Techniques of Auditing
Techniques of Auditing Description
Audits are conducted to determine whether the information in an organization’s financial statements is accurate and fair. To achieve that goal, the auditor adopts different methods or processes. All these methods are called audit techniques
Enquiry about internal control and Check system
First priority is to investigate the capability of internal control and check the system of an organisation because the accuracy of accounts depends on these two accounts.
Examination of Accounting System
The accounting system of the organization should be examined to know about its effectiveness. That is why the sum of the primary account book and the calculation of the account must be checked. It’s a very important techniques of auditing to find errors.
Vouching Of Transaction
It involves examining the original documentary evidence pertaining to the transaction. A voucher can be any type of document such as an invoice, a bill, a receipt, a deduction or credit note, etc.
Comparative Analysis
Comparative analysis is the process of comparing different items and transactions to one another and identifying their similarities and differences. An auditor can analyze an idea, problem, theory or question by applying his own judgement and strategy. A comparative analysis facilitates a more in-depth understanding of the issue and the formulation of strategies. If any irregularities are observed in any case, a more in-depth examination should be carried out
Examination Of Documents
The auditor checks various statements and documents related to the policies and management of the organization to check the reliability of the transaction.
These documents include a memorandum, partnership agreement, bank statements, tax returns, journal vouchers etc.
Analysis Of Financial Statement
Analyzing the financial statements is necessary to verify the financial status of the organization. As a result of the analysis, irregularities and inconsistencies were found in various areas of the organization. For example, the ability to earn a profit is known by analyzing the ratio of net profit to capital
Preparation Of Flow chart
The effectiveness of an internal control system can be verified in an organization by creating a flow chart. It is easier for auditors to determine if transactions have been returned or backflow with the use of flowcharts. In some cases, backlogs are caused by a lack of required and critical information, errors, missing attachments, or issues with supporting documentation.
Physical Verification
To verify and confirm the physical existence of tangible assets listed on the Balance Sheet provided by the organisation, such as cash in hand, factory existence, land, building and machinery, a physical examination is required.
Techniques of Auditing Observations
Auditors observe the process of examining or monitoring a particular activity, situation, or process. The purpose is to gather information or evidence that will assist in assessing the compliance of the organization with relevant regulations, standards, or internal procedures.
This is a common audit technique auditors use to gain first-hand knowledge of a process or activity and determine whether it is done according to procedure and control. An auditor can physically inspect a location in person or remotely through the review of documented data or electronic records.
Inquiry And Confirmation
A transaction’s in-depth details are collected using this method. Inquiries involve requesting information from knowledgeable individuals with financial or nonfinancial expertise within or outside the organization.
Confirming the information available or gathered through inquiry with the records of the organization or with persons within or outside the organisation. It is possible for inquiries and confirmations to be taken either orally or in writing.
Reconciliation
The process of reconciling transactions and activities is the process of comparing them against supporting documents. Additionally, the reconciliation ensures accuracy and resolves any discrepancies that may have been discovered.
Testing
In testing, the selected transactions are used to draw a conclusion about the entire accounting data set. There are 3 types of testing majorly in use
Routine Checking
The accounts are regularly checked with the help of related documents to verify the accuracy of the transactions recorded in the books and whether they have been recorded in the correct manner.
Test Checking
Regular examination is not possible in big institutions. Because, in these cases, the labour and money required for accounting examination are relatively high. Test checking is done in this condition
Surprise Checking
An unannounced examination of accounts by the auditor appearing on any day at the establishment without informing the employer is called an unannounced examination.
Techniques of Auditing Conclusion
Different businesses need different types and techniques of auditing. Auditors can check the circumstances and nature of the business and select the techniques that are needed. The auditor may adjust his technique based on the changes he observes in the situation during the audit. Techniques of auditing that the auditor adopts enable him to prepare and perform the audit efficiently.
