PAPER NO. 12 PRINCIPLES OF AUDITING
UNIT DESCRIPTION
This unit covers the competencies required to perform auditing functions in an organisation. Competencies include: applying auditing concepts in the conduct of an audit, planning for an audit, managing the various risks, errors and frauds that an organisation might face, testing the internal control systems of an organisation, gathering audit evidence, applying computer assisted audit techniques to carry out an audit and demonstration of understanding of the audit report.
LEARNING OUTCOMES
• Identify foundational concepts in audit
• Plan for an audit
• Detect risks, errors and frauds in an organisation
• Gather audit evidence
• Apply Computer Assisted Audit Techniques to carry out an audit
• Demonstrate understanding of the audit report
CONTENT:
1. Identify foundational concepts in audit
1.1 Definition of key terms:
1.1.1 Auditing
1.1.2 Auditor
1.1.3 An audit
1.2 The principles and processes of an audit
1.2.1 Integrity, Objectivity and independence
1.2.2 Confidentiality
1.2.3 Skills and competence
1.2.4 Work performed by others
1.2.5 Documentation
1.2.6 Planning
1.2.7 Audit evidence
1.2.8 Accounting system and internal control
1.2.9 Audit conclusions and reporting
1.3 Differences between auditing and accounting
1.4 The types and timing of audits
1.4.1 Internal audit
1.4.2 External audit
1.4.3 Interim audit
1.4.4 Final audit
1.5 Benefits and limitations of an audit
1.6 The users of audited financial statements and auditor reports External users
1.6.1 Creditors
1.6.2 Investors
1.6.3 Government
1.6.4 Trading partners
1.6.5 Regulatory agencies
1.6.6 International standardisation agencies
1.6.7 Journalists Internal users
1.6.8 Owners
1.6.9 Directors
1.6.10 Managers
1.6.11 Employees
1.7 Legal and professional requirements
1.7.1 Appointment of an auditor according to Companies Act
1.7.2 Appointment of an auditor through the tendering process
1.7.3 Qualifications of an auditor
1.7.4 Duties, obligations and rights of an auditor
1.7.5 Dismissal of a company auditor
1.7.6 Professional ethics
1.7.7 Auditing standards and guidelines
1.7.8 Outsourcing of the audit function by Auditor General
2. Plan for an audit
2.1 Audit planning strategy:
2.1.1 Knowledge of the client’s business
2.1.2 Degree of reliance on internal controls
2.1.3 Nature, timing and extent of the work to be performed
2.2 Objectives of audit planning
2.3 Development of an overall audit plan
2.4 Development of audit programmes
2.5 Limitations of audit plans
2.6 International Standards on Auditing (ISA) on Audit planning
3. Detect risks, errors and frauds in an organisation
3.1 Audit risk
3.1.1 Definition and concept of audit risk
3.1.2 Components of audit risks
3.1.2.1 Inherent risks
3.1.2.2 Control risks
3.1.2.3 Detection risks
3.2 Internal control system
3.2.1 Definition of:
3.2.1.1 Internal controls
3.2.1.2 Internal control systems
3.2.2 Purpose of internal control system
3.2.3 Benefits and limitations of internal control system
3.2.4 Specific controls on:
3.2.4.1 Purchases
3.2.4.2 Sales
3.2.4.3 Inventory
3.2.4.4 Cash
3.2.4.5 Procurement
3.2.4.6 Non-current Assets
3.2.5 Internal controls and the computerised information system environment
3.3 Errors and fraud
3.3.1 Definition of:
3.3.1.1 Errors
3.3.1.2 Frauds
3.4 Differences between error and fraud
3.5 Types of errors and frauds
3.6 Causes of errors and frauds
3.7 International Standards on
3.8 Auditing on error and fraud
4. Gather audit evidence
4.1 Definition of audit evidence
4.2 Nature and source of audit evidence
4.3 Types of audit evidence
4.3.1 External evidence
4.3.2 Internal evidence
4.4 Reliability of audit evidence
4.5 Methods of collecting audit evidence
4.6 Reliance on the work of an internal auditor
4.7 Audit working papers
4.7.1 Definition of working papers
4.7.2 Contents of audit working papers (excluding their preparation)
4.7.3 Permanent file
4.7.4 Current file
4.7.5 Audit note book
4.7.6 Importance of working papers
4.8 Substantive tests
4.9 Analytical tests
4.10 International Standards on Auditing on audit evidence
5. Apply Computer Assisted Audit Techniques to carry out an audit
5.1 Computer Assisted Audit Techniques (CAATs) key terms:
5.2 Test data
5.3 Audit software
5.4 Benefits and limitations of using CAATs
5.5 Factors to be considered in using CAATs
5.6 Methodology for using CAATs
5.7 Tests performed using CAATs
6. Demonstrate understanding of the audit report
6.1 Purpose of the auditor’s report
6.2 Legal provisions on auditor’s report
6.3 Basic elements of the auditor’s report
6.4 Format of an audit report
6.5 Key audit matters
6.6 Written representations
6.7 Forms of audit opinion
6.7.1 Qualified opinion
6.7.2 Unqualified opinion
Suggested Methods of Delivery
• Presentations and practical demonstrations by trainer;
• Guided learner activities and research to develop underpinning knowledge;
• Group discussions
The delivery may also be supplemented and enhanced by the following, if the opportunity allows:
• Visiting lecturer/trainer/practitioner from the auditing sector;
• Industrial visits.
Recommended Resources Tools
• Computers
• Calculators
• Auditing software
• E-mail
• Stationery
• Internet
• International Standards on Auditing (ISA)
Materials and supplies
• Digital and online instructional material
Sample Reading and Reference materials
1. Kumar, R., & Sharma, V. (2004). Fundamentals of Practical Auditing. New Delhi: Prentice Hall India.
2. Millichamp, A., & Taylor, J. (2018). Auditing (11th edition). Cengage Learning EMEA.
3. Johnstone-Zehms, K. M., Gramling, A. A., & Rittenberg, L. E. (2018). Auditing: A Risk-Based Approach to Conducting Quality Audits. Australia: South-Western / Cengage Learning.
4. Whittington, R., & Pany, K. (2021). Principles of Auditing & Other Assurance Services (21st edition). New York: McGraw-Hill Education.
5. Arens, A., Elder, R., Beasley, M., & Hogan, C. (2016). Auditing and Assurance Services (16th edition). Boston: Pearson.
6. Kasneb e-learning resources (link on the Kasneb website).
7. Kasneb approved study packs.