Auditing and Assurance Services Module Courses: Auditing Principles and Practices I& II
basic calculations to more complex word problems. The problems may require students to apply formulas, solve equations, or prove mathematical theorems.Theoretical Questions: In higher-level mathematics
exams, students may be asked to demonstrate their understanding of theoretical concepts, such as the proof and students are expected to demonstrate their ability to apply logic to prove statements or solve
problems. This is especially important in subjects like proof-based mathematics.Calculation and Accuracy: Mathematical exams test a student’s ability to perform accurate calculations and students are expected
to demonstrate their ability
ALKAN HEALTH SCIENCE BUSINESS &
TECHNOLOGY COLLEGE
FACULTY OF BUSINESS AND
ECONOMICS ACCOUNTING &
FINANCE DEPARTMENT
Course Materials for Theme 5: Auditing
and Assurance Services
basic calculations to more complex word problems. The problems may require students to apply formulas, solve equations, or prove mathematical theorems.Theoretical Questions: In higher-level mathematics
exams, students may be asked to demonstrate their understanding of theoretical concepts, such as the proof and students are expected to demonstrate their ability to apply logic to prove statements or solve
problems. This is especially important in subjects like proof-based mathematics.Calculation and Accuracy: Mathematical exams test a student’s ability to perform accurate calculations and students are expected
to demonstrate their ability 1. Business Exams1.1. Overview of Business EducationBusiness education prepares students for leadership and management roles in various industries. It focuses on critical
thinking, decision-making, problem-solving, and understanding organizational processes. A typical business program might cover topics like accounting
This module contains two courses:
Auditing Principles and Practices I
(AcFn4061) Auditing Principles and
Practices II (AcFn4062)
i
, Auditing and Assurance Services Module Courses: Auditing Principles and Practices I& II
basic calculations to more complex word problems. The problems may require students to apply formulas, solve equations, or prove mathematical theorems.Theoretical Questions: In higher-level mathematics
exams, students may be asked to demonstrate their understanding of theoretical concepts, such as the proof and students are expected to demonstrate their ability to apply logic to prove statements or solve
problems. This is especially important in subjects like proof-based mathematics.Calculation and Accuracy: Mathematical exams test a student’s ability to perform accurate calculations and students are expected
to demonstrate their ability
Course Objectives & Core Competences to be acquired
After studying this course, the students should be able to:
Describe the nature of an audit and explain the economic and legal basis for
auditing.
The auditor's legal liability to clients and third parties.
Explain how materiality and various risk assessments impact the audit program.
Determine the audit procedure needed to audit any assertion.
Explain why auditors use sampling and apply audit-sampling techniques for evidence
acquisition and evaluation.
Identify and assess risks of material misstatement at both the assertion and overall
financial statement levels and respond to identified risks by designing and
implementing tests of controls & substantive tests for a variety of financial statement
elements.
Apply the concepts of audit planning, risk assessment, and obtaining an
understanding of the internal control structure to the sales and collection cycle, the
acquisition and payments cycle, the human resources and payroll cycle, the
inventory and distribution cycle and the capital acquisition and repayment cycles.
Complete the audit and describe the procedures required for completing the audit,
including reviews for contingent liabilities and subsequent events.
Recognize the major effects of computerization of accounting systems on a
company's operations and on the audit approach and explain the use of computer-
assisted audit techniques (CAAT).
