignation
Auditing Standards Board (IAASB)

Duties
• to report to the shareholders and directors on
whether the financial statements give a true
and fair view in accordance with the applicable
financial reporting framework
REGULATION OF THE AUDITING PROFESSION

The International Federation of Accountants (IFAC) is the global organisation for the
accountancy profession, based in New York.
A committee of IFAC is the International Auditing and
Assurance Standards Board (IAASB), which works to
improve the uniformity of auditing practices worldwide by
issuing pronouncements (particularly International Standards
on Auditing (ISAs)) and promoting their acceptance.

It is up to the authorities in each country to decide on the applicability of ISAs

in that country. For example, in the UK and Ireland, the Auditing Practices
Board (APB) is responsible for developing and publishing UK and Irish auditing
standards. It does this by looking at each ISA issued by the IAASB, adding
any supplementary material deemed necessary in the UK and Irish context,
and then issuing each supplemented standard as an ISA (UK and Ireland).
IAASB PRONOUNCEMENTS
IFAC Code of Ethics

International Standards on
Quality Control (ISQCs)

International Framework for

Assurance Engagements

Audit and Reviews of

Other Assurance
Historical Financial Related Services
Engagements
Information

International International International International

Standards on Standards on Standards on
Standards on
Review Assurance
Auditing (ISAs) Related Services
Engagements Engagements
(ISREs) (ISAEs) (ISRSs)
International
Auditing Practice
Statements (IAPSs)
 PROFESSIONAL ETHICS
AND CODES OF CONDUCT 3
· ETHICAL PRINCIPLES
· INTEGRITY, OBJECTIVITY AND INDEPENDENCE
· CONFIDENTIALITY
· THE ENGAGEMENT LETTER
 ETHICAL PRINCIPLES
Professional ethics has been highlighted by the examiner as a key area of the syllabus, so will be
examined often. Learn the principles in the various Codes of Ethics, but do not be afraid to use your
common sense in deciding whether a proposed action is ethically acceptable for an auditor.
The ACCA Code of Ethics contains five Fundamental Principles that all ACCA members should follow:

Integrity Objectivity Confidentiality

Professional behavior Competence and due care

The sources of ethical principles are:
• the ACCA Rules of Professional Conduct,
These two sources contain very similar rules. It is comprising a Code of Ethics and Professional
only the ACCA rules that are specifically examinable Conduct Regulations
for this paper. • the IFAC Code of Ethics for
Professional Accountant
 THREAT TO INDEPENDENCE POSSIBLE SAFEGUARD
Auditor has financial involvement in company (e.g., This threat must be eliminated, e.g. by selling shares
owns shares, has lent money, there are overdue fees) owned in the client company as soon as possible

No-one should act as the engagement partner for

Auditor has been in the post for many years more than 5 years. A new partner should take over
the audit
Fees from one client should not exceed 15% of the
Auditor is unduly dependent on client gross practice income (10% for public interest
companies)
Only very modest gifts and hospitality can be
Auditor is offered gifts or hospitality from the client accepted

The auditor should not take management decisions.

Auditor provides other services to the client (e.g.,
Accountancy work should only be performed for a
accountancy work, tax advice)
public company in an emergency situation
 CONFIDENTIALITY THE ENGAGEMENT LETTER
The engagement letter is sent by the auditor to the
Information confidential to a client or employer client at the beginning of any new audit. It sets out
acquired in the course of professional work should the terms of the engagement and should avoid any
not be disclosed to a third party, except where: misunderstandings between the client and the
consent has been obtained from the client or employer, auditor as to their respective roles.
or
there is a public duty to disclose, or
• there is a legal or professional right
or duty to disclose
INTERNAL AUDIT AND REVIEW
4
· CORPORATE GOVERNANCE

· AUDIT COMMITTEES
· OUTSOURCING OF INTERNAL AUDIT

· NATURE OF INTERNAL AUDIT ASSIGNMENTS

· OPERATIONAL INTERNAL REVIEW ASSIGNMENTS

CORPORATE GOVERNANCE
Principles of Corporate Governance, that all OECD
! DEFINITION !
member countries should follow when establishing
Corporate governance concerns the way that a their own required standards of corporate
company is directed and controlled. It covers the governance practice.
role of the board of directors and the overall
In the UK, best standards of corporate governance
control environment.
are set out in the Combined Code on Corporate
Corporate governance is a topical subject, following
Governance. Listed companies must follow the
recent high-profile corporate collapses (such as
Combined Code, or else explain their non-
Enron), where poor standards of governance
compliance.
contributed to the problems.
The principles in the Combined Code cover five
Corporate governance is of interest to both external
areas:
auditors and internal auditors.

The examiner has identified the role of internal audit the board of accountability

in risk management and corporate governance as a directors and audit

institutional
key area of the syllabus.
shareholders
The Organisation for Economic Co-operation and directors’ relations with
Development (OECD) has developed a set of remuneration shareholders
 INTERNAL AUDIT AND REVIEW I : CHAPTER 4

AUDIT COMMITTEES
The Combined Code requires companies to have an
! DEFINITION !
audit committee, so all UK listed companies must
now establish and operate an audit committee, or
An audit committee consists of independent non-
else explain why not. At least one member of the
executive directors who are responsible for
audit committee must have recent and relevant
monitoring and reviewing the company’s internal
financial experience.
financial controls and the integrity of the financial
statements.

The audit committee acts as an interface between

the full board of directors on the one hand, and the
internal and external auditors on the other hand.

Internal
Auditors
Audit Full Board of
Committee Directors
External
Auditors
AUDIT AND INTERNAL REVIEW (INT)

OUTSOURCING OF INTERNAL AUDIT

Traditionally, internal auditors were full-time
employees of the organisation being audited. There
is now a growing trend towards buying-in internal
audit services from external suppliers.

