Settlement of Audit Objections

Authority audit report is presented to : Audit committee

Who take decisions about objections and further actions plan: Audit committee

Authority to which minutes of meeting of audit committee is forward to : Director audit and finance
Department.

Reply of the objections of audit report is done in : Para-Wise

Time period in which reply of objections is required: Within Six Week from the date of the audit
Report

Authority which supervise the progress of settlements of objections: Senior Officer of Audit Cell

Time period in which first reminder issued for the reply of settlement of Objections: After six
weeks from the date of issue of audit report: and second reminder : within a month from first
reminder

Book which is maintained at every audit office for record of objections: Objection Book

Objections of routine like cash book , stock register , log books, and service book consider
settled: When head of department accepted auditor point of view and compliance next.

Follow up of audit report is necessary when concern area is audited again. And follow up areas
are Casual , limited and Detailed.

Follow up that is mostly through telephone conversation and review of audit procedures called:
Casual follow up.

Follow up in which maximum interaction involve with client called : limited follow up

Follow up in which detailed interaction involve with client called: Detailed follow up

Serious irregularity which are sent to the ministry for reply are called : Advance Para

When no reply receive again after advance Para issued to ministry then Draft Para is issued.

The ways to settlement of audit observations are:

-Spot disposal during audit

-Disposal in headquarter

-Disposal in the meeting

-Disposal by the public committee.

Note : Audit of expenditures and receipts include in the topic of settlement of audit Objections

Which of the following is the account that government maintains:

Consolidated fund , Contingency Fund, and Public account.

Type of consolidated fund are Revenue, Capital, and Debt.

Fund which are maintained to meet emergency or unforeseen events called : Contingency Fund

Introduction of auditing

Word audit derived from latin word : audit”

Which type of audit examines the reliability and integrity of the accounting records: Financial

Types of audit on the basis of Time are interim audit, continuous audit and Final audit.

Interim audit: audit which is conducted during the period , Continuous audit: Audit that remain
continue during whole period.

Final audit : Audit which is conducted after completion of accounting period.

Types of audit on the basis of Theory: are Statutory , Private Internal and Government.

Statutory audit: audit which is conducted by chartered accountant, Private audit: audit that is
concerned with sole traders and partnership, for such audit it is not necessary that auditor should
be chartered accountant. Government audit is related to municipal.

Types of audit on the basis of purpose are Management, cost, special.

Management audit: audit which is concerned with the function of management, cost audit: audit
which is concerned with costs of goods and services. Special audit: audit which is conducted on
the direction of SECP, FBR or any other authority.

Audit which is concerned with the checking of income and expenditure as well as use of funds
called: Propriety Audit

Continuous audit supports to company in: reducing fraud and error.

which type of audit is effective when internal control system of an organisation is weak:
continuous audit.

Primary purpose of interim audit is to declare interim dividend.

Financial statements are the representation of : Management

Auditors of financial statements can be classified into two categories.

Audit planning

Objective of audit planning is: audit may perform in an effective manner

Planning of audit involve establishing: overall audit strategy and audit plan

Proper planning supports auditors in: Devote attention to important areas of audit, identifying and
resolving potential problems on timely basis, organisation and managing audit engagement, and
coordination of work done by auditor of component and expert

Engagement partner and key members of engagement team should be involved in audit planning.

Preliminary engagement activity in the audit planning:

Performing audit procedures for continuance of client relationship, evaluating compliance with
ethical requirements and establishing and understanding of terms of engagement.

In overall audit strategy auditor determine : conduct audit in accordance with ISA

Audit programme is prepared by : Auditor and its team

Factors that effect in the direction, supervisor, and review of audit work of engagement team at
the time of planning: size and complexity of the entity, area of audit, assessed risks of material
misstatement and capabilities and competence of individual team members.

 Audit Procedures

Different activities that auditor perform to collect audit evidence on which to base his opinion is
called: Audit procedures

Procedures apply to assess the risk of material misstatement that exist called: risk assessment
procedures

Procedures perform to test the effectiveness of a control used by a client to prevent and detect
material misstatement called: Tests of controls

Those activities that are performed by the auditor to detect material misstatements or fraud are
called: Substantive procedures or substantive tests

Type of substantive procedures are : Analytical procedures and Test of details

Audit procedures which identity the financial fluctuation or variation between budget of different
periods called: Analytical procedures

Substantive audit procedures in which transaction is verified by different ways or by documentary

support called : Test of Details

If auditor wants to verify sales he applies different audit procedures like inspect sales order, gate
outward, cash ledger and confirmation from debtors directly these are called : Test of details

Analytical procedures in planning stage support to: determine nature, timing and extent of audit
proceeders, Attention to important areas of audit, identify the risk areas.

Different source that auditor generally uses to obtain sufficient and appropriate audit evidence:
Inspection and Observation, External confirmation and recalculation, Re-performance and
analytical procedures and inquiry.