their format, and how they evaluate students’ comprehension and application of core concepts. We will also discuss the similarities and
differences in these exams and how they prepare students for their respective careers.________________________________________1. Business Exams1.1. Overview of Business EducationBusiness
education prepares students for leadership and management roles in various industries. It focuses on critical thinking, decision-making, problem-solving, and understanding organizational processes. A typical
business program might cover topics like accounting
i
, Auditing and Assurance Services Module Courses: Auditing Principles and Practices I& II
Table of Contents
basic calculations to more complex word problems. The problems may require students to apply formulas, solve equations, or prove mathematical theorems.Theoretical Questions: In higher-level mathematics
exams, students may be asked to demonstrate their understanding of theoretical concepts, such as the proof and students are expected to demonstrate their ability to apply logic to prove statements or solve
problems. This is especially important in subjects like proof-based mathematics.Calculation and Accuracy: Mathematical exams test a student’s ability to perform accurate calculations and students are expected
to demonstrate their ability respective careers.________________________________________1. Business Exams1.1. Overview of Business EducationBusiness education prepares students for leadership and
management roles in various industries. It focuses on critical thinking, decision-making, problem-solving, and understanding organizational processes. A typical business program might cover topics like
accounting
CHAPTER ONE............................................................................................................................................ 1
THE NATURE, PURPOSE, SCOPE OF AUDIT AND ASSURANCE SERVICES ................................... 1
1.1. Meaning of Audit ............................................................................................................................... 1
1.2. Assurance Services: Overview ........................................................................................................... 1
1.3. Why Audits are Conducted ................................................................................................................. 2
1.4. Types of Audit and Auditors .............................................................................................................. 3
CHAPTER TWO........................................................................................................................................... 7
THE AUDITING PROFESSION .................................................................................................................. 7
2.1. The Regulatory Framework of Governing Auditing ........................................................................... 7
2.2. International Standards on Auditing (ISA) .......................................................................................... 8
2.3. Professional Ethics: Fundamental Principles, Threats and Safeguards ............................................... 9
2.4. Legal Liability of Auditors ................................................................................................................ 12
CHAPTER THREE ..................................................................................................................................... 14
MATERIALITY AND RISK ASSESSMENT ............................................................................................ 14
3.1. Audit Risk ........................................................................................................................................ 14
3.2. Materiality ......................................................................................................................................... 15
CHAPTER FOUR ....................................................................................................................................... 20
CLIENT ACCEPTANCE AND PLANNING THE AUDIT ....................................................................... 20
4.1 Client Acceptance and Continuance ................................................................................................... 20
4.2. Planning the Audit............................................................................................................................ 20
4.3 Appointment, Remuneration, and Removal of Auditors .................................................................... 21
CHAPTER FIVE ......................................................................................................................................... 23
AUDIT RESPONSIBILITY, OBJECTIVES, EVIDENCE AND RECORDING ....................................... 23
5.1 Audit Responsibility ........................................................................................................................... 23
5.2 Management Assertions ..................................................................................................................... 24
5.3 Audit Objectives ................................................................................................................................. 24
5.4 Auditing principles ............................................................................................................................. 26
5.5 Audit standards ................................................................................................................................... 26
5.6 Audit Evidence ................................................................................................................................... 28
5.7 Audit Documentation ......................................................................................................................... 29
CHAPTER SIX ........................................................................................................................................... 30
INTERNAL CONTROL ............................................................................................................................. 30
ALKAN department of Accounting & Finance ii
, Auditing and Assurance Services Module Courses: Auditing Principles and Practices I& II
6.1 Meaning and Objectives of internal controls ...................................................................................... 30
6.2 The Basic Elements of internal controls ............................................................................................. 31
6.3 Inherent Limitations32their format, and how they evaluate students’ comprehension and application of core concepts. We will also discuss the similarities and differences in
these exams and how they prepare students for their respective careers.________________________________________1. Business Exams1.1. Overview of Business EducationBusiness
education prepares students for leadership and management roles in various industries. It focuses on critical thinking, decision-making, problem-solving, and understanding organizational
basic calculations to more complex word problems. The problems may require students to apply formulas, solve equations, or prove mathematical theorems.Theoretical Questions: In higher-
level mathematics exams, students may be asked to demonstrate their understanding of theoretical concepts, such as the proof and students are expected to demonstrate their ability to apply
