Audit Tech Omar Mustafa

8/3/2019 Audit Tech Omar Mustafa

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AUDIT WORKING PAPERSAUDIT WORKING PAPERS

REVIEW TECHNIQUESREVIEW TECHNIQUESSMP WORKSHOP

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN12 January 2010

By: Omar Mustafa Ansari & Khurram Jameel(Ernst & Young Ford Rhodes Sidat Hyder

Chartered Accountants)


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CONTENTSCONTENTS

Slide No.WHY REVIEW? 3

REVIEW PROCESS 6

REVIEW OF FINANCIAL STATEMENTS 13

REVIEW OF WORKING PAPERS 26

DETAILED REVIEW 28

PARTNER / PRINCIPAL REVIEW 36

SPECIALIST REVIEW 46

INDEPENDENT QUALITY REVIEW 48

A FEW THINGS TO REMEMBER 52

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Presentation By: Omar Mustafa Ansari & Khurram JameelPresentation By: Omar Mustafa Ansari & Khurram Jameel

Presentation By: Omar Mustafa Ansari & Khurram Jameel


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WHY REVIEW?WHY REVIEW?

ISA 200 Objectives and General Principles Governingan Audit of Financial Statements states theobjectives of an audit of financial statements as Toenable the auditor to express an opinion on the

financial statements

ISA 500 Audit Evidence requires that the auditorshould obtain sufficient appropriate audit evidence tobe able to draw reasonable conclusion on which tobase the audit opinion.

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WHY REVIEW?WHY REVIEW?

Hence, it is important that before the issuance ofauditors report, the engagement partner / principle(as he is responsible for the overall conduct andquality of each audit engagement), through review of

the audit documentation and discussion with theengagement team, is satisfied that sufficientappropriate audit evidence has been obtained tosupport the conclusions reached.



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WHAT A REVIEWER HAS TO CHECK?WHAT A REVIEWER HAS TO CHECK?

The work has been performed in accordance withprofessional standards and regulatory and legalrequirements and the agreed / standard scope.

Appropriate consultations have taken place and the

resulting conclusion has been documented andimplemented.

The work performed supports the conclusionsreached.

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Presentation By: Omar Mustafa Ansari & Khurram JameelPresentation By: Omar Mustafa Ansari & Khurram JameelPresentation By: Omar Mustafa Ansari & Khurram JameelPresentation By: Omar Mustafa Ansari & Khurram Jameel


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WHAT A REVIEWER HAS TO CHECK?WHAT A REVIEWER HAS TO CHECK?

There is no need to revise the nature, timing andextent of work performed and if there is; necessarychanges are made accordingly.

The evidence obtained is sufficient and appropriate to

support the auditors report. All standard procedures have been performed and

documented before the issuance of the auditorsreport.

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IF IT IS NOT DOCUMENTED;IT IS NOT DONE!

In audit you can

never prove anything tohave been done unlessyou document it

How to document attach supports, use

work programs andthen sign them off,write work done andtick marks etc.

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TIMING OF REVIEWTIMING OF REVIEW

There is a misconception that review can only beperformed at the end of audit or at the culmination ofaudit.

Review is an on going process and should be done

throughout the audit during the following phases: Planning

Testing of controls / Compliance testing

Substantive testing Conclusion and reporting

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EXTENT OF REVIEWEXTENT OF REVIEW/ DEPTH REQUIRED!/ DEPTH REQUIRED!

Depth of Review(Time Required) vs.Level of Staff

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REVIEW PROCESSREVIEW PROCESS1212



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IS REVIEW OF FINANCIALIS REVIEW OF FINANCIAL

STATEMENTS, AUDITORSSTATEMENTS, AUDITORS

RESPONSIBILITY?RESPONSIBILITY?

