Methods of Work, and Instructions Before Commencing
Chapter Twenty-Four
Syllabus topic 2, "Audit Program – Meaning, Factors, Advantages and Disadvantages, Overcoming Disadvantages, Methods of Work, Instruction before commencing Work, Overall Audit Approach."
Pages 63 to 64 of 98
Methods of work
Four decisions have to be made about how the work is actually carried out.
One: how the work is divided
| Basis | What it means | Suits |
|---|---|---|
| By area or account head | One assistant takes cash, another debtors, another stock | Most audits |
| By period | One assistant takes the first six months, another the second | Continuous audits, and vouching of high-volume transactions |
| By branch or unit | One assistant to each location | A company with branches |
| By process | One assistant follows the purchase cycle from order to payment | Systems-based audits |
Two: rotation
The same assistant should not audit the same area year after year.
| Why | |
|---|---|
| A fresh eye sees what a familiar one stops noticing | |
| Familiarity with the client's staff weakens independence | |
| A fraud built around what the auditor is known to check survives repetition and not rotation | |
| Rotation trains the staff across areas |
Rotation of the auditor himself is statutory for prescribed classes of company, under section 139(2): an individual auditor for one term of five consecutive years, an audit firm for two terms of five, and a cooling-off period of five years. The principle is the same at both levels and the section is worth citing.
Three: surprise
Some procedures lose their value if their date is known. Cash counts, stock counts at a branch, and verification of investments in hand are done unannounced wherever the arrangement permits.
Four: supervision and review
| Level | Responsibility |
|---|---|
| Assistant | Performs the procedure and records the result |
| Senior | Directs the assistants, answers queries, and reviews their working papers |
| Manager | Reviews the senior's work and the significant judgments |
| Partner | Reviews the whole, forms the opinion, and signs |
Review is what makes delegation safe, and it is the fourth principle of audit: work may be delegated, responsibility may not.
Instructions before commencing work
Before the staff go to the client, they are told the following. MU asks for this list.
| Instruction | |
|---|---|
| 1 | The nature of the client's business, so that they understand what they are looking at |
| 2 | The scope of the audit and the period it covers |
| 3 | The audit programme, and the purpose of the procedures in it, not only their wording |
| 4 | The areas of special risk identified in planning |
| 5 | The materiality threshold to be applied |
| 6 | How to record the work: the working paper format, the referencing, the audit ticks |
| 7 | The timetable, and the date by which each part must be finished |
| 8 | Whom to report to at the client and within the firm |
| 9 | That any unusual matter is to be reported at once, whether or not the programme asks about it |
| 10 | Conduct at the client's premises: confidentiality, courtesy, and the rule that nothing is discussed outside the firm |
| 11 | That no figure checked is to be altered by the client's staff without the auditor's knowledge, in a continuous audit |
| 12 | The list of schedules the client has agreed to prepare, and what to do if they are not ready |
The rest of this chapter
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The rest of this subject
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