Examining record or documents are physical examination of assets called Inspection

Auditor independent execution of procedures or controls that were originally performed as part of
the entity internal control system called: Re-performance

Verification

An inequity into value, title, ownership, existence and any charge on the assets is called
Verification.

In the process of Verification auditor observes assets Physically.

Verification is an evaluation of truth and fairness of the assets and liabilities appearing in the :
Balance sheet

Objective of of verification are : Valuation, Certify ownership and tile, and Ascertain existence.

In process of verification following technique are used: Physical existence, ownership of assets
and Proper disclosure.and valuation of assets and charge on assets.

Vouching is part of Verification

Assertions is the claim/ representation of management about : Transaction and events, account
balances and disclosure

Assertions of management used by the auditor to consider: Material misstatement

Assertions about transaction and events : Occurrence, Completeness and accuracy, cutoff and
classification

Assertion about Account balances: Existence, Completeness, Rights ad obligations, Valuation and
allocation

Assertions about presentation and disclosures: Occurrence, rights and obligations, classification
and understandability, completeness, accuracy and valuation

If a debtor is included in the account payable on the financial statement, it is violating of assertion
of : Classification

Procedures of verification of Building: Classification, schedule of building and valuation

Procedures for verification of vehicles: Log books, purchase and disposal, opening and closing
balance,

Procedures of verification of Goodwill : Acquisition agreements, purchase consideration and

presentation and disclosure.

Procedures of Verification of Banks balances: List of bank accounts, bank reconciliation

statements and banks payments and receipts

Procedures of Verification of Cash balances: opening/closing balance, cash receipts/payments

and physical counts

Procedures for verification of wages and salaries: Personal fires of employees, salaries and wages
sheet and time records.

Procedures for verification of directors remuneration: minutes of meeting and approval,

components of remuneration, presentation and disclosures

When counting cash on hand auditor should ensure postage and stamp are not included in
physical count.

 Vouching

Comparing transactions/entries with documentary evidence in support of there is called Vouching.

which is authentic way to ascertain the accuracy of the transactions/entries: Vouching

Vouching is an examination of truth and fairness of transactions recorded in the books of: original
entry

Documentary evidence in support of a transactions/entries is called: Voucher

Different examples of Voucher: Cash memo, invoice, agreement

Vouching supports to auditor in detection and prevention of error, fraud and arithmetical accuracy.

Auditor verifies the books of original entries, subsidiary books with the help of : Vouching

Source of examine/verification of proper authority for any transactions is called: Vouching

which of the following ways are used to observe the period and allocation of transactions:
Vouching

Tick mark on transactions is the technique of Vouching.

Which of the following aspects are observed while vouching the Cash sales: cash book , cash
sale return and authority of sales/sales order

which of the following aspect are observed while vouching for the cash purchases: cash book,
cash purchase return and purchase order

Aspect are observed while vouching for Debtors: credit sales, sales return/ trade discount and
Receipt from debtors

Aspect are observed while vouching for investments: minutes of meeting, cash book, opening/
closing balance.

Aspect are observed while vouching for fixed asset sales and purchase: minutes of meeting, cash
book, opening/ clothing balance.

Aspect are observed while vouching for wages account: Wages sheet, cash book and payees
signature

Aspect are observed while vouching for commission: agreement of commission, cash book and
rate of commission

Aspect are observed while vouching for foreign currency account : Bank advice, cash book and
bank reconciliation statements

Aspect are observed while vouching for share capital: MOA/AOA (memorandum ), prospectus and
premium/ discount on shares

Aspect are observed while vouching for travelling allowance: manuals for travelling allowance,
cash book and cash memos

Source documents for staff salaries is: Approved payrolls

Quality Audit

Systematic examination of management system called: quality audit

Types of quality audit are : Product audit, Process audit and System audit (total 3)

An examination of a particular product or service, whether it meets customer specifications

called: Product Audit

Process of verification that whether organisations system is working with in standard limi: Process
audit.

An audit conducted for evaluation of management system called System audit.

Evaluation of efficiency, effectiveness and goal achievement are objective of Operational audit.

A system of quality audit may verify the effectiveness of equality management system this is part
of ISO 9002

Internal control system

types of internal audit: financial audit, an informational system audit, an operational audit, an
investigation audit.

Purpose of an informational systems audit is to review and evaluate the internal control.

Internal auditor generally follows audit standard of: Institute of Internal auditor

Component of internal control system are: control environment, entity risk assessment process,
control activities, information system, monitoring of controls etc

elements of control environment of a company: commitment to competence, organisational

structure, Human resources policies and practices, Assignment of authority and responsibility.

Factors due to which risk can arise and change in the entity: change in operating environment,
new personal technology, information system, corporate restructuring.and new accounting
pronouncement.