The management of the Company is responsible forthe preparation of financial statements. However,since the auditor has to report on the same, he stillhas to perform a detailed review of the same, e.g. he

should ensure that: the financial statements comply with the applicablefinancial reporting framework;

these are comparable within industry;



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IS REVIEW OF FINANCIALIS REVIEW OF FINANCIAL

STATEMENTS, AUDITORSSTATEMENTS, AUDITORS

RESPONSIBILITY?RESPONSIBILITY?

all the relevant disclosures have been adequatelymade and drafted;

financial statements are in accordance with thebooks of account company law report format;

financial statements are free from errors, includingclerical and arithmetical errors.



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WHAT TO REVIEW IN THE FINANCIALWHAT TO REVIEW IN THE FINANCIAL

STATEMENTS?STATEMENTS?

Ensure that theCompanies Ordinance1984 and InternationalFinancial ReportingStandardsrequirements anddisclosures have beencomplied with(preferably use

Financial StatementsDisclosures Checklistissued by the ICAP)

Ensure that if thecompany is subject toany other ordinance orregulations, disclosuresrequired by these havealso been included inthe financial statementse.g. companiesincluding banking

companies, NBFCs,Insurance companies,etc..



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USE OF DISCLOSURE CHECKLISTSUSE OF DISCLOSURE CHECKLISTS

Preferably there shouldbe checklists for thesame e.g. FSDCL.

Dont leave it on your

staff ask them to fill,but always review ityourself.

Ask your staff to refer it

with the financialstatements set. It willhelp you in review.



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FINANCIAL STATEMENTS & THEIRFINANCIAL STATEMENTS & THEIR

LINKAGE WITH WORKING PAPERSLINKAGE WITH WORKING PAPERS

Always check that there is a complete referenced setof financial statements available in file, which isreferenced and linked with both the working papersand final adjusted trial balance along with additional

internal referencing. Check that such set is appropriately casted and

referenced. Recheck referencing and recheck castingon a test basis if you are not doing that it means

that your reputation is in the hand of someinexperienced guys.



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Ensure that financialstatements comprise ofa complete set ofstatements as

prescribed by IFRS, orby relevant statute.

Ensure that financialstatements comprise ofa complete set ofstatements as

prescribed by IFRS, orby relevant statute.

Ensure that propernotes to the financial

statements have beenprovided.



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Ensure that correct period covered by the accountsappear on the balance sheet, profit and loss account,statement of changes in equity, cash flow statementand notes to the financial statements.

Check cross referencing of the major figures toworking paper file Dont forget the small onesaltogether otherwise, your staff will always forgetthem Check them on a test basis also.



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REVIEW OF FINANCIAL STATEMENTSREVIEW OF FINANCIAL STATEMENTS

Check internal cross reference between variousfigures in financial statements i.e. between variousstatements and notes.

Examples include: Number of shares in notes, face of BS and asappearing in EPS disclosure;

Cash and cash equivalents in notes, BS and CF; Reserves and Unappropriated / accumulated

balance of profit / loss between BS and SCE; Profit before tax in PL and CF; Depreciation in CF and notes.



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Ensure that last years figures appearing in thefinancial statements are traced by the staff from lastyears signed financial statements. Check on a testbasis, particularly to identify instances where they

have been rearranged to ensure proper treatmentand disclosure.

Ensure that wherever last years figures have beenrearranged, the following have been disclosed in the

notes to the financial statements : Nature

Amount

Reason



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Ensure that accounting policies for all major areas aredefined.

Ensure that earnings per share figure of prior yearis adjusted in case of change in number of ordinary

shares outstanding without a corresponding changein resources. Examples are:

Stock dividend (bonus issue)

Right issue



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Specifically check the notes and disclosures requiringtechnical expertise and judgment capability forappropriate disclosures.

Examples include the notes relating to financial

instruments as to whether an item is financialinstrument or not e.g. deferred tax, prepayments andintangible assets.

Similarly, check the notes requiring complex

computations e.g. EPS and income tax reconciliation.



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Match financial instruments disclosures with eachother, and with relevant notes, and get them referredwith working papers.

