Para 2.1.24 — MSO (Audit)
Original Rule Text
2.1.24 Various steps involved in performing direct substantive testing are as follows:
(i) Identification of the sub-system to be tested. For example, while auditing the Transport Department, one of the sub-systems could be purchases.
(ii) Identification of the sub-audit objective to be tested for the selected subsystem. For example, the sub-audit objectives could be to check whether ‘the transactions are accurately reflected in the accounts’ or ‘all purchases are completely accounted for in the records’.
(iii) Identification of the technique for gathering evidence. Continuing with the earlier example, to test the sub-audit objective of whether the transactions are accurately reflected, the auditor may re-perform the calculations in the purchase vouchers. However, in order to test whether all the purchase transactions have been accounted for, the auditor may reconcile the purchase book with the invoices received from the suppliers or with the suppliers’ ledger.
(iv) Determination of the sample size and performance of a test check using the identified technique for evidence gathering.
(v) Formulation of conclusions on the fulfilment or otherwise of the sub-audit objective for the selected sub-system.
# Audit Planning
What This Means
Direct substantive testing follows five steps: (1) identify the sub-system to test (e.g., purchases in the Transport Department), (2) identify the specific audit objective (e.g., whether transactions are accurately reflected in accounts), (3) choose the right evidence-gathering technique (e.g., re-performing calculations or reconciling records), (4) determine sample size and perform the test check, and (5) draw conclusions on whether the audit objective has been met.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Step 1: Identify the sub-system (e.g., purchases, payroll)
- 2Step 2: Identify the specific sub-audit objective to test
- 3Step 3: Select the appropriate evidence-gathering technique
- 4Step 4: Determine sample size and perform the test
- 5Step 5: Formulate conclusions on whether objectives are fulfilled
- 6Different objectives may require different testing techniques
Practical Example
Auditing the Transport Department's purchases: the auditor selects 'purchases' as the sub-system, with two objectives — (a) accuracy: re-performs arithmetic in purchase vouchers to check if amounts are correctly calculated, and (b) completeness: reconciles the purchase register with supplier invoices to verify all purchases are recorded. Sample sizes are determined, tests executed, and conclusions drawn for each objective separately.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
Why might different audit objectives need different techniques?▼
What determines the sample size?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.