AUDITING UCM3532

UTB
 CHAPTER 1
INTRODUCTION TO AUDITING
DEFINATION.
• AUDITING (broadly defined) is a systematic process of
objectively obtaining and evaluating evidence regarding
assertions about economic actions and events to ascertain
the degree of correspondence between those assertions
and established criteria and communicating the results to
interested parties.
• AUDITING (narrowly defined) is a written report on the
examinations of financial statements for a client.
• Auditing is independent examination of and expression of
an opinion on the financial statements of an enterprise by
an appointed auditor in pursuance of that appointment and
in compliance with any relevant statutory obligation.
 THE NEED FOR AUDIT
• Conflict of interest
• Control measure
• Statutory obligation
 AUDIT OBJECTIVE
• The primary objective of an audit of financial
statements is to enable the auditor to express an
opinion whether the financial statements are prepared,
in all material respects, in accordance with an
identified financial reporting framework.
Other objectives
• To give credibility to the financial statements. This
arises from the fact that the accounts have been
subject to an examination by an independent person.
• An audit may assist in the prevention and detection of
errors and frauds.
• The auditor’s experience will enable him to make
recommendations on ways of improving the
accounting and internal control system.
 TYPES OF AUDITS
• Financial statements audits
• Compliance audits
• Operational audits
• Comprehensive audits
• Forensic audits
• Interim audits
• Final audits
• Procedural audits
• Management audits
 TYPES OF AUDITORS
• External auditors
• Internal auditors
• Government auditors
• Forensic auditors
 Benefits of audits
– An audit protects the interests of the shareholders
who are separated from the management of the
company.
– An audit being an independent examination of the
financial statements gives credibility to the
financial statements. The various users can
therefore place reliance on them.
– The auditors experience will enable him to make
recommendations on ways of improving the
accounting and the internal control system.
– An audit assists in the prevention and detection of
errors and frauds through the moral and deterrent
effect.
 Users of audit reports
• All stakeholders –what is the interest of each
in the audit report?
 Stages of an audit
• Determining the scope of the audit work. For statutory audits the scope is
clearly laid out in the provisions of the Companies Act and is formally
contained in the letter of engagement.
• Ascertain nature of the client’s business. The auditor seeks to obtain some
background information of the nature of the client’s business.
• Planning the audit; the auditor prepares a planning memorandum that
shows the general strategy in to be followed in conducting the audit.
• Ascertaining and evaluating clients accounting systems and internal
controls, use of flow charts and evaluating using key questions.
• Carrying out tests of controls: This enables the auditor to determine the
level of reliance to be placed on the internal control system and therefore
reduce the level of substantive testing.
• Planning the level of substantive testing and formulating the substantive
tests to be carried out.
• Carrying out substantive testing on the selecting account balances.
• Carrying out the final analytical review and concluding whether the
financial statements show a true and fair view.
• Drafting the audit opinion and any other reports to be issued under the
terms of engagement e.g. the management letter.
 CHAPTER 2
THE LEGAL AND PROFESSIONAL REQUIREMENT
FOR AN AUDITOR.
 APPOINTMENT:
“Every company shall at each annual general meeting appoint
an auditor or auditors to hold office from the conclusion of
that, until the conclusion of the next, annual general
meeting.”
REAPPOINTMENT
A retiring auditor shall be deemed to be re-appointed without
any resolution being passed unless: -
– He is not qualified for appointment; or
– A resolution has been passed at that meeting (i.e. annual
general meeting) appointing somebody instead of him or
providing expressly that he shall not be re-appointed; or
– He has given the company notice in writing of his unwillingness
to be re-appointed.
• According to this provision of the company’s Act an
appointed auditor is deemed to be automatically re-
appointed come the next annual general meeting for
another term in office unless any of the three mentioned
situations exist.
APPOINTMENT BY REGISTRAR
“Where at an annual general meeting no auditors are
appointed or deemed to be appointed, the registrar may
appoint a person to fill the vacancy”

APPOINTMENT BY DIRECTORS
The first auditors of a company may be appointed by the
directors at any time before the annual general meeting,
and the auditors so appointed shall hold office until the
conclusion of that meeting.