Advantages of outsourcing Disadvantages of outsourcing

• specialist skills can be bought in when needed, • conflict of interest if the outsourced internal
rather than having to be paid for throughout audit service is being provided by the external
the year auditors
• greater focus on cost and efficiency • difficult to ensure high standards once the
• may improve operational independence contract has been awarded and the previous
employees have left
• lack of flexibility, since no permanent presence
 INTERNAL AUDIT AND
REVIEW II

IN THIS CHAPTER
· NATURE OF INTERNAL AUDIT
ASSIGNMENTS
· OPERATIONAL INTERNAL REVIEW
ASSIGNMENTS

27
AUDIT AND INTERNAL REVIEW (INT)

NATURE OF INTERNAL AUDIT ASSIGNMENTS

! DEFINITION ! ! DEFINITION !

A value for money audit is an investigation into A best value audit, typically used in local
whether an organisation has made proper government, is an investigation into whether there
arrangements for securing economy, efficiency and is a public demonstration that value is being
effectiveness in the use of resources. achieved.

Economy Challenge
The activity is achieving the necessary quality at the The current position is challenged to establish
lowest possible cost. whether better options may exist.

Efficiency Compare
The activity is using the minimum inputs for the Performance is compared with similar service
output achieved, or gaining the maximum output providers to establish how good the current
from the given inputs. position is.

Effectiveness Consult
The activity is helping to achieve overall All users and providers of the service are invited to
 INTERNAL AUDIT AND REVIEW II : CHAPTER 5

Compete ! DEFINITION !
The organisation must demonstrate that it is
following the most efficient and effective service. Financial internal audit involves the monitoring
! DEFINITION ! of financial accounting systems and management
accounts to ensure that they are running efficiently
An information technology audit is carried out by and accurately. This was the traditional role of
internal auditors to cover all aspects of hardware, internal audit staff.
software, the internet and the overall IT The external auditors may wish to rely on the work
environment in order to report on risks and of financial internal audit in order to reduce the
controls over input, output and processing. volume of substantive work that they will have to
IT audits are likely to be carried out by computer carry out.
specialists rather than by general internal audit staff

29
AUDIT AND INTERNAL REVIEW (INT)

OPERATIONAL INTERNAL REVIEW ASSIGNMENTS

Operational assignments should focus on the
identification of the principal business risks involved Identify key risk areas
which may prevent the organisation achieving its
objectives, and the assessment of the extent to
which controls are in place and are operating Establish required
effectively to manage these risks. controls

Therefore the internal auditor should proceed as

follows: Test exisiting controls

Report conclusions &

recommendations
 INTERNAL AUDIT AND REVIEW II : CHAPTER 5

Typical assignments are described below. Treasury department

Treasury involves the handling of all financial
Procurement department matters, including raising and investing finance,
Procurement (or purchasing) is the act of obtaining cashflow management, banking procedures and
goods and services from outside suppliers. Primary currency management. Potential risks can be huge,
risks are: and if not properly managed can bring down
- fictitious or excessive payments made to companies. Primary risks are:
suppliers - failure to manage cashflow leading to cash
- inaccurate or delayed payments shortfalls at critical times
- best value not achieved from current suppliers - failure to manage currency leading to massive
exchange losses
Marketing department - high finance costs due to selection of wrong
Marketing involves pricing, placing and promoting source of funds
the company's products. Primary risks are:
- advertising that breaches regulations
- advertising that loses customers
- advertising that is expensive but achieves no
new sales
31
AUDIT AND INTERNAL REVIEW (INT)

Human resources (HR) department

HR encompasses a wider role than a traditional
personnel department. HR includes responsibility
for recruitment, training, remuneration policy,
disciplinary procedures and leavers. Primary risks
are:
- failure to identify and recruit the right skills
- staff are not properly trained
- staff paid wrong rates, or for time not worked
 PLANNING AND
RECORDING THE AUDIT

IN THIS CHAPTER
· PLANNING THE AUDIT
· STAFFING AND TRAINING ISSUES
· RECORDING THE AUDIT PROCESS

33
AUDIT AND INTERNAL REVIEW (INT)

PLANNING THE AUDIT

• work is properly assigned to the individual team
! DEFINITIONS !
members
Planning an audit involves establishing the overall
Planning activities
audit strategy for the engagement, and developing
an audit plan, in order to reduce audit risk to an Establish the overall audit
acceptably low level. strategy
Audit risk is the risk that the auditor expresses an
inappropriate audit opinion when the financial
statements are materially misstated. Develop an audit plan

Adequate planning helps to ensure that:

• attention is paid to the important areas of the
Only then, start to carry
audit
out audit procedures
• potential problems are identified and resolved
on a timely basis
• the audit engagement is organised and
managed in order to be performed in an
efficient and effective manner 34
 PLANNING AND RECORDING THE AUDIT : CHAPTER 6

STAFFING AND TRAINING ISSUES

The overall audit strategy sets the scope, timing Planning procedures include the appropriate
and direction of the audit. Once the audit strategy staffing of the audit, covering such matters as:
has been established, the auditor can start to • number of staff required
develop a more detailed audit plan to address the • level of expertise required
matters identified in the audit strategy. • length of time each member of staff will be
needed
The audit strategy and audit plan should be
updated and revised as necessary during the course
of the audit. For example, the audit procedures to
be carried out for material classes of transactions
and account balances cannot be finalised until the
results of the risk assessment procedures have been
analysed.

35
AUDIT AND INTERNAL REVIEW (INT)

RECORDING THE AUDIT PROCESS

It is common for the working papers to be split into
! DEFINITION !
two separate files:

Documentation means the material (working • permanent file - matters of continuing interest
papers) prepared by or for, or obtained and • current file - matters of this year’s interest
retained by, the auditor in connection with the
The auditor must adopt procedures for maintaining
performance of the audit. Such material may be in
the confidentiality and safe custody of the working
the form of paper or electronic media.
papers, and retain them for a period sufficient to
The working papers must be sufficiently complete meet the needs of the practice and to comply with
and detailed to provide an overall understanding of relevant legal and professional requirements for
the audit. In particular, the working papers should record retention. In the UK, for example, auditors are
record the auditor’s reasoning on all significant required to keep all audit working papers for a
matters which require the exercise of judgement, period of at least six years following the period to
and the auditor’s conclusions thereon. which they relate.
RELIANCE ON THE WORK
OF OTHERS IN THE AUDIT

