Compliance with work execution standards
The auditor is obliged to carry out his work with care and diligence, there are certain elements that, due to their importance, must be met.
audit-submission-proceduresThese basic elements are the ones that constitute the so-called work execution standards:
- Planning and supervision Study and evaluation of internal control Obtaining sufficient and competent evidence.
Work execution standards
• Planning and supervision: The audit work must be properly planned and, if assistants are used, they must be properly supervised.
• Study and evaluation of internal control: The auditor must carry out an adequate study and evaluation of the existing internal control, which will serve as a basis for determining the degree of confidence that he is going to place in it; likewise, which allows it to determine the nature, extent and timing of the audit procedures.
• Obtaining sufficient and competent evidence: Through her audit procedures, the auditor should obtain sufficient and competent evidential matter to the extent required to provide an objective basis for her opinion.
Audit procedures of general application
Audit procedures: They are the set of investigation techniques applicable to an item or to a group of facts and circumstances related to the financial statements subject to examination, through which the public accountant obtains the bases to support his opinion.
Aspects to consider:
• Nature.
• Extension or scope.
• Opportunity.
Nature, extent and timing of the audit procedures
• Nature: Decide which audit technique or procedure or a set of them will be applicable in each case (since all entities are different).
• Extension or scope: The ratio of the transactions examined (selective tests) with respect to the total that make up the universe.
• Timing: The time when the audit procedures are to be applied (Some audit procedures are most useful and best applied at a date before or after the date of the audited financial statements).
Audit procedures vs. Audit
techniques Audit techniques
These are the practical methods of investigation and proof that the public accountant uses to verify the reasonableness of the financial information that allows him to express his professional opinion.
1. General study. Appreciation of the general characteristics of the company, its financial statements and important items and items (reading the writing of the accounting entries can account for the fundamental characteristics of a balance).
2. Analysis. Classification and grouping of the accounts, in such a way that they constitute homogeneous and significant units.
- Balance analysis: The movements in the accounts are compensations of each other (balance sheet). Movement analysis: The balances of the accounts are formed by accumulation (income statement).
Balance analysis vs. motion analysis
Audit techniques
3. Inspection. Physical examination of material goods or documents.
4. Confirmation. Obtaining a written communication from a person independent from the company examined and who is able to know the nature and conditions of the operation. The confirmation can be positive, negative, blind or blank.
- Positive confirmation. Data is sent and they are asked to answer, whether they are satisfied or not. It is used preferably for the asset.
- Negative confirmation. Data is sent and requested only if they are dissatisfied. It is generally used for the asset.
- Indirect, blind or blank confirmation. No data is sent and information on balances, movements or any other information necessary for the audit is requested. It is generally used for liabilities.
Audit techniques
5. Investigation. Obtaining information, data and comments from officials and employees of the company itself.
6. Declaration. Written statement with the signature of the interested parties, of the result of the investigations carried out with the officials and employees of the company.
7. Certification. Obtaining a document in which the truth of a fact is assured, generally legalized, with the signature of an authority
8. Observation. Physical presence of how certain operations or events are carried out.
9. Calculation. Mathematical verification of some game.
Confirmations
Bulletin 3060 "Relevance and Reliability of Audit Evidence" mentions:
- The reliability of audit evidence is increased when it is obtained from recognized independent sources outside the entity Audit evidence obtained directly by the auditor is more reliable than audit evidence obtained indirectly or by inference Audit evidence in Documentary form, whether on paper, electronic device or other means, is more reliable than that obtained verbally.
Bulletin 3200 External Confirmations p7. When the auditor uses external confirmation procedures, he must maintain control over external confirmation requests…
1. Auditor provides format and samples for confirmation.
2. Audited company delivers confirmations on letterhead and with authorized signature.
3. Auditor sends confirmations to clients and providers.
4. Selected clients and suppliers reply directly to the auditor.
Bulletin 3200 External Confirmations
A4. Factors to consider when designing confirmation requests:
The assertions that are confirmed (Existence, Rights and obligations, integrity, valuation and accommodation).
The method of communication (paper or electronic medium).
The confirming party's ability to confirm (for example individual invoice amount vs. total balance).
3200 Electronic confirmations
A12. Responses received electronically, for example by facsimile or email, involve reliability risks because it can be difficult to establish proof of the origin and authority of the respondent, and alterations can be difficult to detect. These risks can be mitigated with a process used by the auditor and the respondent to create a secure environment for responses received electronically… An electronic confirmation process could incorporate various techniques to validate the identity of a sender of information electronically, for example, through the use of encryption, electronic digital signatures, and procedures to verify the authenticity of the website.
3200 Positive confirmations
TO 5. A positive external confirmation request… There is a risk that a confirming party may reply to the confirmation request without verifying that the information is correct. The auditor can reduce this risk by using positive confirmation requests that do not include the amount (or other information) in the confirmation request, and asking the confirming party to record the amount or to provide other information. On the other hand, the use of this type of “blank” confirmation request can result in lower response rates, because additional effort is required from the confirming parties.
A7. The auditor may send an additional request for confirmation when a response to a previous request has not been received within a reasonable time.
3200 Negative confirmations
Q15. Negative confirmations provide less persuasive audit evidence than positive confirmations.
Accordingly, the auditor should not use negative confirmation requests as the only substantive audit procedure to respond to a significant risk assessed at the assertion level, unless all of the following factors are present: a) The auditor has assessed the significant and low risk and has obtained sufficient adequate audit evidence regarding the operating effectiveness of the controls relevant to the assertion;
b) The universe of items subject to negative confirmation procedures, comprises a large number of account balances or small and homogeneous transactions;
c) A low rate of exceptions is expected; and
d) The auditor is not aware of circumstances or conditions that cause recipients of negative confirmation requests to dismiss those requests.
3200 Negative confirmations
A23. Failure to receive a response to a negative confirmation request does not explicitly indicate the receipt by the presumed confirming party of the confirmation request or verification of the accuracy of the information contained in the request… It may also be more likely that the confirming parties will respond indicating your disagreement with a confirmation request when the information in the request is not in your favor, and less likely to respond if it is otherwise.
3200 Acknowledgments without response p12. In the case of each unanswered confirmation, the auditor should perform supplemental audit procedures to obtain adequate and reliable audit evidence.
A18. Examples of supplemental audit procedures that the auditor may perform include:
For accounts receivable balances- Examine subsequent cash inflows, shipping documentation, and sales near the end of the period.
For accounts payable balances - Examine subsequent cash outlays or third party correspondence, and other records, such as merchandise notes received.
3200 Exceptions in commits p14. The auditor should investigate exceptions to determine whether or not they are indicators of errors.
A21. Exceptions observed in responses to confirmation requests may indicate significant errors, or potential errors, in the financial statements. When a misstatement is identified, Bulletin 3070 requires the auditor to evaluate whether the misstatement is indicative of fraud. Exceptions can provide a guide to the quality of responses from similar confirming parties or similar accounts. Exceptions may also indicate a deficiency, or deficiencies, in the entity's internal control over financial reporting.
A22. Some exceptions do not mean significant errors. For example, the auditor may conclude that differences in responses to confirmation requests are due to timing, measurement, or errors in external confirmation procedures.
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