Audit Procedure

Question: As a result of work undertaken during the planning stage and audit evidence collected for the tests of controls stages of the audit, Robert Smith has determined that there is a low risk of material misstatement (low inherent and control risk) for the following account balances: Wages and salaries Electricity Repairs and maintenance Due to the expected reliability of these controls, Robert has undertaken extensive testing of the controls regarding these account balances, and has concluded that the controls are reliable. Required: Identify one substantive audit procedure for each of the account balances above that will provide sufficient appropriate audit evidence regarding the accuracy of that account balance. Answer: Audit procedure generally means the procedure used by auditors for evaluating financial information by exploring the relationship between financial and non-financial data (www.cpaaustralia.com.au 2016). In the given case scenario, audit evidence has been collected and it has been concluded by the auditor that there is a low risk of misstatement with respect to three elements Wages and Salaries Electricity, and Repairs and Maintenance We will be describing a suitable audit procedure for all the above-mentioned elements. Wages and Salaries Identifying the assertion is the most important part while conducting an audit. Payroll audit procedures need to be accurate so that employees are paid what they are entitled to. It also helps in drawing up an accurate net profit figure without inflating expenses. The most appropriate audit procedure for wages and salaries will be Inspection of Records and Assets. Payment of wages involves some of the most important tasks of verifying active employees, verifying their pay rate, review the payments paid and gathering of information from payroll reports and general ledger (www.accaglobal.com 2016). All these factors determine the nature and type of the internal control system prevailing within the organisation and its strength to counter various risks arising out of the business activities of the concern (Auditnet.org 2016). A critical evaluation of the past and the present records is required to be done in order to ensure that misstatements are avoided at all costs. Therefore, a subst antive audit procedure is suitable for salaries and wages. Electricity In the present environmental conditions, energy audit has become very important to ascertain the amount of energy used by an organisation and the mode for which it has been utilised. The primary objective of energy audit is to save energy and regulate its consumption. It is important to evaluate organisational demand for energy and consumption of the organisation. It also involves evaluating the appliances that are being utilised by the organisation (Www4.semo.edu 2016). The next step involves calculating the amount of electricity consumed and finding out ways to optimise the usage after closely evaluating the results obtained from calculation. Therefore, auditing energy consumption will involve two important aspects as follows: Observing the energy consumption, and Evaluating the demand and supply to find out consumption In essence, it can be said that two types of audit procedures can be used for electricity Observation and Analytical Procedures. The most suitable assertion for energy audit will be Accuracy and valuation. Therefore, it can be seen that energy audit holds importance not only from financial viewpoint but also from social stand of the organisation. Repairs and Maintenance Repairs and maintenance with respect to fixed assets may be planned or unplanned. Planned repairs involve fixing a definite budged for such purpose. However, unplanned repairs and maintenance work of the fixed assets gives rise to unplanned expenditures. This in turn affects asset valuation as on the date of the audit. Auditing for repairs and maintenance includes verifying the existence of the assets concerned. A proper analysis is required to be done and it should be complete from all respects. This includes the nature and source of the assets and evaluation of various lease financed assets (www.accaglobal.com 2016). The expenses incurred are required to be evaluated and recalculated in order to verify their accuracy. On the other hand, if expenses are inflated, it will tend to reduce the profit of the organisation. This in turn, will tend to attract less tax liability. Therefore, it is very much important to critically analyse and evaluate the expenses incurred on repairs and main tenance. Thus, it can be said that the most appropriate audit procedures for the same are as follows: Inspection of records and assets, and Enquiry from third parties Thus, it can be concluded from the above discussion that care should be taken while selecting the audit procedures for different transaction. References Auasb.gov.au. (2016).Australian Auditing Standards. Audit, A.I. and Australia, I., 2015. SUBMISSION: AUSTRALIAN INFRASTRUCTURE AUDIT. Auditnet.org. (2016).Accounts Payable Fraud 10 Ways to Identify It - AuditNet.