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Audit Procedures : Introduction : Audits can take many forms, but they generally follow time-tested accounting practices. At the onset, auditors look at a company's records to identify problem areas where a potential exists for material misstatements of the financial statements. The auditors test management's assertions by using a number of auditing procedures. The purpose of an audit is to provide an independent opinion about the accuracy and fairness of a company's financial statements, processes and procedures. It confirms that records are prepared in accordance with proper accounting procedures, such as generally accepted accounting principles, and reports any exceptions. An objective analysis of the financial statements enables management, investors, creditors and lenders to have more confidence in the truthfulness and reliability of the company's reports. The end result is to give an unbiased opinion as to the validity of the company's financial statements and to provide reasonable assurance that the financial statements do not contain any material misstatements. Meaning of Audit Procedure : Audit procedures are the processes, techniques, and methods that auditors perform to obtain audit evidence which enables them to make a conclusion on the set audit objective and express their opinion. Sometimes we call audit procedures audit programs. These two terms are referring to the same thing. Auditors normally prepare audit procedures at the planning stages once they identified audit objectives, audit scope, audit approach, and audit risks. Auditors design audit procedures to detect all kinds of risks that they identified and ensuring that the required audit evidence is obtained sufficiently and appropriately. Normally, audit partners need to approve on audit plan and audit procedures before the audit team could perform their testing. This is to make sure that all concerns or risks are address in the procedures. Audit procedures might be different from client to client, and period to period. This is because internal control over financial reporting is different from one client to another and the control might be change from time to time. The auditor might need to update audit procedures from time to time event thought current financial statements had been audited by its firm or team.

Types of Audit Procedure : Typically, there are five audit procedures that normally use by auditors to obtain audit evidence. Those five audit procedures include Analytical review, inquiry, observation, inspection, and recalculation. 1) Analytical Review: Analytical review is not the procedure that uses to obtain audit evidence, but it is the procedure used to assess the unusual transactions or events as the principle or basic to perform other procedures. For example, when auditor found there is unusual transactions or event as the result of using analytical review, then the auditor will use other procedures that are applicable to obtain evidence. The analytical procedure could be used for the types of transactions or events that occur regularly or have a connection with others' transactions or events. For example, we can use the analytical procedure to assess the reasonableness of depreciation that records in the financial statements. The main reason is that depreciation expenses are calculated systematically and occur regularly. 2) Inquiry: Auditors inquire accountant and related management to gather information and obtain an explanation on the mater that found by auditors. Sometimes auditors inquire about management about the business process and the ways how financial transactions are recording as well as the major control on business transactions. The inquiry is also one of the most important audit procedures and it could be used in different stages. For example, the auditor might inquire management at the planning stage and the auditor could also inquire management to confirm the consignment liabilities at the end of the audit work. Audit inquiry is sometimes used by the auditor to obtain the audit evidence and sometimes is used to obtain an understanding of some nature of business or accounting transactions in order to gain enough knowledge to design and perform testing. However, information from inquiry sometimes hard to be used as audit evidence. The audit evidence that you found as the result of your testing after an inquiry is strong to be used as audit evidence rather than information from the inquiry itself.

3) Observation: Observation is one of the audit procedures that auditors use to obtain an understanding and gather audit evidence mainly to the real process or the ways how clients have done some specific business process. This kind of audit procedure is mainly to confirm the process that the client told, physical confirmation, or some time used to obtain audit evidence in order to make their own projection which will be used for comparison with the client figure. For example, auditor joins client stock take at the year-end and observe whether the way that they count are in the correct procedures or not. In this procedure, the audit is not confirmed whether the client counts their inventories correct or not, but it confirms whether the client counting procedure is correct or not is one thing. Another thing is the auditor tries to confirm whether the counting has really existed. However, in practice, sometimes the auditor is not only observed how the client counts but they also jointly perform counting inventories. Sometimes auditors using observation are not only for observing in counting fixed assets or inventories but also using to test the reasonableness of revenue. For example, the auditor performs the reasonableness testing of revenue recording in the restaurant, and based on the accounting record fact check with their understanding, the revenue seems not completely records. In this case, the auditor might perform one week or two weeks observe in the restaurant and then make their own estimate of whether or not the revenue is reasonable. 4) Inspection: Inspection refers to verification or vouching documents. This is one of the most important and it can be 60% of audit work involve with the inspection of documents. For example, the auditor examines the sales invoices that record in financial reports. The auditor might examine whether the invoice issued by the client is really based on the goods that receive. And the goods that received is actually the one the company makes an order. The auditor might also examine the payment voucher against the authority that approves the payment vouchers. The auditor might also inspect the supporting documents recording the inventory's movement during the year. This is including the documents related to purchasing raw material.

5) Recalculation: Recalculation is the type of audit procedure that normally done by re-performing the works performed by the client in the purpose of assessing if there any difference between the audit's work and the client's work. For example, the auditor might re-perform depreciation calculation and assess if there any difference between auditor calculation and its client's calculation. The auditor might also perform the recalculation on monthly salary expenses that prepare by the payroll and finance department to ensure that the net salaries that paid to the employee are correct. Recalculation is the procedure that use to confirm the accuracy of transaction that involves calculation. Goals and Objectives of an Audit Procedure: The primary objectives of an audit are as follows: Investigate the accuracy of internal controls. Verify the mathematical correctness of accounts and balances. Validate the authenticity of transactions. Assure the proper classification of capital and revenues. Check the existence and valuation of assets and liabilities. Confirm that the company is in compliance with all rules and regulations. Secondary objectives of an audit are the following: Examine and create systems to prevent errors. These include errors of omission, deliberate errors and errors in application of accounting principles. Focus on ways to detect and prevent fraud. Construct systems to deter theft of cash or goods and falsifications of accounts. Determine over- or under-valuation of stock. Provide correct information to tax authorities.

The goal of any audit is to decide whether a company's financial statements fairly represent its finances and cash flows. However, there are lots of smaller objectives under that big umbrella. Different procedures accomplish different goals: Classification testing. These procedures test whether transactions were written up properly in the ledgers. Completeness testing. Auditors study records to see whether they're complete to determine if some transactions were left out. Cutoff testing. This test looks at whether transactions were recorded in the correct period. Shifting a purchase from one month to the next, for example, makes the first month's net income look better than it really was. Occurrence testing. Audits determine whether transactions actually occurred by going over sales ledgers and supporting documents. Existence testing. This procedure checks that assets on the books, such as inventory, exist. Rights and obligations testing. This test determines whether the business owns all the assets it claims. Valuation testing. Valuation testing determines whether the accounts set the right value for assets and liabilities, Conclusion : Every auditor has one objective in common - collecting enough evidence to justify a conclusion E no matter what type of business and issues the auditor is working with. The procedures that auditors use must turn up "sufficient and appropriate evidence" to back up their audit results. "Sufficient" depends on circumstances. If the evidence is good quality, the auditor doesn't need much. The measure of quality is whether the evidence is reliable and relevant. For example: Evidence the auditor collects directly is more reliable than indirectly gathered evidence. Original documents are better than photocopies or digital versions. Evidence from independent sources is better than internal company sources. Internal evidence is more reliable when the company's controls over that information are effective. The relevance of evidence depends on how it relates to the objective of the audit.