IN THIS CHAPTER
· RELIANCE ON EXPERTS
· RELIANCE ON INTERNAL AUDIT
· SERVICE ORGANISATIONS

37
AUDIT AND INTERNAL REVIEW (INT)

RELIANCE ON EXPERTS
! DEFINITION !
COMPETENCE OBJECTIVITY
An expert is a person or firm possessing special • Professionally • Not employed by
skill, knowledge and experience in a particular field qualified the client
other than accounting and auditing. • Suitable experience • Not related to the
• Good reputation client
Examples of experts include surveyors (to value land
• Financially
and buildings) or lawyers(to advise on the
independent of the
interpretation of regulations).
client
Auditors have a general knowledge of business, but
they cannot be expected to have a detailed
knowledge in all disciplines. Therefore the auditor
may need to consider audit evidence from specialist When issuing an unmodified audit report, the
experts in arriving at the audit opinion. auditor should not refer to the work of an expert.
The opinion is the auditor’s; he must ensure that the
In order to be able to rely on the evidence from an expert’s work is sufficient appropriate evidence for
expert, the auditor must be satisfied that the expert his purposes.
is competent and objective.
38
 RELIANCE ON THE WORK OF OTHERS IN THE AUDIT : CHAPTER 7

RELIANCE ON INTERNAL AUDIT SERVICE ORGANISATIONS

The external auditor may wish to rely on the work of
! DEFINITIONS !
internal audit in order to reduce the amount of
detailed testing that he (the external auditor) must
A service organisation is any entity that provides
perform.
services to another entity. Examples are banks
maintaining safe custody of investments, or a
Before any reliance is made, the external auditor
computer bureau operating the payroll function
should assess the internal audit function in terms of:
for a small company.
• organisational status Relevant activities are activities undertaken by a
• scope of function service organisation that are relevant to the audit.
• technical competence The two examples above are relevant activities,
• due professional care while a window-cleaner washing the office
windows once a month is not a relevant activity.
When the external auditor intends to use specific
work of internal audit, he should perform audit At the planning stage, the auditor must determine
procedures on that work to confirm its adequacy for the significance of service organisation activities to
his purposes. the entity and the relevance to the audit.

39
 INTERNAL CONTROL
SYSTEMS

IN THIS CHAPTER
· INTERNAL CONTROL
· ASSERTAINING THE SYSTEM
· DOCUMENTING THE SYSTEM
· EVALUATING THE SYSTEM
· COMPUTER-BASED SYSTEMS

41
AUDIT AND INTERNAL REVIEW (INT)

INTERNAL CONTROL
The control environment is the overall attitude of
! DEFINITION !
management regarding internal controls and their
importance. It encompasses management’s
Internal control is the process designed and
philosophy (e.g., a commitment to integrity and
effected by the directors and others to provide
ethical values), a formal organisation structure and
reasonable assurance about the achievement of
proper training of staff
the entity’s objectives with regard to reliability of
financial reporting, effectiveness and efficiency Different books use different categories of control
of operations, and compliance with applicable procedures. One possibility is:
laws and regulations. • Authorisation
• Comparison
Internal control consists of the following
• Computer controls
components:
• Arithmetical controls
• the control environment
• Maintaining a trial balance and control
• the entity’s risk assessment process
accounts
• the information system relevant to financial
• Accounting reconciliations
reporting
• Physical controls
• control activities
• monitoring of controls (Use the mnemonic ACCA MAP to remember these
categories.) 42
 INTERNAL CONTROL SYSTEMS : CHAPTER 8

ASCERTAINING THE SYSTEM

EXAM FOCUS
examine previous
The examiner has identified internal controls as audit work
one of the key areas of the syllabus, so be sure that
you fully understand this topic. client’s own
documentation of the
system

interview client staff

trace a transaction
through the system
(walkthrough test)

observe procedures

43
AUDIT AND INTERNAL REVIEW (INT)

DOCUMENTING THE SYSTEM EVALUATING THE SYSTEM

Possible methods: Use an Internal Control Questionnaire (ICQ) or
Internal Control Evaluation Questionnaire (ICEQ
or ICE). An ICQ lists all possible controls for each
area of the accounts; the client’s system is examined
to see which controls exist. An ICE does not attempt
Narrative Organisation to record all controls; instead, for each control
notes chart objective, it asks for the controls which achieve that
objective.

An ICE is more useful to the auditor than an ICQ,

since it focuses on whether internal control
Complete an
objectives are being met.
Internal
Control Flowcharts
Questionnaire
(ICQ)

44
 SCHEDULE D CASES I AND II FOR INDIVIDUALS : CHAPTER 8

COMPUTER-BASED SYSTEMS
The principles of auditing in a computer
environment are the same as in other
circumstances, but specific problems may be
encountered, e.g. lack of primary records, or data
needed for audit purposes may be overwritten.

Controls in a computer-based system may be:

• general controls - relating to the environment
of computer systems, or
• application controls - relating to the
transactions and standing data in each separate
application

45
INTERNAL CONTROL - REVENUE
AND PURCHASES

IN THIS CHAPTER
· THE SALES SYSTEM
· THE PURCHASES SYSTEM

47
AUDIT AND INTERNAL REVIEW (INT)

THE SALES SYSTEM

Control objectives for all systems are to ensure that For the sales system, the control objectives include:
only authorised transactions are promptly recorded • to ensure that all sales revenues are included in
at the correct amount in the appropriate accounts in the accounts
the proper accounting period, that access to assets • to ensure that sales revenues included in the
is only in accordance with proper authorisation, and accounts are accurately stated
that recorded assets are compared with existing • to minimise losses through bad debts and/or
assets. returns

Control procedures are set in place to achieve these Control procedures in the sales system can be
control objectives. classified using the ACCA MAP categories described
in the previous chapter. For example, authorisation
Tests of control (or compliance tests) are those tests controls include:
carried out to determine whether a control • check orders received against customers’ credit
procedure has operated satisfactorily during the limits
period. • accepted orders should be authorised in writing
• bad debts written off and the issue of credit
notes should be authorised in writing
48
 INTERNAL CONTROL - REVENUE AND PURCHASES : CHAPTER 9