logic to prove statements or solve problems. This is especially important in subjects like proof-based mathematics.Calculation and Accuracy: Mathematical exams test a student’s ability to
perform accurate calculations and students are expected to demonstrate their ability CHAPTER SEVEN................................................... 36
AUDIT REPORT ........................................................................................................................................ 36
7.1 Types of Audit Reports .......................................................................................................................... 36
7.2 Basic Contents of a Standard Audit Report ........................................................................................ 38
CHAPTER EIGHT ...................................................................................................................................... 41
AUDIT SAMPLING AND TESTING ........................................................................................................ 41
8.1 Audit Sampling Concepts ................................................................................................................... 41
8.2 Audit Test ........................................................................................................................................... 44
8.3 Audit Test of Controls ........................................................................................................................ 45
8.3 Audit Test Of Control Vs. Substantive Audit Procedure ................................................................... 47
CHAPTER NINE ........................................................................................................................................ 50
AUDIT OF SALES AND COLLECTION CYCLE .................................................................................... 50
9.2 Internal Control for Sales ................................................................................................................... 52
9.3 Tests of Controls & Substantive Tests ofTransactions ........................................................................... 52
CHAPTER TEN .......................................................................................................................................... 58
AUDIT OF PAYROLL AND PERSONNEL CYCLE................................................................................ 58
10.1 Overview of the cycle...................................................................................................................... 58
10.2 Internal control system ..................................................................................................................... 58
CHAPTER ELEVEN .................................................................................................................................. 67
AUDIT OF ACQUISITION AND PAYMENT CYCLE ............................................................................ 67
11.1 Overview of the cycle...................................................................................................................... 67
11.2 The Audit of Property, Plant and Equipment ................................................................................... 67
CHAPTER TWELVE ................................................................................................................................. 78
AUDIT OF INVENTORY AND WAREHOUSE CYCLE......................................................................... 78
12.1 Nature of inventory .......................................................................................................................... 78
12.2 Control activities and Tests of Controls .......................................................................................... 79
12.3 Auditing Cost accounting ................................................................................................................ 80
12.2 Observing physical inventory ........................................................................................................... 81
CHAPTER THRTEEN................................................................................................................................ 86
AUDIT OF THE CAPITAL AND REPAYMENT CYCLE ....................................................................... 86
13.1 Overview of the cycle....................................................................................................................... 86
13.2 Key Internal Control......................................................................................................................... 87
ALKAN department of Accounting & Finance iii
basic calculations to more complex word problems. The problems may require students to apply formulas, solve equations, or prove mathematical theorems.Theoretical Questions: In higher-level mathematics
exams, students may be asked to demonstrate their understanding of theoretical concepts, such as the proof and students are expected to demonstrate their ability to apply logic to prove statements or solve
problems. This is especially important in subjects like proof-based mathematics.Calculation and Accuracy: Mathematical exams test a student’s ability to perform accurate calculations and students are expected
to demonstrate their ability
ALKAN HEALTH SCIENCE BUSINESS &
TECHNOLOGY COLLEGE
FACULTY OF BUSINESS AND
ECONOMICS ACCOUNTING &
FINANCE DEPARTMENT
Course Materials for Theme 5: Auditing
and Assurance Services
basic calculations to more complex word problems. The problems may require students to apply formulas, solve equations, or prove mathematical theorems.Theoretical Questions: In higher-level mathematics
exams, students may be asked to demonstrate their understanding of theoretical concepts, such as the proof and students are expected to demonstrate their ability to apply logic to prove statements or solve
problems. This is especially important in subjects like proof-based mathematics.Calculation and Accuracy: Mathematical exams test a student’s ability to perform accurate calculations and students are expected
to demonstrate their ability 1. Business Exams1.1. Overview of Business EducationBusiness education prepares students for leadership and management roles in various industries. It focuses on critical
thinking, decision-making, problem-solving, and understanding organizational processes. A typical business program might cover topics like accounting
This module contains two courses:
Auditing Principles and Practices I
(AcFn4061) Auditing Principles and
Practices II (AcFn4062)
i
, Auditing and Assurance Services Module Courses: Auditing Principles and Practices I& II
basic calculations to more complex word problems. The problems may require students to apply formulas, solve equations, or prove mathematical theorems.Theoretical Questions: In higher-level mathematics
exams, students may be asked to demonstrate their understanding of theoretical concepts, such as the proof and students are expected to demonstrate their ability to apply logic to prove statements or solve
problems. This is especially important in subjects like proof-based mathematics.Calculation and Accuracy: Mathematical exams test a student’s ability to perform accurate calculations and students are expected
to demonstrate their ability
Course Objectives & Core Competences to be acquired
After studying this course, the students should be able to:
Describe the nature of an audit and explain the economic and legal basis for
auditing.