CASUAL VACANCIES
A casual vacancy may arise out of any of the following
reasons
– Death of the auditor
– Incapacitation
– Resignation
 QUALIFICATIONS OF AUDITOR-
EXTERNAL
A person or firm shall not be qualified for appointment as auditor of a
company unless he or, in the case of a firm, every partner in the firm is
the holder of a practicing certificate issued pursuant to of the Accounts
Act’. The conditions set out in the Accountants Act include;

Auditor must meet the following qualifications in Rwanda:

1. Must be a CPA finalist (Certified Public Accountant) i.e. has passed
all exams that are set by ICPAR/KASNEB/…. Rwanda Accountants
and Secretaries National Examination Board.
2. Member of ICPAR (Institute of Certified Public Accountants of
Rwanda) to ensure adherence to professional ethics.
3. Have post qualification experience in an auditing environment for
2 years.

• Having fulfilled these requirements the practicing certificate is

issued upon application by RAB (Registration of Accountants Board).
 PERSONS WHO CANNOT BE
APPOINTED
• A person who is a partner of or in the employment of an officer or servant
of the company (unless it is a private company)
• Persons who are disqualified form appointment as auditor of the
company’s subsidiary or holding company or subsidiary of the company’s
holding company and
• A body corporate.
 RIGHTS OF AN AUDITOR
• To receive all accounting information/records
• To be informed and attend general meetings
• To make statement in AGM
• To be notified on removal from office
• To require subsidiaries and their auditors
information
• To remuneration
• To legal and technical advice
 Duties of an Auditor
• To report in the AGM all matters on FS
• To provide working papers
• To certify statutory reports
• To include directors remuneration
• To state whether
– Received all information
– Received adequate returns from branches
– Proper accounting records have been maintained
– Accounts comply with GAAP
 Audit engagement letter
This is a contract between the auditor and the client sent by each party
before commencement of the underlying assignment.
• The purpose of an engagement letter
– The letter defines the scope of work to be carried out and the
respective responsibilities of the auditor and the client under the
engagement.
– The letter documents and confirms the auditor’s acceptance of the
appointment
– It explains the forms of any reports to be issued under the
engagement
– To educate the client on:-
• His duty to maintain proper books of accounts and to prepare financial
statements that show a true and fair view.
• His duty to prevent errors and frauds.
• His duty to provide all the necessary information
• That the audit should not be relied upon to detect errors and frauds.
• To explain the that the audit will be carried out on a test basis.
• Basis of charging his fees.
– Minimise auditor’s liability to third parties.
– Commit client to his obligations in an audit.
 PROFESSIONAL ETHICS
• Integrity: Straightforward honest and sincere in his approach to his
professional work.
• Competence: He should carry out his work with due care and skill in
conformity with professional and ethical standard issued by ICPAR or the
laws of Rwanda.
• Confidentiality:
• Independence: The guide states that this is a fundamental concept to the
accounting profession. It is essentially an attitude of mind characterised
by objectivity and integrity.
Guidance of matters of Independence
• Professional independence is considered to be
crucial to the life of a professional accountant.
Therefore guidance is given on the best code of
conduct in situations where the accountants
independence may be compromised or impaired.
i. Fees
ii. Personal or family relationships
iii. Financial involvement with a client.
iv. Goods and Services
v. Conflicts of interests.
 Chapter 3

INTERNAL CONTROL SYSTEMS AND INTERNAL

AUDIT
ACCOUNTING AND INTERNAL CONTROL
SYSTEM
Refer to ISA 400
 Accounting systems
These are the systems and procedures that management has
put in place to ensure that the company maintains proper
books of accounts. The auditor should ascertain the client’s
system of recording and processing transactions and assess its
adequacy as a basis for the preparation of financial
statements.
• An accounting system provides for the orderly assembly of
accounting information and appropriate analysis to
facilitate the preparation of financial statements.
• The management of an organization requires complete and
accurate accounting and other records to assist in:
• Controlling the business
• Safeguarding the assets
• Preparation of the financial statements
• Complying with legislation
 Definition of Internal controls
• An internal control systems consists of all the policies and procedures
(internal controls) adopted by management of an entity to assist in
achieving management’s objective of ensuring, as far as practicable the
orderly and efficient conduct of its business, including adherence to
management policies, safeguarding of assets, the prevention and
detection of fraud and error, the accuracy and completeness of the
accounting records and the timely preparation of reliable financial
information. The internal control system extends beyond these matters,
which relate directly to the functions of the accounting system.

• Importance of the internal control system

– Enables management to carry out the business in an orderly and efficient
manner.
– Ensures adherence to management policies
– Safeguard the company’s assets
– ICS help in ensuring completeness and accuracy of the records maintained.
– Strong internal controls help in preventing and detecting errors and frauds.
– For the auditor a good system justifies a reduction in the level of substantive
testing but does not eliminate it fully.
 TYPES OF INTERNAL CONTROLS
This refers to the various types of control procedures that
management can put in place in running the operations of the
company. The mix of types of controls implemented by management
will depend on the control objectives in each accounting area.