Check non-monetary disclosures and ensure thatthese are referred with the working papers.

Check related party and other related disclosures e.g.remuneration of key executives and refer withworking papers.

Check for post balance sheet date events and similarother disclosures. There should be properdocumentation in the file.



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WORKING PAPERS REVIEWWORKING PAPERS REVIEW

Working papers review can be categorized intofollowing:

Detailed review;

Partner / Principal review;

Tax review; Specialist review; and

Independent quality review.

As discussed above, the review should be with twoobjectives i.e. quality of work, and quality of papers.



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DETAILED REVIEWDETAILED REVIEW

The engagement manager / supervisor of the auditteam should perform a detailed review of the workingpapers.

This may include:

Review the audit strategy document and ensurethat:

planning Materiality has been set using anappropriate basis;

all significant accounts being identified;

tests of controls have been properly designed;



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Review tax planning and review memorandum anddiscuss the issues with the tax personnel (whereapplicable);

Review the minutes of AGM, EGM, BOD meetings orextracts;

Ensure that related party transaction checklist hasbeen completed;

Ensure that the final trial balance has beenreferenced with the working papers / financialstatements after duly ensuring that balances as perthe books of account accord with the same;



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Review the letters from lawyers and otherconsultants with whom management consulted withrespect to claims and/or potential claims;

Review the reports from other specialists actuaries,

valuers etc.) on which we are relying; Ensure that sufficient additional working papersexists to be satisfied that appropriate auditrecognition has been given to all important

amounts in the financial statements Ensure that letter of representation is correctlydated and contains confirmation of all keyrepresentations made to auditors;



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Ensure that appropriate audit work has beenperformed in accordance with International AuditingStandards and the additional scope requirementsof the company law and other laws are covered;

Ensure that that the work performed has beenproperly evidenced;

Ensure that numbers in the financial statementsaccord with our understanding of the clients

business and industry; Ensure that audit issue memoranda covers allimportant accounting and auditing issues whicharose during the audit;



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Ensure that the audit team and reviewersconcurrence with the conclusions reached isadequately documented;

Ensure that audit file contains adequate notes of

discussions with the client, including the reasons forall decisions reached as a result of suchdiscussions;



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Ensure that financial statements have beenproperly prepared in accordance with the relevantaccounting standards and laws and that the auditreport is appropriate; and

Ensure that all matters of attention have beencommunicated to other members of theengagement team, as appropriate.



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DETAILED REVIEWDETAILED REVIEW A FEW THINGSA FEW THINGS

TO REMEMBERTO REMEMBER

Never rely blindly Use judgmental sampling for review Never ignore all the small things Take sample If something is small, but may be exposed Check itjudgmentally

Learn from experience Where this client makes error, where my staff makes error, and

where do I commit mistakes Everything can contain an error, unless otherwise

proved



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PARTNER / PRINCIPAL REVIEWPARTNER / PRINCIPAL REVIEW

Position yourself properly Assess your staff levelAssess the level of reviewer and then decide to stepinto the foot of the Partner / Principal or the DetailedReviewer.

If YES Continue If NO . Go back and performdetailed review first Then do it additionally.



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See the big picture.

Have an expectation before you review.

Make sure all pieces fit together.

Look for consistency with other areas you reviewed.

Watch the level of detail too much or too little.



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Reassess Challenge

Scope

Testing procedure

Sample size

Sample selectionmethod

Materiality

Yourself

Your team

Your client

The financial results

Clients verbal

representations Work programs



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ASK YOURSELF ---

In respect of each working paper that you review:

Does it make sense?

Do I really understand the process?

Can I reiterate it? Is the working paper authentic?

Who provided what we requested and were weprovided with originals of the requested?

Does the work support the findings?

Is there any indication of fraud?



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Does the working paper use language that conveysassurance on work performed?

Can a third party re-perform the test and producethe same result?

What is the source of the information provided? Is the population complete and accurate?