The auditor's legal liability to clients and third parties.
Explain how materiality and various risk assessments impact the audit program.
Determine the audit procedure needed to audit any assertion.
Explain why auditors use sampling and apply audit-sampling techniques for evidence
acquisition and evaluation.
Identify and assess risks of material misstatement at both the assertion and overall
financial statement levels and respond to identified risks by designing and
implementing tests of controls & substantive tests for a variety of financial statement
elements.
Apply the concepts of audit planning, risk assessment, and obtaining an
understanding of the internal control structure to the sales and collection cycle, the
acquisition and payments cycle, the human resources and payroll cycle, the
inventory and distribution cycle and the capital acquisition and repayment cycles.
Complete the audit and describe the procedures required for completing the audit,
including reviews for contingent liabilities and subsequent events.
Recognize the major effects of computerization of accounting systems on a
company's operations and on the audit approach and explain the use of computer-
assisted audit techniques (CAAT).
their format, and how they evaluate students’ comprehension and application of core concepts. We will also discuss the similarities and
differences in these exams and how they prepare students for their respective careers.________________________________________1. Business Exams1.1. Overview of Business EducationBusiness
education prepares students for leadership and management roles in various industries. It focuses on critical thinking, decision-making, problem-solving, and understanding organizational processes. A typical
business program might cover topics like accounting
i
, Auditing and Assurance Services Module Courses: Auditing Principles and Practices I& II
Table of Contents
basic calculations to more complex word problems. The problems may require students to apply formulas, solve equations, or prove mathematical theorems.Theoretical Questions: In higher-level mathematics
exams, students may be asked to demonstrate their understanding of theoretical concepts, such as the proof and students are expected to demonstrate their ability to apply logic to prove statements or solve
problems. This is especially important in subjects like proof-based mathematics.Calculation and Accuracy: Mathematical exams test a student’s ability to perform accurate calculations and students are expected
to demonstrate their ability respective careers.________________________________________1. Business Exams1.1. Overview of Business EducationBusiness education prepares students for leadership and
management roles in various industries. It focuses on critical thinking, decision-making, problem-solving, and understanding organizational processes. A typical business program might cover topics like
accounting
CHAPTER ONE............................................................................................................................................ 1
THE NATURE, PURPOSE, SCOPE OF AUDIT AND ASSURANCE SERVICES ................................... 1
1.1. Meaning of Audit ............................................................................................................................... 1
1.2. Assurance Services: Overview ........................................................................................................... 1
1.3. Why Audits are Conducted ................................................................................................................. 2
1.4. Types of Audit and Auditors .............................................................................................................. 3
CHAPTER TWO........................................................................................................................................... 7
THE AUDITING PROFESSION .................................................................................................................. 7
2.1. The Regulatory Framework of Governing Auditing ........................................................................... 7
2.2. International Standards on Auditing (ISA) .......................................................................................... 8
2.3. Professional Ethics: Fundamental Principles, Threats and Safeguards ............................................... 9
2.4. Legal Liability of Auditors ................................................................................................................ 12
CHAPTER THREE ..................................................................................................................................... 14
MATERIALITY AND RISK ASSESSMENT ............................................................................................ 14
3.1. Audit Risk ........................................................................................................................................ 14
3.2. Materiality ......................................................................................................................................... 15
CHAPTER FOUR ....................................................................................................................................... 20
CLIENT ACCEPTANCE AND PLANNING THE AUDIT ....................................................................... 20
4.1 Client Acceptance and Continuance ................................................................................................... 20
4.2. Planning the Audit............................................................................................................................ 20
4.3 Appointment, Remuneration, and Removal of Auditors .................................................................... 21
CHAPTER FIVE ......................................................................................................................................... 23
AUDIT RESPONSIBILITY, OBJECTIVES, EVIDENCE AND RECORDING ....................................... 23
5.1 Audit Responsibility ........................................................................................................................... 23
5.2 Management Assertions ..................................................................................................................... 24
5.3 Audit Objectives ................................................................................................................................. 24
5.4 Auditing principles ............................................................................................................................. 26
