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Copy of AUDIT Mindmap

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Geeraald Tan

on 18 February 2013

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Transcript of Copy of AUDIT Mindmap

Audit Introduction Sales
Cycle Control
Environment Collection Cycle Definition
Types of Audits
Types of Auditors
Limitations Management Philosophy
Organisation Structure
BoD, Audit Comm, Internal Audit
Delegation of Authority
HR Policies & Praticies Physical Control
Internal Independent Verification
Segregation of Duties Process by which a competent, independent person accumulates & evaluates evidence about quantifiable information related to a specific economic entity for the purpose of determining and reporting on the degree of correspondence between the quantifiable information and established criteria. Definition 1. Financial Statement Audit
Conform with GAAP?

2. Compliance Audit
Conform to Rules & Regulations?

3. Operational Audit
Efficiency & Effectiveness

4. Forensic Audit
Detect/ Deter Fradulent Activities Types of Audits 1. Independent Auditor

2. Internal Auditor

3. Government Auditor

4. Forensic Auditors Types of Auditors GAAP
Generally Accepted Accounting Principles

Financial Reporting Standards

Institute of Certified Public Accountants of Singapore

Singapore Standards of Auditing ACRONYM S. 205 Company's Act

Reduce Information Risk
Potential Conflict of Interest
Management motivated to manipulate results to enjoy rewards
Remoteness of Financial Information
Not involved & cannot observe daily business activities = Rely on published Financial Statements to make assessment
Complexity of Business Transactions
Increase Difficulty in understanding & evaluation of published information
Voluminous Data
More Data = More Errors Reasons To give a True & Fair opinion, the Auditor must obtain Reasonable Assurance that the financial statements are free from Material Misstatements

True & Fair
Reasonable Assurance
Not guarantee
Persuasive than conclusive
Magnitude (Quantitative + Qualitative)
Errors - Unintentional
Frauds - Intentional Objectives 1. Planning the audit

2. Testing the controls and transactions

3. Testing the details of ending balances

4. Completing the audit and issuing the report Audit Process Financial Statements
Prepare & present FS in line with FRS and CA
Designing and maintaining an adequate internal control system
Ensure Transactions Recorded
Assets Safeguarded
Adopted appropriate Accounting Policies

Audit FS in line with SSA
Expressing an Opinion
Maintain skills and competence (SSA)
Maintain Independence Responsbilities Test Nature of Audit
Audit samples used for test
Professional judgement
Based on auditors' judgement
Limitations of Internal Controls
Ineffective internal controls due to management overrides or human errors
Reliance on management representation
Incorrect conclusions about fairness if management is lacking integrity
Evidence is persuasive, not conclusive
Reasonable assurance not guarantee due to sample size taken Limitations Detection of Fraud & Errors
Designing, implement and maintaining an adequate internal control system
Prevent, Detect and correct Fraud or Errors

Attitude of professional scepticism (possibility of fraud)
Assess risk of Fraud
Plan Audit according to Risk assessment
Report to MOF if fraud >$20,000 Tone at the Top
Attitude towards Internal Controls, Policies
Risk Apppetitie
Lead by example
Commitment and Consistency
Reduce Information Risk Management Philosophy e.g. Management fails to follow company policies & procedures = Employees less likely to follow them Set Areas of Responsibilities
Clarifies Reporting Lines
Indicates Authority Levels
Distributes Human Resources
Ties in with Job Description Organisation Structure Effective Organisation Structute = Effective Management & Operations
Basis for Appropriate Delegation of Responsibilities & Authority Board of Directors
Active & Participative
= Strengthens Control Environment
Audit Committee
Required by s. 201B CA
Internal Audit Function
Operation Audit
- Effectiveness & Efficiency
Compliance Audit
- Adhered to Rules & Regulations
Independent of Operation & Accounting Departments BoD, Audit Comm, Internal Audit Job Description
Code of Conduct
Procedures manual
Conflict of Interest Policy
Memos from Management Delegation of Authority e.g. Authority > Scope of Work = Internal Control Deficiency Dependent on
of the company personnel

Good System to
Employees HR Policies & Practices Purpose:
To prevent & detect errors and irregularities

Separate Incompatible duties

Possible to commit errors in the normal course of his duties without detection by the system