• Organizational plans/controls
• Segregation of duties
• Physical controls
• Authorisation and approval
• Arithmetical and accounting control.
• Personnel
• Supervision
• Management controls
• Rotation of duties
• Routine and automatic checks.
• Internal audit
 Limitations of the internal control
system
• Management has to ensure that the benefits expected from an internal
control system outweigh the costs. As a result certain important controls
might not be put in place due to the costs involved. e.g. a small entity
might not have the resources to employ sufficient staff to ensure proper
segregation of duties.
• Ics tend to be routine transactions rather than non-routine transactions.
This leaves gaps that can be exploited.
• Human error due to carelessness, distraction, mistakes of judgement and
misunderstanding instructions could undermine the internal control
system.
• Controls could be circumvented through collusion by a member of
management or an employee with persons outside or inside the entity.
• Abuse of responsibility e.g. a member of management overriding an
internal control.
• The possibility that procedures maybe inadequate due to changes in
conditions.
 Advantages of ICS-to the auditor
• ICS will reduce the amount of audit work to be done -auditor apply tests
which will facilitate his audit work.
• A strong ICS will minimise chances of errors and frauds
• Will reduce the amount of audit evidence to be gathered, because it will
facilitate reaching and using a greater variety of audit evidence available
within the business. This will enable him to form an opinion with greater
surety and speed.
• The presence of an internal check system strengthens the credibility of
audit evidence gathered.
• ICS minimises the work load and the time need to take in order to produce
his report.
• The preparation of an ICS will identify those areas prone to errors and
frauds, which will enable the auditor to plan his audit work so that he
allocates more time and effort to those areas where for organisational
reasons the internal check system is weakest.
• ICS emphasises the use of control accounts
• ICS enables him reduce the sample size to be tested
 Disadvantages of ICS to the Auditor
• The management may over rely on the strength of the ICS and
therefore relax their supervision which may leave room for errors
and frauds.
• The auditor may reduce the volume of examination carried leading
to smaller samples of data thus leaving other areas to possibilities
of errors and frauds.
• It may be frustrated by management through collusion and
manipulation which may mislead the auditor’s opinion leading to
biased reports.
• ICS may be manipulated so that errors and frauds by the
management cannot be easily detected and this may lead to a
biased opinion.
• ICS may reduce the auditor’s vigilance and observations with an
unfavourable effect on the quality of the audit.
• ICS may be abused by the internal auditors through collusion with
the management and this may lead to the external auditor being
mislead.
 Individual Assignment
1
a) Discuss the Advantages and disadvantages of
internal controls (IC) to the client.
b) If you are hired as the auditor of UTB what
internal controls would you suggest to them?
c) As an auditor of UTB how would you
ascertain, record and evaluate ICS
 Weaknesses in ICS
• The auditor should
– Notify the management
– Change approach of audit increase substantive
tests
– Increase sample size
– Record in the management letter (Advice to client)
– Mention to the shareholders (if its significant)
– If its extremely week- qualify the report
 Internal auditing
• This is an appraisal activity established within an entity
as a service to the entity. Its functions include, amongst
other things to, examining, evaluating and monitoring
the adequacy and effectiveness of the accounting and
internal control systems. Internal audit entails
independent and constant appraisal of the company’s
activities, operations and controls so as to safeguard
the company’s assets, ensure reliability of the
company’s records and efficiency of operations all of
which are aimed at assisting the management to
manage the business better. It acts as a watchdog over
the company’s entire controls although it can be
regarded as one of the controls in itself.
 SCOPE AND OBJECTIVES OF AN
INTERNAL AUDIT FUNCTION
• Review of the accounting and internal control systems.
Management is responsible for establishing an internal
control system.
• Carrying out examination of financial and operating
information.
• Review of the economy, efficiency and effectiveness of
operations including non-financial controls of an entity.
• Review of the entity’s compliance with laws and
regulations.
• Review of the entity’s compliance with management
policies and other internal requirements.
• Carrying out independent investigations into the affairs
of the company as required by management.
 INTERNAL AUDITOR & EXTERNAL
AUDITOR
• Both are interested in the effective operation
of the internal control system.
• b. Both are interested in ensuring that the
company has maintained complete and
accurate accounting records.
• d. Both are interested in ensuring that the
assets of the company are safeguarded.
 DIFFERENCES
• Scope of work: For an internal auditor the scope
is determined by management for an external
auditor it is laid down by statutes and
professional requirements
• Approach: An internal auditor may have many
aims in his work including an appraisal of the
efficiency of the internal control system and
management information system. The external
auditor is primarily concerned with the truth and
fairness of accounts.
• Responsibility: The internal auditor is answerable
only to management. The external auditor is
responsible to shareholder and the public at
large.
 Factors to consider on relying on
internal auditors work
• Organization status
• Scope of the function
• Technical competence
• Due professional care
• Internal audit reports
• Level of resources available
 Chapter 4