5.5 Audit standards ................................................................................................................................... 26
5.6 Audit Evidence ................................................................................................................................... 28
5.7 Audit Documentation ......................................................................................................................... 29
CHAPTER SIX ........................................................................................................................................... 30
INTERNAL CONTROL ............................................................................................................................. 30
ALKAN department of Accounting & Finance ii
, Auditing and Assurance Services Module Courses: Auditing Principles and Practices I& II
6.1 Meaning and Objectives of internal controls ...................................................................................... 30
6.2 The Basic Elements of internal controls ............................................................................................. 31
6.3 Inherent Limitations32their format, and how they evaluate students’ comprehension and application of core concepts. We will also discuss the similarities and differences in
these exams and how they prepare students for their respective careers.________________________________________1. Business Exams1.1. Overview of Business EducationBusiness
education prepares students for leadership and management roles in various industries. It focuses on critical thinking, decision-making, problem-solving, and understanding organizational
basic calculations to more complex word problems. The problems may require students to apply formulas, solve equations, or prove mathematical theorems.Theoretical Questions: In higher-
level mathematics exams, students may be asked to demonstrate their understanding of theoretical concepts, such as the proof and students are expected to demonstrate their ability to apply
logic to prove statements or solve problems. This is especially important in subjects like proof-based mathematics.Calculation and Accuracy: Mathematical exams test a student’s ability to
perform accurate calculations and students are expected to demonstrate their ability CHAPTER SEVEN................................................... 36
AUDIT REPORT ........................................................................................................................................ 36
7.1 Types of Audit Reports .......................................................................................................................... 36
7.2 Basic Contents of a Standard Audit Report ........................................................................................ 38
CHAPTER EIGHT ...................................................................................................................................... 41
AUDIT SAMPLING AND TESTING ........................................................................................................ 41
8.1 Audit Sampling Concepts ................................................................................................................... 41
8.2 Audit Test ........................................................................................................................................... 44
8.3 Audit Test of Controls ........................................................................................................................ 45
8.3 Audit Test Of Control Vs. Substantive Audit Procedure ................................................................... 47
CHAPTER NINE ........................................................................................................................................ 50
AUDIT OF SALES AND COLLECTION CYCLE .................................................................................... 50
9.2 Internal Control for Sales ................................................................................................................... 52
9.3 Tests of Controls & Substantive Tests ofTransactions ........................................................................... 52
CHAPTER TEN .......................................................................................................................................... 58
AUDIT OF PAYROLL AND PERSONNEL CYCLE................................................................................ 58
10.1 Overview of the cycle...................................................................................................................... 58
10.2 Internal control system ..................................................................................................................... 58
CHAPTER ELEVEN .................................................................................................................................. 67
AUDIT OF ACQUISITION AND PAYMENT CYCLE ............................................................................ 67
11.1 Overview of the cycle...................................................................................................................... 67
11.2 The Audit of Property, Plant and Equipment ................................................................................... 67
CHAPTER TWELVE ................................................................................................................................. 78
AUDIT OF INVENTORY AND WAREHOUSE CYCLE......................................................................... 78
12.1 Nature of inventory .......................................................................................................................... 78
12.2 Control activities and Tests of Controls .......................................................................................... 79
12.3 Auditing Cost accounting ................................................................................................................ 80
12.2 Observing physical inventory ........................................................................................................... 81
CHAPTER THRTEEN................................................................................................................................ 86
AUDIT OF THE CAPITAL AND REPAYMENT CYCLE ....................................................................... 86
13.1 Overview of the cycle....................................................................................................................... 86
13.2 Key Internal Control......................................................................................................................... 87
ALKAN department of Accounting & Finance iii
