Auditor’s Approach

Procurement and Audit notes revision

Audit approaches are the methods or techniques that auditors use in their audit assignments. Internal and external audit conduct their audit activities differently based on the nature of engagement, scope, nature of client’s business, and audit risks. There are four main approaches:
1) The balance sheet approach: Substantive procedures are focused on balance sheet (statement of financial position) accounts, with only very limited procedures being carried out on income statement/profit and loss account items.
2) The systems-based approach: Requires auditors to assess the effectiveness of the internal controls of an entity, and then to direct substantive procedures primarily to those areas where it is considered that systems objectives will not be met
3) The substantive procedures approach: This is also referred to as the vouching approach or the direct verification approach. In this approach, audit resources are targeted on testing large volumes of transactions and account balances without any particular focus on specified areas of the financial statements
4) The risk-based approach: Audit resources are directed towards those areas of the financial statements that may contain misstatements (either error or omission) as a consequence of the risks faced the business
IT Control Audit involves two types of testing – compliance and substantive testing. Compliance testing determines if controls are being applied in the manner described in the programme documentation or as described the auditee. In other words, a compliance test determines if controls are being applied in a manner that “complies with” management policies and procedures. Substantive audit “substantiates” the adequacy of existing controls in protecting the organisation from fraudulent activity and encompasses substantiating the reported results of processing transactions or activities. With the help of CAATTs software, IT Auditor can plan for 100 per cent substantive testing of auditee’s data.

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