Summary AUI3702- NOTES.

-omitting long-term liabilities -understating /omitting provisions /allowance -omitting or inadequately disclosing contingent liabilities Overstating assets -creating unjustified reserves with a corresponding increase in fixed assets -overstating propery ,plant and equip by inclu fictious assets -ovestating fixed assets by understating depreciation -overstating investments in listed and /or private companies NB.. Understand diff business cycles and know the risks and controls of each cycle STUDY UNIT3.2 INTERNAL CONTROL IN INFO SYSTEMS SIX COMPONENTS OF IT -computer hardware -networks -computer software -databases -information and people CONTINUOS AUDITING INVOLVES 3 TYPES OF ASSESSMENTS -continuous controls assessment -continuous risk assessment -assessment of continuous monitoring AUI3702- NOTES. TOPIC 4, TOPIC 5, TOPIC 6, TOPIC 7 Assertions are categorised as follows :  assertions about classes of transactions and eventsfor period under audit e.g. sales, interest received  assertions about account balances at year-end e.g. accounts receivable, property, plant and equipment  assertions about presentation and disclosure e.g. notes that support Statement of Financial Position accounSheadings, contingent liabilities Assertions for Statement of Financial Position transactions and balances : Assertion Audit objective - to obtain satisfactionthat : Completeness individual transactions and balances in respect of specific kind of asset or liability are fully accounted for in the accounting records and financials Valuation & allocation the balance for the specific asset or liability has been accounted for at the appropriate carrying value and that the transactions have been correctly allocated to the proper period and recorded at the proper amount Existence at a given date the asset or liability did exist and the transactions did take place during the period in question Rights & obligations at a given date the asset or liability pertains to the entity and that the transactions did take place during the period in question Presentation & disclosure the asset or liability was disclosed, classified and described in accordance with the applicable legal requirements and generally accepted accounting practice Assertions for Statement of Comprehensive Income transactions and balances : Assertion Audit objective - to obtain satisfactionthatthe specific revenue or expenditure : Completeness transactions and balances are fully accounted for in the accounting records and financial statements Occurrence  transactions actually took place during the period in question (occurrence)  transactions pertain to the entity (validity) Cut-off / accuracy / classification transactions are recorded in the proper period, are correctly allocated and are recorded at the proper amount Presentation & disclosure balances are disclosed, classified and described in accordance with the applicable legal requirements and generally accepted accounting practice (ISA’s & 4th schedule) Transactions and events : Occurrence – have all occurred and pertain to the entity Completeness – anything that should have been recorded has been recorded Accuracy - have been recorded appropriately Cut-off - have been recorded in the correct accounting period Classification - have been recorded in the correct accounts Account balances : Existence – assets, liabilities and equity interest exist Rights and obligations – entity holds and controls rights to assets and obligations are theirs Completeness – have all been recorded Valuation and allocation – included at appropriate amounts and valuation or allocation adjustments are recorded Presentation &disclosure : Occurrence and rights and obligations – have occurred and pertain to entity Completeness – all has been included Classification & understandability – is appropriately presented and described and disclosures are clearly expressed Accuracy and valuation – disclosed fairly & at appropriate amounts. Procedures used by auditor to obtain audit evidence Audit Procedures consists of : -tests of controls -substantive procedures When answering tests of controls and substantive procedures, your answer must have 3 parts which are: :HOW?? :WHAT?? :WHY?? For example : how – audit procedure e.g inspect : what – source document e.g delivery note. : why – Customer signature. Please note in auditing we use auditing terms only, we do not use words like ask ,see , check ,look For example to ask we use – Inquire to see we use - observe to check we – inspect -if a question is asking you to put tests of controls you must stick to test of controls. -if a question ask for substantive procedures you stick to substantive procedures -if a question ask for audit procedures, which is the most case in this module, we put both tests of controls and substantive procedures. Tests of controls only consists of- inspect , observe , inquire , re-perform - Analysis of objectives Procedures of auditor Completeness : All transactions were recorded at the time when they took place All transactions have been reported in the accounting records -inspect date on the supporting documentation - inspect sequential numbering of transactions Occurrence : Transactions reordered in records did actually take place Transactions recorded in the accounting records pertain to the entity - investigate existence of valid documents - compare entries in accounting records with supporting documents - inspect that transactions have been authorized (signature) - inspect supporting document to ensure that entity was party inthe transaction Existence : Assets and liabilities did actually exist on given date - perform physical inspection of assets and compare it with the accounting record - examine supporting documentation - obtain supporting evidence from 3rd parties Accuracy / cut-off / classification : All transactions have been recorded at the proper amount - compare the amount from supporting documents with the amount in the accounting records All transactions have been correctly allocated All transactions have been recorded in the correct financial period - compare the allocation with the particulars in the supporting documents - compare the date of the transaction with the date on the supporting documentation Valuation : Assets and liabilities have been recorded at an appropriate carrying value Assess value by physical inspection Assess the reasonable of the amounts claimed for reduction / increase or write-off of assets - obtain external valuation or confirmation from 3rd parties - compare value by referring to supporting documentation Rights and obligations : Assets and liabilities pertain to the entity at a given date - examine supporting documentation - obtain evidence from 3rd parties in support of rights or obligations - obtain sufficient information to make sure that the state of affairs was applicable at given date Presentation and disclosure : Items in financials have been correctly disclosed, classified and described - examine financials and obtain satisfaction that there has been proper disclosure, classification and description in terms of the Companie