Two Types Of Audit Procedures

1032 Words5 Pages
There are two types of audit procedures that can apply when auditing inventory which are test of control and substantive procedures. Test of control is to evaluate the effectiveness of the control system of a client to detect material misstatements. It is a quick test to obtain audit evidence of the accounting system and internal control system. Test of control consists of inspection, inquiry, observation and re-performance. Substantive procedures is to detect the material misstatements of a client at assertion level. Most of them apply to risky clients. It is to test the transactions, account balances and disclosure in the financial statements. Substantive procedures require more detailed work and time consuming. It consists of test of details…show more content…
The first method of audit procedures that can be applied by an auditor is observation procedure. Observation procedure is the auditor observes the process of the control system of clients in action or watches the procedure being performed by clients. The auditor can observe those raw material stock counts by stores personnel and do the reconciliations of raw material stock counts to inventory records. For example, first, the auditor will require the purchasing order from the purchasing department. After that, go to the warehouse and inspect the process of compute raw material by the responsible personnel. With the observe procedure, the actual procedure and process that performed by the staff can be direct observe by the auditor and make sure all the purchases transaction is actually occurred for the…show more content…
Re-calculation is a method used by auditor to check the accuracy of the amount for the raw material stock purchase on the records. For instance, auditor can calculate again the sources of purchase costs in accounting records and compare the amount of supplier statements with purchase ledger accounts. It is to ensure the amount of the raw materials stocks are accurately recorded in the accounting record. The cost of materials is also check by auditor to make sure that the cost is followed the market rule with no overly different. Moreover, external confirmation is also one of the procedures that can be carried out by auditor. The auditor is able to obtain a direct written response or confirmation from third parties who are bank, suppliers and so on. For example, auditor can get the confirmation from suppliers to prove that the purchases details is authentic. The confirmations from the suppliers are really reliable and high quality due to it is from independent

More about Two Types Of Audit Procedures

Open Document