One approach to designing tests of control is to list the documents involved in the system, and think of tests
for each document. This is illustrated below for a sales system
Test for evidence of approval
Customer order

Test for evidence of a

Test for:
Despatch note sequence check Credit note
• evidence of approval and
matching to GRN
Test for: correct accounting
Goods received note • evidence that a GRN is
Test for evidence of
raised for all sales returns Receivables ledger
authorisation of adjustments to
accepted
receivables ledger accounts
• evidence of a sequence
check Test for:
Test for:
Receivables ledger • evidence of review of
Sales invoice control account reconciliation to
• serial numbering
• evidence of a sequence receivables leger
check • evidence of
• evidence of matching authorisation of
sales invoice to despatch adjustments to
notes and customer receivables ledger
49 orders control account
• correct accounting
AUDIT AND INTERNAL REVIEW (INT)

THE PURCHASES SYSTEM

For the purchases system, the control objectives The approach that can be adopted of listing the
include: documents in a system and thinking of tests for
- to ensure that all purchased goods/services are each document is illustrated below for a purchases
ordered under proper authorities and system.
procedures
- to ensure that only necessary goods/services
are procured
- to ensure that purchase invoices and related
documentation are properly checked and
approved before being included in the accounts
- to ensure that expenditures included in the
accounts are accurately stated

Again, the control procedures in the purchases

system can be classified using the ACCA MAP
categories described earlier.

50
 INTERNAL CONTROL - REVENUE AND PURCHASES : CHAPTER 9

Test for: • evidence of checking

Purchase requisition • evidence of approval casts, extensions and
• adherence to authority correct treatment of
limits purchase tax
• evidence of account
Test for: coding
Purchase order
• evidence of a sequence • initiating of invoice grid
check for work done
• evidence of approval • approval of purchase
• adherence to authority invoice for further
limits processing
Test for evidence of matching
Test for evidence of a Credit note credit notes to goods
Goods received note sequence check returned notes

Test for evidence of

Test for evidence of a Payables ledger
Goods returned note sequence check
authorisation of adjustments
to payables ledger

Test for: Test for:

Purchase invoice • Payables ledger
serial numbering • evidence of reconciliation
• evidence of sequence control account to payables ledger listing
check • evidence of authorisation
• evidence of matching of adjustments to payables
purchase invoices with ledger control account
goods received notes
51
and purchase orders
PAYROLL AND OTHER AREAS;
REPORTS TO MANAGEMENT

10

IN THIS CHAPTER
· THE PAYROLL SYSTEM
· THE CASH SYSTEM
· REPORTS TO MANAGEMENT

53
 Authorisation written authorisation required to
control employ or dismiss any employee, or to
AUDIT AND INTERNAL REVIEW (INT)
pay overtime
THE PAYROLL SYSTEM Comparison controlmonthly payroll total should be
Control objectives: compared with the previous month

- wages and salaries should be paid only to the and with the budget

client’s employees, for work done, and at Computer control deductions for income tax and social
security should be calculated by the
authorised rates of pay
computer for each employee each
- liabilities to the tax authorities for income tax
month
and social security costs should be accurately Arithmetical controla sample of calculations should be
recorded checked
- payroll costs should be completely and Maintaining controlan overall wages control account
accurately recorded in the financial statements accounts should be maintained
Accounting payroll reconciliations should be
reconciliations regularly carried out by a senior
Appropriate control procedures can be identified
manager
using the usual ACCA MAP classification, for
Physical controls clock cards and timing devices should
example:
be carefully maintained. Unclaimed
wages should be kept securely until
claimed or rebanked

54
 PAYROLL AND OTHER AREAS; REPORTS TO MANAGEMENT : CHAPTER 10

EXAM FOCUS Control objectives

- to ensure that all cash receipts are properly
A popular audit procedure is a ‘starters and leavers’ collected, recorded and banked
test. Select two payrolls some months apart and - to ensure that all cash payments are for proper
identify the differences in names between them. purposes and have been authorised for
Those on the first but not the second are leavers in payment
the period. Those on the second but not the first - to ensure that receipts and payments are
are starters in the period. List all the starters and recorded accurately and completely in the
leavers and check that they were accurately paid accounts
for the periods.
Controls over cash sales
- cash sales should be recorded when the sale is
made, normally by entering the sale in a cash till
and giving the customer a cash receipt (a till
slip)
- the total cash received should be reconciled
daily with the total till slips, and should be
banked daily
55
Controls over banking Petty cash
- receipts should be banked intact daily - an imprest system of petty cash should be
- the banked amounts should be entered maintained, with all expenditure requiring a
promptly in the cash book voucher signed by a responsible official

Controls over cheque payments EXAM FOCUS

- cheques should only be signed when suitable The auditor will be interested in substantive testing
supporting documentation is provided. The
of the year-end bank reconciliation and in
supporting documentation should be marked
obtaining a bank certificate confirming the year-
as cancelled to prevent it from being used again
end balance. These are considered later.
at a later date
- there should be clearly defined levels of
authorisation in respect of cheque values,
e.g. up to $100 1 signature
above $100 2 signatures

Bank reconciliations
- each bank account should be reconciled at least
monthly

56
REPORTS TO MANAGEMENT
ISA 260 requires auditors to communicate audit
EXAM FOCUS
matters of governance interest arising from the
audit with those charged with the governance of Some exam questions ask you to draft excerpts
the entity. from a management letter relating to a given
scenario where you need to identify the
Typically, ‘those charged with the governance’ of a weaknesses in the internal control system. A
company are the board of directors and the audit tabular format listing the weaknesses, implication
committee (if one exists). Thus the auditor sends a of weaknesses and recommendations is generally
letter (known as a management letter or letter of the best approach for this type of question.
weakness) to the board or to the audit committee,
highlighting relevant matters. An example
management letter is shown in Appendix 4.

