(a) Briefly explain the following terms as used in auditing:
(i) Vouching audit (ii) Inherent risk. (iii)
(iv) In depth audit tests.
i) A voucher
is a documentary evidence of a transaction as recorded in the books of account e.g. receipt, invoice etc. Vouching is the process of examining a voucher with the view of proving whether it has been properly authorized, recorded and that the amount is reasonable. Vouching audit thus means the examination of vouchers with the view of proving the true and fair view of the client‘s financial position of the business as at the balance sheet date. It‘s applied when the auditor feels that the internal controls of the client is not promising.
ii) Inherent Risk
This is part of the audit risk and is basically defined as the susceptibility of an account balance or class of transactions to misstatements that could be material, individually or when aggregated with misstatements in other balances or classes, assuming that there were no related internal controls.
iii) Control Risk
Also part of audit risk and is defined as a risk that a misstatement that could occur in an account balance or class of transactions and that could be material individually or when aggregated with misstatements in other balances or classes, will not be prevented or detected and collected on a timely basis the accounting and internal control systems.
iv) In depth Audit Tests
These tests are aimed at justifying the figures in the books of account, and eventually, in the final accounts themselves. The tests are designed for 2 purposes:
1. Support the figures in the account and
2. Where errors exist, to assess their effect in monetary terms.
Before embarking on these tests, it‘s essential to consider whether any errors produced weak systems could lead to material differences.