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The engagement partner should at least perform the

following: Participate in the planning event to review the auditapproach of the engagement team;

Ensure that Planning Materiality has been set using

an appropriate basis; Ensure that all significant accounts and functionshave been adequately identified;

Ensure that audit strategy / planningdocumentation has been prepared that addressesall the audit risks;



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Ensure that tests of controls have been properlydesigned and their conclusions have beenadequately taken into account for determination ofaudit strategy;

Review the detailed audit programs including thebudgeted time allocated to each audit procedure;

Review sufficient audit working papers to ensureappropriate audit coverage has been given to all

important financial statement amounts anddisclosures;



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Ensure that appropriate audit work has beenperformed in accordance with International AuditingStandards an Auditing and that it has been properlyevidenced;

Ensure that detailed review was adequate; Review the numbers in the financial statements andensure that they accord with the understanding ofthe clients business and industry and economy as a

within; Audit Issues Memoranda covers all importantaccounting and auditing issues which arose duringthe audit and concur with the conclusions reached;



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Ensure that the audit file contains adequate notesof discussions with the client, including the reasonsfor all decisions reached as a result of suchdiscussions;

Ensure that letter of representation is correctlydated and contains confirmation of all keyrepresentations made to the auditors;

Evaluate, based on your experience and judgment

capability as to whether the accounting policies,significant judgments and estimates areappropriate, acceptable and as per industry norms;

Ensure that going concern basis is appropriate.



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SPECIALIST REVIEWSPECIALIST REVIEW

There are always a few items in an audit which might

need specialist review. But at times, we have to relyon the external specialists.

Examples include:

Treasury financial institutions treasury function; IT IS audit functions;

Tax tax, deferred tax and tax position;

Islamic finance Islamic finance transactions;

Actuary Insurance and defined benefit plans.



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INDEPENDENT QUALITY REVIEWINDEPENDENT QUALITY REVIEW

Quality review normally refers to a review of audit

documentation in order to get a concurrentconclusion by an independent person that appropriateaudit opinion has been expressed on the financial

statements. Normally this is conducted by a partner other than

the engagement partner / principle of the audit.However it may also be performed by a senior expert

with the practice.



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General things to look for in an independent quality

review may include:

Ensure that the team assigned to the engagementhas sufficient skills, experience and training to

execute the audit satisfactorily; Ensure that audit strategy document has beenprepared that addresses all the audit risks;

Ensure that the financial statements present a fair

view and contain all necessary disclosures;



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Ensure that the general audit procedures have been

properly performed and the appropriate areascovered;

Ensure that the audit issues memoranda address all

the significant accounting and auditing issues thatarose and our conclusions are appropriate andproperly documented; and

Ensure that the letter of representation is correctly

dated and contains confirmation of all keyrepresentations made.



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WHERE TO RELY, WHERE NOT?

NEVER RELY ON YOURSUBORDINATES FORWHAT YOU, YOURSELFFEEL INCAPABLE ORINCOMPETENT.

TRY TO DEVELOPEXPERTISE

YOURSELF.

LEARN FROM THEM,BUT NOT PUT BLINDRELIANCE ON THEM.

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REVIEW AS A TRAINING TOOLREVIEW AS A TRAINING TOOL

Operation theater

approach. On the job training.

Objective of article-

ship. Direct communication

channels.

Share the experience.

Technical workings direct involvement.

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ZERO BASED REVIEWZERO BASED REVIEW

It is believed that audit is always

performed in good faith. However, review should not be carried

out in a good faith.

This means that you need to have auditevidence to support your audit opinionrather than you believe on what peoplesay people including your client, your

team and your colleagues and evenwhat you yourself think.

Always perform a ZERO BASED REVIEWi.e. NOTHING CAN BE BELIEVED, UNLESS

EVIDENCED.. NOTHING IS CORRECT,UNLESS PROVED



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Audit Tech Omar Mustafa