57
 AUDIT EVIDENCE

11

IN THIS CHAPTER
· AUDIT EVIDENCE
· FINANCIAL STATEMENT ASSERTIONS
· ACCOUNTING ESTIMATES

59
 AUDIT EVIDENCE
! DEFINITION !
LESS RELIABLE MORE RELIABLE
Audit evidence is all of the information used by Obtained from inside Obtained from
the auditor in arriving at the conclusions on which the entity independent sources
the audit opinion is based. outside the entity

ISA 500 requires the auditor to obtain SUFFICIENT

Obtained indirectly or Obtained directly by
APPROPRIATE audit evidence to be able to draw
by inference the auditor
reasonable conclusions on which to base the audit
opinion.
Oral representation Exists in documentary
form
The following general principles concern the
reliability of audit evidence:
Photocopy of a Original document
document

60
FINANCIAL STATEMENT ASSERTIONS
By presenting the financial statements, The auditor aims to confirm these financial
management are making various assertions statement assertions by performing audit
regarding the various elements of the financial procedures.
statements and the related disclosures.

Different books use different mnemonics to help

you remember the various financial statement EXAM FOCUS
assertions:
- Completeness In the exam, you should use the above list to
- Occurrence generate ideas for the audit tests to be carried out
- Disclosure on particular transactions, account balances and
- Rights and obligations disclosures. This is a key area of the syllabus.
- Accuracy and valuation
- Cut-off
- Existence

(Remember COD RACE to jog your memory.)

61
 ACCOUNTING ESTIMATES
! DEFINITION !
Types of audit test
An accounting estimate is an approximation of
- Analytical review (comparison of data with
the amount of an item in the absence of a precise
previous year, etc)
means of measurement.
- Enquiry and confirmation (ask someone
inside/outside the company) Examples of accounting estimates:
- Inspection (of an asset, a document, or the - depreciation charges (since the useful life and
accounting system itself ) residual value of a non-current asset are only
- Observation (look at a process, e.g. the client’s estimates)
inventory count) - provision for a loss from a court case
- Recalc-U-lation (to check the mathematical - provision to meet warranty claims
accuracy of documents and records) The auditor should adopt one or a combination of
the following approaches:
(Use the mnemonic AEIOU to remember these types • review and test the process used by
of tests.) management to develop the estimate
• use an independent estimate and compare this
with management’s estimate
• review subsequent events which provide
evidence about the estimate
62
 THE AUDIT OF NON-
CURRENT ASSETS

12

IN THIS CHAPTER
· NON-CURRENT ASSETS
· TANGIBLE NON-CURRENT ASSETS
· INTANGIBLE NON0CURRENT ASSETS
· INVESTMENTS

63
NON-CURRENT ASSETS TANGIBLE NON-CURRENT ASSETS
IAS 16 sets out the accounting for the measurement
! DEFINITION !
and depreciation of tangible non-current assets:
Non-current assets are those assets intended for • choice of stating property, plant and equipment
use on a continuing basis in the company’s at cost or valuation
activities, not for resale. • depreciation applies the accruals concept by
Examples are land and buildings (tangible non- allocating the cost/valuation of an asset over its
current assets), purchased goodwill (an intangible estimated useful life
non-current asset) and a long-term investment in
the shares of another company (an investment). Audit tests centre around the financial statement
assertions described earlier:
Non-current assets in the balance sheet are
• Completeness - are all non-current assets
generally classified into these three categories:
included?
NON-CURRENT ASSETS
• Occurrence - did all transactions take place?
• Disclosure - is disclosure of property, plant and
Tangible Intangible Investments
equipment in accordance with IAS 1 and IAS 16?
referred to as
• Rights and Obligations - do the assets belong to
‘Property, plant
the company?
and equipment’
• Accurate valuation - are the reported values
All other assets, which are not intended for use on a
accurate and appropriate?
continuing basis, must be classified as current assets. 64
 INTANGIBLE NON-CURRENT ASSETS
In the balance sheet, separate disclosure is
recommended under the following headings:
• Cut-off - are transactions reported in the correct
• goodwill
accounting period?
• development costs
• Existence - do the assets exist at the balance
• concessions, patents, licences, trade marks and
sheet date?
similar rights and assets
• payments on account of intangible assets
Control will be improved if the company maintains a
Development costs
non-current asset register. The auditor should test
the entries in this register if he wishes to rely on it as • IAS 38 requires that all research costs must be
a control: written off as incurred
• vouch additions in the period • Development costs should generally be written
• vouch disposals in the period off, but should be capitalised if:
• check depreciation calculations - Probable future economic benefits
- Intention to complete the project
- Resources exist to complete the project
- Ability to use or sell the project output
- Technically feasible
- Expenditure can be measured reliably
(Use the mnemonic PIRATE to remember these conditions.)
65
 INVESTMENTS
A non-current asset investment is held for the long-
term (more than one year). If an investment is held
If the company has capitalised any development for the short-term, then it is classified as a current
costs, the auditor must assess whether the asset.
necessary conditions do apply.
IAS 39 requires most financial assets to be stated at
fair value (or at cost if fair value cannot be reliably
measured).

Use the standard CODRACE financial statement

assertions to identify appropriate audit tests. The
most important aspects will be:
- Existence - agree recorded investments with
ownership documents (e.g., share certificates),
verifying that the company’s name is present
- Valuation - where investments are stated at fair
value, agree value (e.g., to year-end stock market
prices, or by assessment of the accounts of the

66
 company the investment is in)
- Disclosure - ensure appropriate split between
non-current assets and current assets. Written
management representations may be necessary

The auditor must ensure that all investment income,

rights issues, bonus issues, etc have been received
and accounted for by the company.