ERRORS, FRAUD AND

OTHER
IRREGULARITIES
 Error
Defn….It is an unintentional mistake in the
financial information, which can occur any time
during processing and recording of transactions.
These include:
• Mathematical or clerical mistakes;
• Oversight or misrepresentation of facts;
• Misapplication of accounting policies.
 Types of Errors
• Errors of commission: These are errors that do not show in
the trial balance because it still balances. This is where the
correct amount for a transaction is recorded but the wrong
person’s account.
• Errors of omission: where a transaction is completely
omitted
• Error of principle: where an item is entered in the wrong
class of account
• Compensating errors: where errors cancel each other out.
• Error or original entry: when the original figure is incorrect
and the double system entry is still observed.
• Complete reversal of entries: where correct accounts are
used but each item is shown on the wrong side of the
account. For example crediting a sale in the debtor account
and debiting the sales account.
 FRAUD, DEFALCATIONS AND OTHER
IRREGULARITIES
FRAUD---This refers to intentional
misrepresentation of financial information by one
more individuals among management, employees
or third parties.
Common types of fraud include:
• Manipulation, alteration or falsification of records
or documents.
• Misappropriation of goods.
• Misappropriation of accounting policies.
• Suppression or omission of effects of transactions
on documents.
• Recording fictitious transactions.
 General Detection-fraud
• Compare the company’s balance sheet with those of
previous two years.
• Calculate ratios from the two balance sheets. The
ratios to be calculated can be leverage ratio, activity
ratios, performance ratio and profitability ratios.
• Use searching inquiry to poise questions to
management and the accounting staff.
• Audit in depth such that the audit trail is established.
• Consult third parties in and out of the firm for example
by use of debtors circularisation or lawyers letters.
• Use surprise checks and visits.
• Compare budgeted and actual results. Investigate in-
depth the cause of any variances.
 Detection of errors.
• Compare previous year’s figures with the current figure
and ascertain that all changes are in order and
authentic.
• Cast the trial balance figures and ensure they balance.
• Check the names of the accounts in ledgers and those
recorded in the trial balance to ensure that there are
no omissions.
• Compare debtors and creditors from ledgers and those
in trial balances.
• Ensure that the totals of self-balancing accounts agree.
• Count items in trial balance in the current account and
compare those in the previous account. Investigate
any differences.
• Check totals of subsidiary books.
 Prevention of errors and frauds
• Strong internal control system that will ensure that assets
are safeguarded and check collusion between employees.
• Proper remuneration of staff.
• Proper segregation of duties
• Overall supervisory controls by management.
• Use of budgets to control the company’s activities. At the
year-end the actual and budgeted results should be
compared.
• Rotation of duties so that employees do not establish very
close and absorbing relationships.
• Institute or establish an internal auditing function.
• Mechanise the system to avoid errors of casting and small
omissions or commissions.
• Employing staff that are qualified, of integrity and reliable.
 How ICS is used to prevent frauds:
• Management supervision:
• Physical controls
• Segregation of duties
• Arithmetic and accounting controls
• Personnel
• Routine and automatic checks
• Control of documents
• Rotation of duties
•
 Group Assignment
• Perform an audit on
– Staff canteen
– Students cafeteria
– Students canteen
• What to check/audit
– Sales cycle
– Purchases and creditors
– Wages and salaries
– Fixed assets
– Cash
– Others…
 Chapter 5

