Presentation on theme: "S17: Field work. Session Objectives To explain the manner in which field audit is carried out. To explain the nature of evidence and the different."— Presentation transcript:
Session Objectives To explain the manner in which field audit is carried out. To explain the nature of evidence and the different methods of gathering evidence. To explain how Tests of Controls and Tests of Details should together lead to Detection of any error Revision of the audit plan Gathering of audit evidence and finally, Audit conclusions.
Field work Field Work is about implementing the audit plan discussed earlier and gathering evidence. The audit plan should spell out how the Audit team proposes to obtain evidence to support the audit opinion. This will normally comprise a mix of control and substantive procedures.
Audit Engagement Letter Communication with the entity through Audit engagement letter. A letter to the head of the auditee, communicating the launch of the audit along with the entity units tentatively selected for audit, respective responsibilities of Audit and the entity management, the time-frame for audit and request him/her to issue necessary directions to the functional officers and field units to provide documents and information to the audit team.
Entry conference Entry conference at the commencement of each field audit serves more than one objective. It gives an opportunity for introduction of the audit team members with the chief of the entity and heads of various divisions. The audit team can explain the audit plan that includes audit objectives, approach and time frame besides apprising the entity of the information and documents that will be required by the audit team. The working procedures for audit may also be established in this meeting. The audit officer may also utilise this occasion to request the chief of the entity to provide assistance to the team by way of office accommodation, access to office equipment, etc. The entry conference should be followed by a authenticated minutes of the proceedings.
Nature of evidence The auditor should obtain competent, relevant and reasonable evidence to support his judgement and conclusions. Competent evidence - is quantitatively sufficient and appropriate to achieve the auditing results and is qualitatively impartial such as to inspire confidence and reliability. Sufficient evidence – is obtained only if the extent of tests (both compliance and substantive tests) is adequate-not too little evidence nor too much evidence as audit resources should not be wasted. The question how much evidence is enough is a matter of professional audit judgement and Auditing Standards and practices. Reliable evidence - is an evidence that is impartial. The reliability of audit evidence is dependent upon its nature, its source and the method used to obtain it.
Obtaining audit evidence The audit team may obtain audit evidence from a number of sources and in a number of ways in support of both testing of controls and substantive testing procedures. Inspection Observation Enquiry and confirmation Computation Analytical procedures Surveys Interviews Physical verification
Tests of controls Before seeking to place reliance on controls, the audit team should perform tests to confirm that they have been operating effectively and consistently. If the audit tests confirm that controls are effective, the audit team should perform a minimum level of substantive procedures. If the audit tests do not confirm that controls are effective, audit should not place reliance on them; this would mean extending the scope of substantive tests and revision of the audit plan, if required.
Tests of Detail – I Where the audit team plans to test an audit objective using tests of detail it should identify the relevant population; and apply an appropriate sampling technique to select items from the population and examine supporting evidence for those items; or examine supporting evidence for the entire population.
Tests of Detail -II For all tests of detail, it is necessary to clearly state the objective of the test what constitutes an error the population to be covered Where the audit team is testing a sample of transactions, it is necessary to also state the source from which the sample is selected and the procedures for reconciling this to the financial statements the method of selection adopted
Determining the sampling frame for tests of detail Before undertaking any form of sampling for tests of detail the auditors should establish a listing of population items for each financial statement assertion in each account area. This listing will form the sampling frame from which the auditors will normally extract transactions samples for tests of detail. The listing will normally be derived from the entity’s accounting system.
Evaluating the results of sampling for tests of detail Auditor should examine the sample data from time to time to test the validity of planning assumptions. Once the planned testing is complete, he should analyse any errors detected in the sample. Auditor should consider whether the extent of error identified is consistent with planning assumptions and the decisions which led to determination of the scope of the audit; the audit evidence gathered from sampling for tests of detail and other substantive procedures is sufficient and appropriate. The detection of errors more than originally expected normally implies that auditor needs to carry out more work than originally planned before he can draw a reliable conclusion on the truth and fairness or proper presentation of the financial statements.
Investigating Errors and Control Failure The audit team should investigate the nature and causes occurrence of any errors or control failures it discovers. It is important to understand why they have occurred, without which it will not be possible to fully consider their implications for audit. The audit team should pursue the errors and control failures at the time of detection so that management can take any remedial action promptly and the audit team has sufficient time to change audit procedures if this becomes necessary.
Exit conference The audit team should conclude the audit with an exit conference/ meeting with the chief officer of the auditee unit. All audit observations should preferably be issued to the entity at least one or two days before the scheduled exit conference. The exit conference is an opportunity for the entity to discuss the audit findings with the audit representatives. This also affords opportunity to the audit officer/group supervisory officer to clarify any points of doubt that the entity may like to raise. The minutes of exit conference should be recorded and endorsed to the entity.
Quality Assurance in Fieldwork Adherence to the Field Standards and policy of CAG of India regarding fieldwork; Ensuring staffing of audit teams with persons possessing appropriate knowledge and skills; Supervision, monitoring and review as per the auditing standards; Holding of Workshops of audit teams engaged in similar audits; Documentation of the fieldwork; and Peer review