67
 THE AUDIT OF RECEIVABLES,
PREPAYMENTS, BANK AND CASH

13

IN THIS CHAPTER
· AUDIT OF RECEIVABLES
· CONFIRMATION OF ACCOUNTS
RECEIVABLE
· AUDIT OF BANK AND CASH
· BANK LETTER

69
AUDIT OF RECEIVABLES CONFIRMATION OF ACCOUNTS
The auditor should examine the year-end RECEIVABLE
reconciliation that reconciles the balance on the Seeking direct confirmation of accounts receivable
receivables control account to the total of the by carrying out a debtors circularisation is a key test
balances on the receivables ledger: for the auditor to gain evidence about the existence
- check contras with the payables ledger (and other details) of trade receivables.
- check the authorisation for debts written off
- enquire into balances that appear to be in The auditor selects a sample of year-end customer

dispute or old balances from the client’s receivables ledger. A

letter is sent to each customer selected, asking them
An aged receivables analysis shows the breakdown to confirm the balance they believe to be owing as
of the total receivables balance. Comparison of the at the year-end. See Appendix 4 for an example
percentages in each category with the previous year wording of the letter.
will indicate if debtors are taking longer to pay, so
that perhaps a larger allowance for doubtful debts is The letter may ask for positive confirmation, i.e.
required. please respond whether you agree or disagree, or
negative confirmation, i.e. please only respond if
you disagree. Positive confirmations are the norm.
70
AUDIT OF BANK AND CASH BANK LETTER
This section includes: In some developed countries, the wording of a
- bank account balances standard request letter has been agreed between
- petty cash balances the auditing profession and the clearing banks. The
letter should be authorised by the client, then sent
There are two stages to the audit of bank account by the auditor to the client's bankers, to arrive
balances: around two weeks before the confirmation date
1 obtain a bank confirmation letter - see below (usually the balance sheet date). The bank's reply is
2 reconcile the bank’s balance with the cash book sent directly to the auditor.
balance
The client is likely to have prepared bank The bank letter is an original document, in written
reconciliations for each bank account. These should form, received from an independent third party
be vouched, following through reconciling items to external to the client, so the quality of the audit
bank statements after the year-end. evidence is high.

Petty cash balances may be counted on a surprise

basis, but the auditor should not spend too long on
this area since risk is likely to be low, and the
amounts involved likely to be immaterial to the
financial statements as a whole. 71
 EXAM FOCUS

You must be able to describe the auditor’s

procedures in carrying out a confirmation of
accounts receivable to gain evidence about the
trade receivables figure, and in requesting a bank
letter to gain evidence about the bank account
figure.

72
THE AUDIT OF INVENTORIES

14

IN THIS CHAPTER
· THE IMPORTANCE OF INVENTORY
· ATTENDANCE AT THE INVENTORY COUNT
· VALUATION OF INVENTORY

73
THE IMPORTANCE OF INVENTORY ATTENDANCE AT THE INVENTORY
Inventory is a very important area of the audit since: COUNT
• the inventory figure is likely to be material Where inventory is material to the financial
• there can be a high risk of material statements, ISA 501 requires that the auditor should
misstatement, particularly where the inventory attend the physical inventory count unless
is specialist in nature, or where a significant impracticable.
degree of estimation is required to assess the
quantities of inventories held (e.g., piles of coal) The client may carry out a periodic inventory count,
e.g. annually at or close to the year-end, or a
As a result, inventory is often audited by relatively continuous inventory count where (say) monthly
senior members of the audit team. counts are carried out throughout the year.

Before the count

• review the previous year’s working papers
• review the client’s instructions concerning the
count issued to the counters
• identify any problem areas and discuss them
with the client

74
During the count After the count
• make limited test counts to check the accuracy • check that damaged/obsolete inventories are
of the count included in the review exercise to value such
• make notes of any damaged or possibly goods at their net realisable value
obsolete inventories • having recorded the number of the last Goods
• record document numbers for subsequent test Received Note and last Despatch Note prior to
of cut-off - see below the count, check that cut-off is correct by
• reach a conclusion as to whether the count inspecting sales and purchases records
was carried out satisfactorily • check that inventory records (if any) are
adjusted to reflect the actual numbers
counted during the inventory count.

75
VALUATION OF INVENTORY
IAS 2 requires that all inventories must be valued at • an increase in costs or a fall in selling price (e.g.,
the lower of cost and net realisable value (NRV). computers)
• physical deterioration (e.g., food going stale)
Cost = Purchase cost of materials and labour, plus • obsolescence (e.g., clothes going out of fashion)
attributable production overheads(based on • a decision to sell some items as loss leaders
normal level of activity) • errors in production or purchasing

NRV = Actual or estimated selling price, less all

EXAM FOCUS
further costs to completion, and all costs to be You must be clear about the two separate tasks
incurred in marketing, selling and distributing the facing the auditor:
product
• does the inventory exist? Attend the inventory
count to find out
Where a number of identical goods have been
• is the inventory correctly valued? Apply the
purchased, a costing method such as FIFO or
IAS 2 principles
average cost may be used to determine the costs of The two tasks are inter-related, i.e. the auditor can
the items in inventory at the year-end. identify damaged or dusty (slow-moving)
inventories at the count, and then confirm that
Items must be written down to NRV if this is below these inventories have been written down to NRV
cost. Typical situations are: in the valuation exercise. 76
THE AUDIT OF LIABILITIES
AND CAPITAL

15

IN THIS CHAPTER
· LIABILITIES
· CONTINGENT LIABILITIES
· SHARE CAPITAL AND RESERVES

77
LIABILITIES
statement assertions can be tested, with particular
! DEFINITION ! emphasis on Completeness.

Liabilities are present obligations of an entity to

Key audit tests
transfer economic benefits arising from past
• review cashbook after the year-end for
transactions or events. payments that indicate that liabilities existed at
the year-end
A liability should be recognised if it is probable that • review the reconciliation of the payables ledger
an outflow of economic benefits will result from the control account to the total of the individual
settlement of a present obligation, and the amount payables ledger balances
at which the settlement will take place can be • for a sample of suppliers, perform a
measured reliably. reconciliation of year-end supplier statements
to payables ledger balances
If the recognition criteria are not satisfied, then the
liability should not be recognised, but may be
disclosed in a note as a contingent liability.

The auditor will find it harder to audit liabilities than

assets since the related cash flow for a liability has
not yet occurred. The usual CODRACE financial 78
 CONTINGENT LIABILITIES
Where the likelihood of payment is only possible
EXAM FOCUS
rather than probable, then this is a contingent
A creditors circularisation is usually not necessary. liability rather than an actual liability. Contingent
The client’s suppliers will send regular statements liabilities are disclosed in a note to the accounts;
to the client, stating the amount owed. There actual liabilities are recognised in the accounts.
would be nothing to be gained from circularising
these suppliers, since they would only confirm the To identify contingent liabilities, study the bank
figures already on the statements. letter received from the bank, and examine the
client’s correspondence with their lawyers. Consider
including these matters in the representation letter
to be required from the directors at the end of the
audit.