AUDIT PLANNING, CONTROLLING

AND RECORDING
 PLANNING
• Planning refers to developing a general
strategy and a detailed approach for the
expected nature, timing and extent of the
audit.
• The form and nature of the planning required
for an audit will be affected by the size and
complexity of the organization, the
commercial environment in which it operates,
method of processing transactions and
reporting requirements to which it is subject.
 ADVANTAGES OF GOOD AUDIT
PLANNING
• It establishes the intended means of achieving the
objectives of the audit.
• It assists in the direction and control of the work.
• It helps to ensure that attention is devoted to
important areas of the audit.
• It helps to ensure that audit work is completed
expeditiously through more efficient use of time and
proper allocation of work to audit staff.
• Ensures proper division of work between interim and
final audit to avoid repetition of work already done.
• It encourages co-operation by ensuring less disruption
of client’s work.
 Understanding of the entity
• Previous experience with the entity and the industry;
• Discussion with people within the entity e.g. directors
and employees;
• Discussion with internal audit personnel and review of
internal audit reports;
• Discussion with other auditors and with legal and other
advisors who have provided services to the entity;
• Publications related to the industry e.g. journals;
• Visits to the entity’s place of business and plant
facilities
• Documents such as minutes of meetings, annual
financial reports, operations & systems manuals,
budgets, marketing and sales plans.
 Quality control policies and
procedures at individual audit
• Delegation
• Direction
• Supervision
• Review
– The work has been performed in accordance with the
audit program
– The work performed and the results obtained have been
adequately documented.
– All significant audit matters have been resolved or are
reflected in audit conclusions.
– The objectives of the audit procedures have been
achieved; and
– The conclusions expressed are consistent with the results
of the work performed and support the audit opinion.
 Audit recording-documentation
Recording refers to documentation in the form of working papers
prepared or obtained by the auditor and retained by him in
connection with the performance of his audit.
Why the need for preparing good working papers?
• The reporting partner needs to satisfy himself that work
delegated by him has been properly performed.
• Working papers provide details of problems encountered
together with evidence of work performed and conclusions
drawn there from in arriving at the conclusions reached.
• They encourages the auditor to adopt a methodical approach.
• They assist in the planning and performance of audits in future
financial periods.
• If sued for negligence working papers act as evidence of work
done.
• They are used for training of audit staff.
 The Permanent File
The permanent file usually contains documents and matters of
continuing importance, which are required for more than one financial
period. Information contained in a PAF include:

