Below is an article that can help you in the exams hall on how to carry out the audit procedure work by VijayaSwaminathan (a technical author for Paper F8 at getting Through Guides)

Audit procedures are an important area of the syllabus, though candidates often use inappropriate audit procedures to answer questions. The following tips will help you to understand the concepts and write appropriate audit procedures.

Every audit procedure must state

• the assertion tested

• the audit procedure

• the reason for the procedure.

Each of these points is explained below.


Audit procedures are performed in order to test financial statement assertions.

Therefore, the first step in explaining an audit procedure is to identify the assertion that needs to be tested.

The assertions embodied in the financial statements, as used by the auditor to consider the different types of potential misstatements that may occur, may take the following forms:

a.       Transactions and events

• Occurrence

• Completeness

• Accuracy

• Cut-off

• Classification

b.      Account balances at the period-end

• Existence

• Rights and obligations

• Completeness

• Valuation and Allocation

c.       Presentation and Disclosure

• Occurrence and rights and obligations

• Completeness

• Classification and understandability

• Accuracy and valuation

A brief explanation of the various assertions is as follows:

1.1. Completeness

This means that all transactions have been recorded in the financial statements – i.e. all assets, liabilities, equity interests (capital and reserves) and other disclosures have been included in the financial statements.

1.2. Occurrence

This assertion means that transactions and events and other matters that have been recorded actually took place – and relate to this organisation.

1.3. Valuation and allocation

This means that all items have been included in the financial statements at appropriate amounts according to company policy and the relevant financial reporting framework. Furthermore, any allocations or valuation adjustments required (like impairment) have been made and financial and other information is disclosed fairly and at appropriate amounts.

1.4. Classification and understandability

Financial information is appropriately presented and disclosed, and disclosures are clearly expressed so as to make them understandable to the users. For this, the disclosures should use simple language and state matters clearly and concisely.

1.5. Accuracy

Accuracy means that amounts and other data relating to transactions and events have been recorded at the correct amounts – i.e. at the amounts appearing in the source documents.

1.6. Rights and obligations

This means that the entity has a right to its assets –this means the entity is free to use or dispose of the assets as it sees fit. Furthermore, the entity is obliged to pay off the liabilities that are shown in the statement of financial position.

1.7. Existence

This means that assets, liabilities and equity interests (capital and reserves) are physically present/belong to the entity on the reporting date.

1.8. Cutoff

This means that transactions and events have been recorded in the correct accounting period – for example, if goods are delivered prior to yearend, they are included in the cost of goods sold, not inventory.


To be able to remember this, we can use the “ACCA COVER”.


Example of substantive procedure relating

to valuation of property, plant and

equipment (PPE)
Choose the assertion that

will be tested
Choose an assertion from Completeness,

Valuation and allocation, Rights and

obligations and Existence if you are testing

the period-end balance of PPE; valuation of

non-current assets is the assertion tested
Identify the risk that will cause a

material misstatement in the

financial statements –

the audit risk is the total value of

PPE that may be misstated due

to over-valuation/

undervaluation of PPE
One risk relates to the revalued assets not

representing fair values, thus misstating

Think of the audit procedures

that should be performed in

order to avoid the risk

mentioned in step 1

(refer to ‘AEIOU’ below)
The auditor will check the availability of a revaluation report (a source document for the revaluation) and confirm that the value mentioned in the valuation report matches the amount at which the PPE is revalued and shown in the financial statements.

Furthermore, the auditor will recalculate

the revaluation surplus in accordance with

the provisions of IAS 16, Property, Plant and

Equipment to confirm the correctness of the accounting entries relating to revaluation surplus. The amount added to

revaluation surplus should be the

difference between the net book value of

PPE and the revalued amounts.

The auditor should check the assumptions used in the report for reasonableness. For example, the value per square feet in the valuation report should be similar to the value per square feet of other similar properties in that locality.

There are many more procedures that will apply to this risk.
Follow the above method for testing other assertions too.

Choose audit procedures from AEIOU

A: Analytical procedures

E: Enquiry and confirmation directly from a third party – i.e. inquiry

I: Inspection of records and assets

O: Observation

U: recalcUlation and reperformance

A complete audit procedure would read as follows:

The auditor will check a sample of items from the inventory sheets to the raw material inventory (1) to ensure that the inventory recorded on the sheets actually exists (2). This will confirm the assertion of the existence of inventory as an asset in the financial statements (3).

(1 = the audit procedure; 2 = the reason for the audit procedure; 3 = the assertion).

If the above-mentioned procedure is written as ‘The auditor will check a sample of items from the inventory sheets to the raw material inventory’, it is incomplete as it does not mention why the audit procedure is being performed.


The examiner’s reports mention various errors that candidates make while writing audit procedures. Here is a summary of the common errors.

While writing audit procedures, avoid the following:

a) Writing an audit procedure without explaining the reason for the procedure – for example, ‘The auditor will check a sample of items from the inventory sheets to the inventory.’

b) Stating an assertion word as a reason for performing a procedure – for example, ‘confirming the occurrence of sales’.

c) Writing what the internal control system should do rather than stating the audit procedure – for example, ‘for all goods received, there should be goods received note raised’.

d) Writing vague procedures – for example, ‘check the invoice’, ‘check the goods received note’, etc. These procedures are inappropriate as they do not mention what is to be checked and the reason for checking them.

e) Quoting incorrect assertions – for example, ‘tracing details from the purchase orders to the goods received notes in order to confirm the existence of the goods’ – the completeness assertion would apply here.

f) Including procedures that cannot be carried out – for example, ‘agree with individual items of physical inventory to the goods inwards documentation’. It will not be possible to agree with the physical goods to the goods inwards documentation, as the goods could already be included in the items produced by the company.

g) Including procedures that are incorrect – for example, ‘agree with details from the purchase orders (like the description of items ordered, quantities ordered) to the goods held in the inventory store’. This is an incorrect audit procedure as goods received notes (not purchase orders) are used to update inventory.

h) Writing impractical procedures – for example, suggesting segregation of duties between the person authorising petty cash vouchers, recording petty cash vouchers and dispensing the petty cash.

i) Writing irrelevant audit procedures – for example, when you are asked to write audit procedures relating to depreciation of a non-current asset, it will be inappropriate to provide general audit procedures relating to the audit of non-current assets.

Audit procedures are a vital part of your examination. Therefore, you need to practise explaining the audit procedures as suggested above in order to perform well in the exam.

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