79
SHARE CAPITAL AND RESERVES
IAS 32 requires that issued share capital must be • other reserves
classified as equity or as a liability, depending on the • retained earnings
substance of the contractual arrangement. Thus, for
example: IAS 1 requires that the financial statements must
• ordinary shares are shown as equity on the contain a statement of changes in equity for the
balance sheet year:
• redeemable preference shares are shown as Share Share premium Other Retained Total
liabilities on the balance sheet capital account reserves earnings equity
$ $ $ $ $
Balance at 1 Jan x x x x x
Share issue x x x
The auditor should check that this classification has Revaluation of
been made properly in accordance with IAS 32, and freehold x x
Transfer x (x)
should note any changes in issued share capital in Profit for the year x x
Dividends (x) (x)
the year and check these to the cash book, board ____ ____ ____ ____ ____
Balance at 31 Dec x x x x x
minutes, register of shareholdings, etc. –--- ---- ---- ---- ----

Possible categories of reserves to be disclosed The auditor must check that all movements on
include: reserves are in accordance with IASs and relevant
• share premium account legislation.
• revaluation reserve 80
AUDIT SAMPLING AND COMPUTER
ASSISTED AUDIT TECHNIQUES

16

IN THIS CHAPTER
· AUDIT SAMPLING
· COMPUTER ASSISTED AUDIT TECHNIQUES
(CAATs)

81
AUDIT SAMPLING
However audit sampling is not appropriate if:
! DEFINITION !
• population is small

Audit sampling involves the application of audit • all transactions in a particular area are of great

procedures to less than 100% of the items within a monetary significance

class of transactions or account balance such that • population is non-homogeneous

all the individual items have a chance of selection.

This enables the auditor to obtain and evaluate
audit evidence about some characteristic of the There are three steps in audit sampling:

items selected in order to form a conclusion about

the population from which the sample is drawn. DESIGN THE
Audit sampling is usually preferable to testing all SAMPLE
items, because:
• it would be prohibitively expensive and time-
consuming to test every single item EVALUATE THE
• users of the financial statements are looking for SAMPLE
reasonable assurance, not 100% accuracy
• full substantive testing of the accounting SELECT THE
records will not verify that all transactions are
SAMPLE
recorded (i.e., it does not prove completeness) 82
Designing the sample Evaluating the sample results
• the auditor must choose between statistical and • the auditor carries out audit procedures on each
non-statistical sampling. Statistical sampling item selected and documents the results. Errors
involves random selection of a sample and then identified in the sample are then projected
the use of probability theory to evaluate the across the population as a whole
sample results. Any other sampling approach is • if the projected error exceeds the tolerable
non-statistical sampling error, then the assessment of the relevant
• note that a selective testing approach such as characteristic of the population needs to be
examining all items over a certain amount, or all revised
items that look unusual, is not sampling, so that
the results cannot be projected to the entire
population

Selecting the sample

• statistical sampling requires random selection,
e.g. using random number tables or a computer
program to generate random numbers
• non-statistical sampling requires the auditor to
use his judgement to select the sample items to
be representative of the population
83
COMPUTER ASSISTED AUDIT TECHNIQUES (CAATs)
The diagram below indicates the controls in a computer information system.

Controls

General Application
controls controls

Manual, e.g. Programmed, Programmed, Manual, e.g.

safe custody e.g. password e.g. sequence batch control
of back-up to enter the check on totals
files system documents

CAATs may be used to

test these controls

Audit software Test data

= Computer programs used = Data used by the auditor for
for audit purposes to examine computer processing to test the
the client’s computer files client’s computer programs
84
Advantages of using CAATs
• effective way of testing programmed controls
• can test a large number of items quickly and
accurately
• can test the actual accounting system rather
than printouts which claim to come from the
system
• once established, CAATs are a cost-effective
means of gathering audit evidence

85
 GOING CONCERN

17

IN THIS CHAPTER
· THE GOING CONCERN CONCEPT
· EVALUATION OF GOING CONCERN

87
THE GOING CONCERN CONCEPT
When preparing financial statements, IAS 1 requires
! DEFINITION !
that the management should assess whether there
Under the going concern assumption, an entity is
are significant doubts about an entity's ability to
assumed to be continuing in business for the
continue as a going concern, and that any such
foreseeable future, with neither the intention nor
doubts must be disclosed in a note to the accounts.
the necessity of liquidation or ceasing trading.
The auditor's responsibility is to consider the
IAS 1 requires that an entity should prepare its appropriateness of management's use of the going
financial statements on a going concern basis, concern assumption, and whether there are
unless: adequate disclosures regarding uncertainties about
• management intends to liquidate the entity or the entity's ability to continue as a going concern.
to cease trading, or
• management has no realistic alternative but to
liquidate the entity or to cease trading

88
EVALUATION OF GOING CONCERN
In a company where profits are high, cashflows are Typical audit procedures
positive, finance is in place, and there is no obvious • review cashflow forecasts and post-year-end
exposure to massive losses, management’s management accounts to analyse trends in
assessment of the company’s going concern status performance
is likely to be rapid, and the auditor’s review will • assess the state of the industry in which the
similarly be rapid. client operates
• review correspondence with major customers,
However, if doubts exist, the auditor’s evaluation of suppliers and the bank for evidence of
management’s assessment will be more extensive. disputes
• discuss management’s assessment with key
Typical indicators of going concern problems managers and obtain written representations
• net current liabilities
where appropriate
• necessary borrowing facilities not agreed
• significant liquidity or cashflow problems The appropriate wording of the audit report when
• substantial operating losses the going concern status is unclear will be dealt
• inability to pay debts (e.g., tax payments) as they with in a later chapter.
fall due
• loss of key management or staff
• loss of key suppliers or customers
89
AUDIT FINALISATION AND
THE FINAL REVIEW STAGE

