Financial audit

Audit Procedures
The audit process mainly aims to offer our clients a clear view of the actual and optimal situation of the organization through a wide range of audit services, whose procedures are as follows: –
1. Identification of audit evidence
2. Procedures of obtaining audit evidence
3. External Reconciliation
4. Analysis
5. Objectives of financial statements audit
6. Responsibility of the company management
7. Responsibility of the auditor

Identification of audit evidence
Introduction
• This standard aims to set standards and provide guidance regarding what may represent audit evidence when auditing the financial statements, the quantity and quality of audit evidence that should be obtained, and the procedures that an auditor shall take to reach such audit evidence.
• The auditor has to obtain sufficient and appropriate evidence in order to reach reasonable conclusions upon which an audit opinion can be given.

Concept of Audit Evidence
• Audit evidence is defined to be all the information that the auditor uses to reach the conclusions that enable him to express an opinion, and it includes the information in the accounting records supporting the financial statements

I: Policies of audit evidence
– Audit evidences, in nature, is cumulative, being obtained from a previous review, during the audit or through the organization’s quality control procedures.
– The Company management is responsible for preparing financial reports according to the establishment’s accounting records, and the responsible partner obtains some audit evidences by selecting the accounting records, for example through analyzing and reconsidering the procedures taken for preparing such financial reports, reconciliation of the financial accounts and application of the same information. Then, the responsible partner can make sure that the accounting records are internally consistent and in agreement with the financial statements. Though, the accounting records do not provide sufficient audit evidence, so the responsible partner must obtain other evidence to express an opinion on the financial statements
The reliability of audit evidence is affected by its source, nature, and circumstances in which it was obtained, as:-
1. The audit evidence is more reliable when it is obtained from an independent external source
2. Audit evidence obtained internally is more reliable when the relevant internal control items are effective
3. The audit evidence that the responsible partner directly obtains (before the application of the control items) is more reliable than that indirectly obtained through inquiries when applying the control items.
4. Audit evidence is more reliable when it is documented, whether in paper, electronically, or any other means.
5. Audit evidence provided by the original documents is more reliable than that provided by copies
The affirmations used by the responsible partner fall into the following categories:
A – Affirmations regarding transactions categories and events of the period under audit
– Occurrence -that the transactions and events entered and occurred belong to the establishment
– Integration – that the transactions and events pertaining to the establishment were entered into records
– Accuracy – that amounts and other data relating to transactions and events have been appropriately entered into records
– Accounts Confirmation Procedures – that the transactions and events are entered in records during the right accounting period
– Categorization – Transactions and events were recorded in the appropriate accounts
B – Affirmations relating to ending accounts balances
– Existence: that the assets, liabilities and equity exist
– Rights and duties: that the establishment owns and controls the rights to its assets and that the liabilities represent obligations to the establishment
– Integration: that the assets, liabilities and equity of the establishment are recorded
– Evaluation and distribution: that entry of assets, liabilities and equity in the financial statements is completed upon appropriate values, and any settlements resulting from evaluation or distribution are also entered in an appropriate manner.
C – Affirmations related to the presentation and disclosures
– Occurrence, rights and duties: that the events, transactions, and other matters disclosed have occurred and are pertaining to the establishment
– Integration: the financial statements include all the required disclosures
– Classification and comprehensibility: that the financial information in the financial statements is presented and explained appropriately and the disclosures are clearly expressed
– Accuracy and evaluation: that the financial and other information is disclosed in a fair and reasonable manner
2 – Audit procedures to obtain audit evidence
A – Documentary audit and inspection of records
– Documentary audit includes inspection of documents and records, whether internal or external, in paper or electronic form, or any other means. It provides audit evidence whose reliability varies according to its nature and source. In the case of internal records and documents, the audit depends on the effectiveness of the internal control system. An example for auditing used in internal control testing is to audit documents and inspect records to reach evidence of authorization and approval.
B- Intangible Assets Inventory
Tangible assets inventory includes physical investigation of assets and this can provide audit evidence on the existence of those assets, but it does not necessarily provide audit evidence on the rights and duties of the establishment or an evaluation of those assets. Inventory items are often checked separately.
C- Observation
The observation is considering a process or a procedure performed by others, for example, observing the inventory process carried out by the employees of the establishment and observing the performance of control activities. The observation provides audit evidence related to the performance of a specific process or procedure and at a specific point in which the observation takes place. Observation of a process or procedure can affect the performance of that process or procedure
D- Inquiries
– Inquiry includes seeking information from individuals who have knowledge of financial and non-financial information, whether inside or outside the establishment, and the inquiry is an audit procedure used extensively throughout the audit process and is often complementary to other audit procedures. Inquiries can be formal and written or unformal and oral, and the evaluation of inquiry response is an integral part of the audit process
3- Reconciliation
It is a specific type of inquiry, which is the process of obtaining an acknowledgment of information or an existing current situation directly from others. For example, the responsible partner seeks to obtain direct approvals from creditors and debtors confirming the validity of balances for each of them. The approvals can also be related to the agreements or transactions concluded between the company and a third party, as well as amendments thereof. The approvals are also used to obtain audit evidence related to the absence of side agreements that would affect the recognition of revenue.
4-Analysis
Analytical procedures are about evaluating the financial information and studying the potential relationship between financial and non-financial data. Analytical procedures also include inquiries about fluctuations and relationships that have been identified as contradicting to the relevant information and substantially deviating from the expected values (This also includes inquiries about the values and percentages that have been identified as substantially differing from the those expected)
5- Objectives of financial statements audit
– To express a neutral technical opinion on the fairness of the financial statements and to clearly express the financial position of the company and its final account.
– To ensure the correct presentation of the data included in the accounting records of the financial statements.
6- Responsibility of the company management
To maintain a good financial and administrative organization that can be relied upon on the periodic review process and to meet the items of the annual financial statements. The organization that the company must maintain includes the following: –
• Document cycles – Accounts Chart – Group of Ledger
7- Responsibility of the auditor and audit method
The audit process is completed during the fiscal year in question through several phases as follows
I: Planning for audit process
– Evaluating risks of all kinds
– Initial evaluation of the internal control elements and identification of the audit method
– Initial procedures for the analytical examination
II: Audit Procedures Implementation
• A detailed study on the applied internal control system.
• Detailed tests.
• Analysis of the audit test results
• The auditor report
Detailed tests reports
These reports include all the observations by the auditor during the audit procedures along all its phases
The auditor report on the financial statements
This report is considered the final result of the audit process, in which the auditor indicates any reservations on the financial statements and if they honestly and fairly expressed the financial position and the final accounts, in addition to a brief statement on the responsibilities of management and the basis upon which the final opinion was given.