Different procedures to obtain audit evidence about the internal control system of a company:
inquiry of entity personnel, observing application of specific controls, inspecting documents and
records.

Different control activities in the company: performance review, information processing/physical

control , segregation of duties.

Following characteristics should be in well designed internal control questionnaire ICQ : questions
about weakness and strengths, organised according to the functions of the organisation and
provide sufficient source of data about internal control system.

 Sampling

Application of audit procedures to less than 100% of items waiting a population of audit relevance
on which to base auditor draw conclusion about entire population called Sampling

The entire set of data from which a sample is selected and about which auditor wishes to draw
conclusions called: Population.

Risk that the auditor conclusion based on a sample may be different from the conclusions if the
entire population were subject to the same audit procedures called: Sampling risk

The individual item constituting a population called: sampling unit

Which of the following factor is considered during sample of designing, determining size and
selection of items for testing: Purpose of audit procedures and characteristics of population,
sampling risk, each sampling unit has chances of selection.

A misstatement or deviation that is demonstrably not representative for misstatement or deviation

in a population called: Anomaly

Methods of sample selection: Random selection, Systematic selection, Monetary unit sampling,
Haphazard selection, Block selection.

Sampling method in which sample is selected by specific interval is called: Systematic selection

Sampling method in which sample size, selection and evaluation of results in monetary amounts
called: Monetary unit sampling

Sampling method in which auditor selects the sample without following a structured technique is
called: Haphazard selection

Sampling method in which selection of contagious or similar items from the population is called
Block selection.

sampling method in which sample is selected though random number generators and random
number table is called: Random selection

Factor which influence the sample size for tests of controls/details are: extent to which risk is
assessed, tolerable rate of deviation, expected rate of deviation, number of sampling unit in the
population.

Process of dividing a population into sub population which have similar characteristics is called :
Stratification.

Auditor and legal environment.

Appointment of auditors of a company is made according to the provision of companies

ordinance 1984 section 252

Auditor is appointed by the following ways: First auditor — Subsequent Auditor— Casual vacancy

who is responsible for the appointment of statutory auditor of the limited company? are members
or shareholder of the company .

Casual vacancy of auditor is appointment by which authorities? are Both Board of Directors and
SECP

First auditor is appointed by directors after incorporation of company Within 60 days and if not
appointed within 60 days then shareholders will appoint the first auditor. and also if not appointed
wiring 120 days of incorporation then SECP will appoint the first auditor.

Subsequent auditor is appointed by the shareholder of the company at the annual general
meeting, and if subsequent auditor is not appointed at the AGM the it will be appointed by the
SECP.

Tenure of Subsequent auditor till: Conclusion of next annual general meeting. and also tenure of
first auditor till: Conclusion of next annual general meeting.

Casual vacancy of auditor is fulfilled within 30 days of occurrence by the Directors and if not
fulfilled within 30 days then those are appointed by the SECP. and tenure of casual vacancy
auditor is till next AGM.

IF auditor is appointed by the directors than remuneration shall fixed by Directors and if auditor is
appointed by the SECP then SECP will fix the remuneration.and if appointed by shareholders they
will decide it.

Following are disqualified to appoint as an auditor: if person is indebted to the company, Body
corporate, and also person who holds shares and does not disinvest writing 90 days of
appointment.

As per companies ordinance, a person is disqualifies from being appointment as external auditor
of company if he holds Securities carrying voting rights of the company. and section 254 deal with
the disqualification of the auditor

Time period in which notice from a member must be given about appointment of new auditor
instead of retiring auditor: at least 14 days before AGM

Time period in which notice from a company must be given about appointment of new auditor
instead of retiring auditor: at least 7 days before AGM

who can be appointed as auditor of Central government : chartered accountant in practice.

Audit report

Auditor report generally addressed to shareholders and board of directors.. note addressee of the
report may vary with the appointment authority.

contents and form of auditor report may change: due to different nature of engagement, due to
different audit scope.

Types of audit report: Statutory report, annual report, prospectus report

Standard format of the auditors report as per companies ordinance 1984 is given bye legal form:
35A

When the format and layout of the audit report its prescribed by the local laws and regulation then
format of local laws and regulations should be used.

Procurement rules : S.R.O 432(I) 2004

which ordinance deals with the public procurement Regulatory authority: 2002

a tender, or an offer, in response to an invitation, by a person, consultant, firm, company or an

organization expressing his or its willingness to undertake a specified task at a price; is called BID

Misrepresentaion of facts in order to influence the procurements process : corrupt and fraudulent
practises and it also includes the offering, giving, receiving, or soliciting of anything of value to
influence the action of a public official or the supplier or contractor in the procurement process or
in contract execution to the detriment of the procuring agencies; or

Natural calamities, disasters, accidents, war and operational emergency which may give rise to
abnormal situation requiring prompt and immediate action to limit or avoid damage to person,
property or the environment; is called Emergency