18

IN THIS CHAPTER
· OVERALL REVIEW OF FINANCIAL
STATEMENTS
· SUBSEQUENT EVENTS
· MANAGEMENT REPRESENTATIONS
· UNADJUSTED AUDIT DIFFERENCES

91
OVERALL REVIEW OF FINANCIAL SUBSEQUENT EVENTS
STATEMENTS
! DEFINITION !
The auditor’s opinion is on the financial statements
as a whole, so before formulating his opinion the Subsequent events are events occurring and facts
auditor must bring together all the detailed work discovered between the period end and the laying
that he has carried out on each audit area, and of financial statements before members.
review the financial statements as a whole.
The accounting for subsequent events must follow
IAS 10:
Overall review:
• adjusting events are adjusted for in the financial
• compliance with statute and accounting
statements
standards?
• non-adjusting events are disclosed in a note
• appropriate accounting policies?
• consistent with the auditor’s knowledge of the Up to the date of the audit report, the auditor must
business? watch out for subsequent events that might require
• do the financial statements as a whole give a adjustment or disclosure in the financial statements.
true and fair view? After the date of the audit report, the auditor has no
duty to search for subsequent events. However, if he
These matters are traditionally covered by filling in
does learn of subsequent events, he should discuss
comprehensive checklists relating to the accounts.
the matter with the directors and consider whether
92 amended financial statements are necessary.
MANAGEMENT REPRESENTATIONS UNADJUSTED AUDIT DIFFERENCES
During the course of the audit, the auditor will have
! DEFINITION !
identified errors within the account balances and
Management representations are transactions. The auditor must persuade
representations made by management to the management to adjust the accounts for material
auditor during the course of the audit, either errors, otherwise a qualified audit report must be
unsolicited or in response to specific enquiries. given.

Representations from management are a source of Errors that are individually immaterial should be
audit evidence. ISA 580 requires that the auditor recorded on a summary of audit differences. This
should obtain written representations from will reveal whether errors that are individually
management on matters material to the financial immaterial accumulate to require an adjustment
statements when other sufficient appropriate audit that is material.
evidence cannot reasonably be expected to exist.

An example of a management representation letter

is shown in Appendix 4. The letter is addressed to
the auditor, contains the necessary information, is
signed by senior board members, and is normally
dated on the same day as the audit report. 93
EXTERNAL AUDIT REPORTS AND
OTHER EXTERNAL REPORTS

19

IN THIS CHAPTER
· THE AUDIT REPORT
· THE QUALIFIED AUDIT REPORT
· REVIEW REPORTS

95
THE AUDIT REPORT
The standard audit report contains the following accounts is called an unmodified report
elements: (traditionally it has been referred to in the UK as an
• Title, identifying the addressee unqualified report). These terms are linked as
• Introductory paragraph, identifying what has follows:
AUDIT REPORT
been audited
• Respective responsibilities of management
and auditors UNMODIFIED MODIFIED
• Description of the audit work REPORT REPORT

• Opinion - whether the financial statements

give a true and fair view in accordance with the
UNQUALIFIED QUALIFIED
identified financial reporting framework (e.g. REPORT REPORT
IFRSs)
• Auditor’s signature and address
• Date

The structure of a full audit report is shown in

Appendix 1. The standard type of report in which
the auditor reports that he is happy with the
96
An unmodified report is the standard wording. A
modified report is any change from the standard
wording:
• a modified but unqualified report means that
the auditor is happy that the accounts give a
true and fair view, etc, but he wishes to add an
emphasis of matter paragraph highlighting a
matter affecting the financial statements
• a modified and qualified report means that the
auditor is not happy with some aspect of the
accounts.

97
THE QUALIFIED AUDIT REPORT

Reason for qualification Not material Material, but pervasive Material and pervasive

Limitation of scope
The auditor is not able to
carry out all the audit Do not qualify Qualify ‘except for’ Disclaimer of opinion
procedures that he
believes are necessary

Disagreement
The auditor disagrees
Do not qualify Qualify ‘except for’ Adverse opinion
with an accounting
treatment or disclosure

A pervasive qualification affects the view given by The auditor should think carefully before giving a
the financial statements as a whole. In a disclaimer qualified audit report, since this may have serious
of opinion, the auditor does not know whether the implications for the client. Normally the client will
financial statements give a true and fair view. In an be willing to make the changes requested by the
adverse opinion, the auditor believes that the auditor to avoid the need for a qualification
financial statements do not give a true and fair view. 98
REVIEW REPORTS
ISRE 2400 (previously called ISA 910) covers
engagements to review financial statements. The
review report gives negative assurance, ie the
reviewer reports whether anything has come to
their attention to indicate that the financial
statements do not give a true and fair view.

This should provide some comfort to the user, as in

most cases the reviewer can be expected to identify
material anomalies/errors or highlight risks in
particular areas.

99
INTERNAL AUDIT REPORTS AND
INTERNAL REVIEW REPORTS

20

IN THIS CHAPTER
· REVISION OF INTERNAL AUDIT
· TYPES OF REPORT

101
REVISION OF INTERNAL AUDIT TYPES OF REPORT
Chapter 5 looked at the role and functions of The wording of an external audit report is strictly
internal audit activity. You should be familiar with governed by auditing standards and related
the typical investigations of: guidance. However there is no such regulation of
• corporate governance matters internal audit reports. Typical elements would be:
• business risk control • Title, identifying the addressee (normally the
• operational audits (e.g., VFM) audit committee)
• Executive summary
Internal audit is part of the overall control
• Summary of key findings and
environment established by the directors. A
recommendations, including agreed action
properly functioning internal audit department is
(responsibilities and timescales)
part of good corporate governance. Internal audit
• Appendices of additional information and
enables management to perform proper risk
analyses
assessments by properly understanding the
strengths and weaknesses of all parts of the control EXAM FOCUS
systems in the business.
As there are no specific regulations for you to learn
While the appointment of external auditors to a in this area, it is generally common sense. Make
large company is compulsory in most countries, sure that you know the principles of good report
internal auditors need only be appointed if writing and how to apply them in a practical
management choose to do so. situation.
102