Advantages and Disadvantages of An Audit
Advantages and Disadvantages of An Audit
Advantages and Disadvantages of An Audit
Advantages
Application for loans is easier
Major changes in ownership are easier
Advice is free
Disputes between directors can be resolved
Disadvantages
Disruption to client
Cost
Ethics
Fundamental principle (OPTIC)
Objectivity
Professional behavior
Technical competence
Integrity
Confidentiality
Planning
1. Asses Risk
Analytical procedures
Knowledge of business
Audit risk
2 Audit strategy
a) Risk based b) Procedural based
3 Audit plan
Materiality and tolerate error
Analytical procedures
Risk Audit (IR*Cr*Dr)
Knowledge of business
Staff
Audit approach
Timing
Internal Control
Objective of company
Maximize profit +
Accurate accounting records
Safe guards the assets of company
Prevent fraud and error
Internal policies followed
Efficient running of company
Control System
a) Control environment b) Control
procedures
General Specific
Overall approach to controls Authorization
Management by example Computer controls
Attitude Comparisons
Awareness Arithmetic/adding
Action Maintain a trail balance
Good Recruitment Accounting reconciliation
Entry e.g. sage Physical Controls
Segregation of duties
General Test: (AEIOU) General test for any balance in B/S or P&L
Analytical procedures
Enquiring
Inspection
Observation
U > Re -Calculation
+
Confirmation
Re performance
Receivables: (3C’s)
Circulation
Cash paid after the year end
Cut off
Going Concern
The auditor needs to make sure that the right basis has been used. If not, the opinion in the audit
report may be incorrect
Letter of representation
Written confirmation from the directors to the auditors confirming certain matters