Assignment No.

2
clearance Procedure

Audit

Assignment No. 2
Subject : Advanced Auditing (8533)

Submitted to:
Mr. Saad Hassan
Department of Business Administration
Submitted By:
Name : Anam khan
Roll No: AR 523959

( Department Of Business Administration)

Gujranwala Institute Of Management Studies,

Gujranwala
1

Advanced Auditing

Assignment No. 2
clearance Procedure

Audit

ACKNOWLEDGMENT
Person is not a perfect in all the contexts of his life, he has a limited mind and
mind thinking approaches. It is the guidance from Almighty ALLAH that shows the
man light in the darkness and the person find his way in the light. Without this
helping light, person is nothing but a helpless creation. The teaching of the Holy
Prophet Muhammad (PBUH) were also the continuous source of guidance for me
especially his order of getting knowledge and fulfilling once duty honestly was key
motivation force for me with prayers of my Parents and support of my Teachers it
became possible to formulate this report.

Advanced Auditing

Assignment No. 2
clearance Procedure

Audit

Abstract
Auditors understanding of the control environment, determines the audit procedures.
A strong control environment would provide more confidence about the effectiveness
of internal control and the reliability of audit evidence generated internally within the
entity and thus, for example, allows the auditor to conduct some audit procedures at
an interim date rather than at period end. If there are weaknesses in the control
environment, the auditor ordinarily conducts more audit procedures at period end
rather than at an interim date, seeks more extensive audit evidence from substantive
procedures, modifies the nature of audit procedures to obtain more persuasive audit
evidence, or increases the number of locations to be included in the audit scope.

Advanced Auditing

Assignment No. 2
clearance Procedure

Audit

Content

Title page......1
Acknowledgement ..2
Abstract .3
Content ..4
Audit Clearance Procedure.5
Test Of Control..5
Substantive Procedures ..6
Types Of Substantive Procedure....7
Analytical Procedure.8
Data Collection...9

Advanced Auditing

Assignment No. 2
clearance Procedure

Audit

Audit Clearance Procedure

Test of Control
The auditor is required to perform tests of controls:
When the internal controls are operating effectively or
When substantive procedures alone do not provide sufficient appropriate audit
evidence at the assertion level.
Tests of controls comprise of testing three things:
1. Design that the internal controls are properly designed to cover the risk it is
meant for.
2. Implementation that the internal controls have been put into operation.
3. Operating effectiveness that the systems of internal control were operating
effectively at relevant times during the period.

How to perform test of control

Testing the Design:
Proper design of internal control is tested through ICQs and ICEC.
Testing the Implementation:
Implementation of internal control is tested through walk through test with a little
sample size.
Testing the Operating effectiveness:
Here the test is performed through a compliance test based on a judgmental
sample.

Advanced Auditing

Assignment No. 2
clearance Procedure

Audit

Substantive Procedures
Substantive procedures are performed in order to detect material misstatements at
the assertion level (like; occurrence, completeness, accuracy, valuation, existence,
rights and control), and include tests of details of classes of transactions, account
balances and disclosures and substantive analytical procedures.
The auditor plans and performs substantive procedures to be responsive to the
related assessment of the risk of material misstatement.
Irrespective of the assessment of risk of material misstatement, the auditor should
design and perform substantive procedureThe auditors substantive procedures
should include the following audit procedures related to the financial statement
closing process:
Agreeing the financial statements to the underlying accounting records; and
Examining material journal entries and other adjustments made during the course
of preparing the financial statements.
When the auditor has determined that an assessed risk of material misstatement at
the assertion level is a significant risk, the auditor should perform substantive
procedures that are specifically responsive to that risk.

Advanced Auditing

Assignment No. 2
clearance Procedure

Audit

Types of Substantive Procedures

Test of details
Land Registry
Debtors Circular
Building rent Deed/Agreement
Analytical procedures
Payroll Turnover ratio

Comparing with previous months salary

Production Cost

Comparing with the number of units produced

Comparing with the previous months cost of
production

Nature of Substantive Procedures

Substantive analytical procedures are applied on large volume of transactions, which
are predictable over time.
Tests of details are ordinarily more appropriate to obtain audit evidence regarding
certain assertions about account balances, including existence and valuation.
Analytical procedures are applied on large volume of transactions, which are
predictable over time.(cost of goods sold, payroll, sale)
In designing substantive analytical procedures, the auditor considers such matters
as the following:
The suitability of using analytical procedures given the assertions.
If controls, over sales order processing, are weak; the auditor may place more
reliance on

tests of details rather than substantive analytical procedures for

assertions related to debtors.

When auditing the collectibility of accounts receivable, the auditor may apply
substantive analytical procedures to an aging of customers accounts in addition to
tests of details on subsequent cash receipts.

Advanced Auditing

Assignment No. 2
clearance Procedure

Audit

The reliability of the data;

In determining whether data is reliable for purposes of designing substantive
analytical procedures, the auditor considers the following:
o Information is ordinarily more reliable when it is obtained from independent
sources outside the entity
o Comparability of the information available
o Nature and relevance of the information available (whether budgets have
been established as results to be expected rather than as goals to be achieved.
o Controls over the preparation of the information (controls over the
preparation, review and maintenance of budgets)
Whether the expectation is sufficiently precise to identify a material misstatement at
the desired level of assurance.
For this the auditor considers the following facts:
i. The accuracy with which the expected results of substantive analytical procedures
can be predicted (comparison of GP ratio should be consistent rather than the ratio
of discretionary expenses like entertainment)
ii. The degree to which information can be disaggregated (effective analysis will be
of a component not of the entity as a whole)
iii. The availability of the information, both financial and non financial (budgets are
financial, whereas units of production are non financial)
The amount of any difference in recorded amounts from expected values that is
acceptable.
Depends upon the:
i. materiality
ii. Possibility of misstatement in the specific account balance, class of transactions,
or disclosurent)s for each material class of transactions, account balance, and
disclosure.

Advanced Auditing

Assignment No. 2
clearance Procedure

Audit

Data Collection
I collect all dthe data from different sources. Detail of data collection related to this
topic is as following;
Teacher:
Sir Saad Hassan
Books:
Advanced Auditing
Internet:
Data for audit clearance procedure is collected from different website through
Internet.

Advanced Auditing