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ACCA Applied Skills · Audit and Assurance

Audit Procedures for ACCA Audit and Assurance (AA)

Audit procedures are the actions an auditor performs to gather audit evidence. They include inspection, observation, external confirmation, recalculation, reperformance, analytical procedures and inquiry. To answer a question, link the procedure to the specific assertion at risk, say what you would do and what you expect to find, and use the scenario's facts.

What this chapter covers

This chapter covers how auditors gather the evidence they need to support their opinion. You start with the methods of obtaining evidence: inspection, observation, external confirmation, recalculation, reperformance, analytical procedures and inquiry. You then look at what makes evidence sufficient and appropriate, and how assertions guide what you test.

The chapter then moves to the two types of further audit procedure: tests of controls and substantive procedures. It covers how auditors select items to test, including sampling, and how analytical procedures are used. It ends with documentation and the use of computer-assisted audit techniques and automated tools.

This chapter sits at the centre of the AA paper. Risk assessment decides where you need evidence. This chapter shows how you get it. The later chapters on specific areas, such as inventory, receivables and payables, use these procedures again. Completion and reporting depend on whether the evidence you gathered is enough to support the opinion.

Audit procedures are tested heavily across AA, in both Section A and Section B. In Section A, which has three 10-mark objective test cases, you must pick the correct procedure, assertion or type of evidence, and each answer is marked all or nothing. In the Section B constructed response questions, you are often asked to describe audit procedures for a specific balance in a scenario. A student who knows the methods, links them to assertions and writes procedures that are specific and practical can earn marks in several questions across the paper. The effort you put in here also makes the later chapters easier.

Audit procedures: topics in the order to study them

  1. 1Audit Procedures and Methods of Obtaining EvidenceStart here because every other topic builds on the basic methods of gathering evidence and the words used to describe them.
  2. 2Sufficient Appropriate Audit EvidenceNext you learn how to judge the quantity and quality of evidence, which tells you why some procedures are stronger than others.
  3. 3Financial Statement Assertions and EvidenceAssertions tell you what each procedure is trying to prove, so you need them before you design any test.
  4. 4Tests of Controls and Substantive ProceduresWith methods and assertions in place, you can see how procedures are grouped and when each group is used.
  5. 5Audit Sampling and Selecting Items for TestingSampling applies once you know what you are testing, because you must choose which items to test and how.
  6. 6Analytical ProceduresThese are a specific substantive and risk assessment tool, and they draw on your knowledge of evidence and assertions.
  7. 7Audit Documentation and Working PapersDocumentation records the work you have just studied, so it makes most sense after the procedures themselves.
  8. 8Computer-Assisted Audit Techniques and Automated ToolsFinish with technology, which is a way of carrying out the procedures you already know, often on whole populations of data.

How to prepare Audit procedures

Aim to be able to name a procedure, say which assertion it tests and explain why it gives good evidence. Practise both objective questions and written procedures.

  1. Learn the methods of obtaining evidence and write one example of each for a common balance, such as receivables or inventory.
  2. Learn the assertions for classes of transactions, account balances and presentation and disclosure. For each, practise stating a procedure that tests it.
  3. Learn the difference between tests of controls and substantive procedures, and practise deciding which one a question describes.
  4. Revise the main sampling terms and methods, including statistical and non-statistical sampling, and the meaning of tolerable misstatement and sampling risk.
  5. Practise analytical procedures with simple data: calculate the ratio or trend, then explain possible causes and the follow-up you would do.
  6. Practise written answers. For each point, state what you will do, what you will look at and what you hope to find. Use the facts in the scenario.
  7. Finish with timed objective test cases, then review every wrong answer and note which concept you missed.

Common mistakes in Audit procedures

  • Writing vague procedures such as 'check the balance' or 'review the records'.

    Fix: Use a clear verb, name the document or item and state the purpose. For example, 'Inspect the supplier statement and agree it to the payables ledger to test completeness of liabilities'.

  • Confusing tests of controls with substantive procedures.

    Fix: Ask whether the procedure checks that a control worked, or whether it checks the amount or disclosure itself. The first is a test of controls. The second is substantive.

  • Linking a procedure to the wrong assertion, especially mixing up existence and completeness.

    Fix: For existence, start from the recorded item and trace to the evidence. For completeness, start from the evidence or the physical item and trace to the records.

  • Treating sampling as a purely mathematical topic and ignoring judgement.

    Fix: Learn why items are selected, what the auditor does with errors found and how risk affects sample size.

  • Listing analytical procedures without explaining the results.

    Fix: After calculating, give possible reasons for the change, say what it could mean for misstatement and state the follow-up work you would do.

  • Assuming that CAATs replace auditor judgement and need no checking.

    Fix: Remember that the auditor must understand the tool, test the integrity of the data and evaluate the results.

Last-day revision: Audit procedures

  • The main methods of evidence are inspection, observation, external confirmation, recalculation, reperformance, analytical procedures and inquiry.
  • Sufficiency is about the quantity of evidence. Appropriateness is about its quality, meaning relevance and reliability.
  • Evidence is generally more reliable when it is from external sources, obtained directly by the auditor and in written or original form.
  • Inquiry alone is not enough evidence. It must be backed up by other procedures.
  • Assertions cover classes of transactions, account balances and presentation and disclosure.
  • Tests of controls check that controls operated effectively. Substantive procedures check for material misstatement in the figures.
  • Substantive procedures are tests of detail and substantive analytical procedures.
  • Sampling risk is the risk that the sample leads to a different conclusion from testing the whole population.
  • Tolerable misstatement is the application of performance materiality to a particular sampling procedure. It may be set at the same level as, or lower than, performance materiality.
  • Analytical procedures are required at risk assessment and at the overall review stage. They may also be used as substantive procedures.
  • Working papers should let an experienced auditor with no prior link to the audit understand the work done, the evidence obtained and the conclusions reached.
  • CAATs include audit software and test data. They can test whole populations, but you still need to check that the data is complete and accurate.

Audit procedures in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Audit procedures: frequently asked questions

What are the main audit procedures in ACCA AA?

The main procedures are inspection, observation, external confirmation, recalculation, reperformance, analytical procedures and inquiry. You should be able to give an example of each for a given balance. Exam questions often ask you to choose the best procedure for a given assertion.

What is the difference between sufficient and appropriate audit evidence?

Sufficiency measures the quantity of evidence, and it is affected by the risk of misstatement and the quality of the evidence. Appropriateness measures quality, which means its relevance and reliability. You need both to support an audit opinion.

How do I write audit procedures in a constructed response question?

Make each procedure specific. State what you will do, which document or item you will use and what you expect to find. Link it to the scenario and, where useful, to the assertion being tested. Keep each point short so you can give more points in the time available.

Are audit procedures only tested in constructed response questions?

No. They also appear in the Section A objective test cases as well as in Section B. The objective test cases ask you to pick the right procedure, assertion or type of evidence. Objective answers are all or nothing, so you need accurate definitions.