Duties of employee provides a cross check on the work by another employee Segregation of Duties Purpose:
Protect company's resources
Prevent theft, damage or misuse
Minimise disruption to operations Physical Control Purpose:
Ensure transactions are duly authorised by personnel within their scope of their delegated authority
Assets being safeguarded
Resources used efficiently & effectively Authorisation Purpose
To ensure that adequate information is retained and that records are complete, accurate and updated on a timely basis

Documents should be:
Pre-numbered consecutively
allow for control over missing document
Prepared & Recorded ASAP after the transaction
Simple & Well-designed
make the document easy to use as possible
minimise the number of different forms
Provide space for signatures, stamps & initials, and instructions for filing out the document property Documentation Purpose
Ensure that existing procedures & controls are adhered to and updated as necessary
Continuous review of control activity

Effective if:
Independent Checker
Frequent & Regular
Automated Checks Internal Independent Verification Electronic
IDs, Passwords
Backup procedures
Disaster recovery Physical
Locks, safes
Security System
Access Restriction
Insurance Coverage Specific Authorisation
Authorisation given on a case-case basis for individual transactions General Authorisation
pre-sets limit within which employees have authority to act on Authorization vs Custody
Custody vs Accounting
Record keeping vs Operational duties Internal
Control Control
Activity Audit
Objectives Accuracry
Posting & Summarising
Timing Transactions are recorded under the appropriate account code
(e.g. Fixed assets recorded under a fixed asset account and not an investment account) Classification All transactions has undertaken are fully recorded in the financial statements
(i.e. there are no omissions) Completeness Recorded Transactions in the Financial Statements represent transactions which actually occurred (i.e. records not ficititious)

Transactions are valid & approved business

Tangible assets physically exists Existence Recorded transactions on journal are posted to relevant sub-ledger account and to the general ledger Posting & Summarising Transactions are recorded on the transaction day, within the proper accounting period (reflecting the accruals accounting principles) Timing Correct values are recorded for each transaction Accuracy Documenting
the System Narrative Description
Internal Control Questionnaire Description of the internal control system in words

Typically covers:
1. Origin of every document & record in the system
2. All the process which took place
3. Where or who with each document ends up in system
4. Internal controls relevant to the assessment of control risk Narrative Description Advantages
Easy to prepare and follow
Allow for decription of unusual transactions Disadvantages
Difficult to describe the details of complex systems
Difficult to update changes to the system Diagrammatic representation of the documents and their flow through the organisation

Typically covers:
1. Origin of every document & record in the system
2. All the process which took place
3. Where or who with each document ends up in system
4. Internal controls relevant to the assessment of control risk Flowchart Advantages
Complex systems - easier to understand & update
Gives an overview of particular transactions ICQs are standardised documents consisting of a series of questions on the internal control

Organised by transaction cycle, control objectives & control procedures Internal Control Questionnaire Advantages
Questions cover the entire system; ensures that no important weaknesses overlooked
easy checklist to use and understand
highlights absence of internal controls Disadvantages
Unusual transactions may be overlooked
Confusing if every detail is shown Disadvantages
Does not provide an overview on how the system works or how process flows
May not be applicable to some audit clients Receive
Order Review
Terms Deliver
Goods Bill
Customers Record
Sales Collet
A/R Sales Department Sales Order Credit Department Customer Credit File Shipping Department Delivery Order Billing Department Sales Invoice Billing Department (A/R) Sales Journal, Monthly Statements A/R Sub-ledger Collection Department Cash Receipt Journal A/R Sub-ledger Revenue should be recognised
when delivery is performed Review customer's financial status & payment history and status
Approve credit limits and terms Receive and process customer order
Prepare Sales Order Bill Customers Record Sales Journal
Update A/R subledger
Send out Customer Statements Find out the LAST Delivery Order #number for the financial period
Deliveries with this #number or BEFORE should have been recorded in the CURRENT financial period
Delivery AFTER this #number should be recorded in the NEXT financial period

1. Select samples of Delivery Orders before and after financial year end
2. Trace Delivery Order to Sales Invoice & Sales Journal to check if the sales have been correctly recognised in the financial period Sales Cut Off Test Receive
Cheques Bank
In Update
Records Mail Room Prelist,
Customer Statements A/R Sub-ledger,
A/R and Cash General Ledger Cashier Deposit Slip A/R Department Cash Receipt Journal Date when Cheque is RECEIVED Timing of Recognition
Full transcript