• Statutory material:.
• Rules and regulations of the enterprise. The Memorandum and
Articles of Association. For a partnership, a partnership agreement.
• Copies of documents of continuing importance and relevance to the
auditor.
• Letter of engagement and minutes of appointment of the auditor.
• Trade license.
• Debenture deeds.
• Leases.
• Guarantees and indemnities entered into.
• Addresses of the registered office and all other premises with a
short description of the work carried on at each.
• An organisation chart showing
 The Current File
This file will contain matters pertinent to the current year’s audit. It will
contain:
1. A copy of the accounts being audited signed by the directors.
2. An index to the file.
3. A description of the internal control system inform of questionnaires,
flowcharts or written documents together with specimen documents.
4. Audit programme.
5. A schedule of each item in the balance sheet. Each schedule should show:
•
Balance at the beginning of the year, changes during the year and balance at
the end of the year.
Details of its existence, ownership and appropriate disclosure have been
verified.
6. A schedule for each item in the profit and loss account showing its make up.
7. Check list for compliance with statutory disclosure requirements.
Accounting standards and auditing standards.
8. Record of queries raised during the audit and coming forward from previous
audit.
9. Schedule of important statistics e.g. output, net profit margin, gross profit
margin, sales composition, liquidity ratios.
A record or abstract from the minutes of:
 Other Working Papers
• Manuals: Most audit firms of any size have printed
audit manuals which complement internal instruction
given to staff. They contain general instructions on the
firm’s method of auditing in each area and on the audit
firm’s procedures generally.
• Audit notebooks. These were common at one time
but now most notes made by audit staff are
incorporated in the current or permanent files.
• Time sheets: These are not strictly a part of the audit
working papers but are of great importance in
controlling the work of audit staff and making proper
change to the clients.
• Audit control and review sheets. These again are
usually incorporated in the working files.
 Chapter 6 AUDIT EVIDENCE
• Audit evidence refers to the information obtained by
the auditor in arriving at the conclusions on which the
audit opinion on the financial statements is based.
• Audit evidence comprises source documents and
accounting records underlying the financial statements
and corroborating information from other sources.
• The sources and amount of evidence needed to
achieve the required level of assurance is determined
by the auditor’s judgment. His judgment will be
influenced by the materiality of the item being
examined, the relevance and reliability of evidence
available from each source and the time and cost
involved in obtaining it.
 METHODS OF OBTAINING EVIDENCE
The auditor may rely on sufficient appropriate
evidence obtained by substantive testing to
form his opinion. The auditor obtains evidence
in performing compliance and substantive
procedures using the following methods;
• Inspection
• Observation
• Inquiry and confirmation
• Computation
• Analytical procedures
 AUDIT SAMPLING
Definitions
• Sampling -Audit sampling involves the application of
substantive or compliance procedures to less than
100% of items within an account balance or class of
transactions to be enable the auditor obtain and
evaluate some characteristics of the balance and form
a conclusion concerning that characteristic.
• Population-This refers to the entire set of data from
which a sample is selected and about which the
auditor wishes to draw conclusions.
• Sampling risk-This arises from the possibility that the
auditor’s conclusion based on the tests performed on
the selected sample may be different from the
conclusion reached if the entire population was
subjected to the same procedure.
• Non sampling risk-Arises from factors that cause the
auditor to reach an erroneous conclusion for any reason
not related to the size of the sample e.g. use of
inappropriate audit procedures leading to failure to identify
an error.
• Tolerable error-Refers to the maximum error in the
population that the auditor is willing to accept and still
conclude that the results from the sample have achieved
the audit objective. Tolerable error is considered during the
planning stage and is related to the auditor’s judgment on
materiality. The smaller the tolerable error the larger the
sample size.
• Confidence level-Refers to the degree of confidence that
the auditor requires that the results of the sample are
indicative of the actual error in the population.
• Stratification-This is the process of dividing the population
into sub-populations so that items within each sub
population are expected to have similar characteristics in
certain aspects e.g. same monetary value.
 Why sampling approach?
• Economic - The cost in terms of expensive audit resources
would be prohibitive.
• Time - The complete check would take too long such that
financial accounts would be of no use by the time the audit
is completed.
• Practical - Users of accounts do not expect or require 100%
accuracy.
• Psychological - A complete check would be boring to the
audit staff and their work would end up being ineffective.
• Fruitfulness: A complete check would not add much to the
worth of figures if, as would be normal, a few errors are
discovered.
• The use of sampling with properly thought out objectives
and properly constructed tests allows more valid
conclusions to be reached than when as many transactions
as possible are tested.
 Stages in audit sampling
• Planning the sample
• Determination of the sample size
• Selecting the items to be tested
• Testing the items
• Evaluating the results of the tests
 Approaches to sampling

• The two main approaches that can be applied

in sampling:
– Judgmental sampling/non statistical sampling
– Statistical sampling/probabilistic
• Find out the advantages and disadvantages of each
 QUALITIES OF A GOOD SAMPLE.
• It should be random: A random sample is one
in which each item in the sample has an equal
chance of being selected.
• It should be representative: the sample
should be representative of the differing items
in the whole population.
• Protective: Protective of the auditor. More
intensive auditing should occur on high value
items known to be high risk.
• Unpredictable - client should not be able to
know which items will be examined.
Factors to consider whether or not to
sample
• Materiality: Expenditure such as motor vehicle
expenses may be so small that no conceivable error
may affect the true and fair view of the accounts as a
whole.
• The number of items in a population. If these are few
(for example land and buildings) 100% check may be
economical.
• Reliability of other forms of evidence: Analytical
review (e.g. wages relate closely to number of
employees, budgets, previous years) -Proof in total
(VAT calculations). If other evidence is very strong,
then a detailed check of population (100% of a sample
may be necessary).
• Cost and time consideration: Can be relevant in
choosing between evidence seeking methods
 Chapter 7
Computer based audits
Self Assignment
You have been asked by the KIM management to
audit its library operations. Assuming the library is a
revenue generating entity for the institute explain
1. How you can implement computerized auditing
system
2. Monitor the internal controls in computer
environment
3. Go through the questions in the notes provided
 Chapter 8 Audit tests
1. Substantive tests
• Compliance tests provide the auditor with indirect
evidence, the auditor therefore cannot on the strength of
compliance test alone reach a conclusion as to whether or
not a balance is fairly stated. The auditor therefore carries
out substantive testing to obtain more assurance on the
reported balances.
• Substantive tests are those tests balances and transactions
and other procedures such as analytical review, which seek
to provide audit evidence as to the completeness and
accuracy and validity of information contained in the
records and or the financial statements. Substantive tests
are those tests carried out by auditors to confirm the
assertions of the management i.e. existence, rights and
obligations, occurrence, completeness, valuation,
measurement and presentations and disclosure.