CMADD Chapter 10 Audit Principles and Techniques Please support guy's do subscribe 👍#icsi #icsiexam

Added: 2026-05-22

[00:00:00]Chapter 10 CD. First question is fundamental principles governing an audit. Uh question may come as nine essential rules. If they ask nine essential rules and fundamental rules, the answer remains same. It refers of the roles and obligations of the evaluator or auditor and his overall set of accepted rules when conducting an audit or review. So three possibilities are there. First they will ask fundamental principles of governing an audit or nine essential rules that administer the method of auditing or it rattles off the rules and obligations of evaluator or auditor and his overall set of accepted rules. These three probability are there answer remain same. First integrity independence and objectivity confidentiality skill and competence work performed by the others documentation planning audit evidence accounting systems and internal controls. audit, conclusion and reporting. So for each we can read um starting with planning, second documentation, third skill and competence, fourth confidentiality, fifth audit evidence, sixth accounting systems and internal controls. Seventh, audit conclusions and reportings.

[00:01:20]At last, if you want to add, you can add integrity, independence, and objectivity. Next, audit techniques. So, audit techniques are the methods and procedures used by auditors to obtain sufficient and appropriate audit evidence to support their audit opinion.

[00:01:35]Here are some common audit techniques used by the auditors. Question may turn up in the exam like the auditor um is conducting an audit in the firm. Uh he want to obtain the sufficient uh still more evidence. what techniques he can use to get the evidence. So answer is examination of record, inquiry, sampling, confirmation, compliance, compliance test, use of computer techniques, substantive test, dependence on experts and auditors, analytical review. So remember the question question may turn up as um CS is conducting an audit. So he want to gather some more evidence. What techniques he can uh deploy to get the sufficient evidence so that he can form the opinion. Answer is examination of record, inquiry, sampling, confirmation, compliance, compliance test, use of computer technique, substantive test, dependency on experts and auditor analytical review. Next, preliminary preparation. Preliminary preparation is an essential step in the audit process because first preliminary before conducting the audit he will take some preliminary preparations. It involves what? Planning and preparation for the audit for the audit to ensure that the audit is conducted effectively and efficiently. So if the question turn up as uh to conduct the audit effectively and efficiently what preparation he has to take? Answer will this seven points here are some of the activities that auditors typically undertake during the preliminary preparation phase. What activities? Question may turn up as what activities does auditor undertake during preliminary preparation phase or second one is preliminary preparation is an essential step in the audit process.

[00:03:21]elaborate this or third question third type may be planning and preparation for the audit to ensure that audit is conducted effectively and efficiently.

[00:03:30]So if these three types any um these three types are the possibility of the question if these three lines appears answer is preliminary preparation. So first point uh understanding the entity, assessing the risk, developing an audit plan, assess assigning audit team members, communicating with the entity, developing audit program, establishing an audit file, understanding the entity, assess the risk, develop an audit plan, assigning audit team members, communicating with the entity, developing audit program, establishing an audit file. So here we can write like before intro we can add uh before starting the audit the auditor will go through the this following step. First intro like one two lines we we write this sentence and start the answer and next questioner. So if questionaire uh related any question comes intro first line questionaire is a comprehensive series of questions concerning internal control and in first par itself last line generally questions are so framed that yes answer denote satisfactory position and no answer suggest weakness. This also we can add in intro and when what is questionaire? Questionaire is a useful tool for auditors to gather the information from the audit. So questionaire is what it is a tool why it is being used in order to gain a better understanding of the organization's operations process and risk. So in order to gain a better understanding of organization operation process risk which tool is used questionnaire and one more type question may be asked is certain points to be kept in mind as to how a questionnaire may be used in audit.

[00:05:18]uh points are planning the audit, administrating the questionnaire, analyzing the responses, conducting the follow-up interviews, reporting the findings. These five points are enough.

[00:05:29]And when it comes to the gray box in the module, I have made a separate short.

[00:05:33]So, please go through it.

[00:05:36]Next, interaction through interviews.

[00:05:39]The main purpose for an interview in context of an audit are orientation, examination, confirmation. So what is the main purpose of an interview?

[00:05:49]Whenever you go imagine you you yourself are going for interview like that first main purpose is orientation examination confirmation and what happens in orientation means basic information will be collected through the questionnaire. this type of tool. By using these types we can collect the basic info and examination of audit evidence means specific issues related to the specific auditing and confirmation of info. When whenever uh auditor gets the information from the company um that is not more reliable. So auditor will confirm it from the third party that is a confirmation of the information.

[00:06:29]Next audit program. Audit program contains stepbystep instruction to be carried out by the team members. So auditor will not go alone, right? So he will take some staff members or team members. So for them stepby-step instructions will be given in the audit program. So audit program contains step-by-step instructions to be carried out by team members. That is simply a list of audit procedure. List of audit procedure is audit program and difference between audit plan and audit program also is there that's once you go through and identification of applicable laws inventory of applicable laws means list of the applicable inventory means list what and all applicable laws publishing compliance policy whether the if company has a policy they have to publish it and communication agendas minutes etc internal reports compliances on compliance compliance assessment. Next, creation of master checklist. So for creation of master checklist, we can use the first line. Audit is not a process of collecting data and checking the checkbox. It is a postmortm of the affairs of the company. The data and evidence collected during the execution of the audit shall be independently reviewed by the auditor. Enough. And go to the points. Entity operation and organization financial and non-financial. What and all generally if auditor want to check what and all he will check entity operation and organization how the entity is operating second financial and non-financial as we are more into non-financial matters next legal and regulatory requirement matter of shareholders and public interest review of control environment in control environment uh there is some more points that also may turn up next working papers and maintenance of worksheet Now here we can use first line audit working papers are the outcome of the documentation process. Working papers are the record what record of various audit procedures performed. What and all per procedures they have performed. It is a record. Working paper is a record.

[00:08:37]Record record. Audit evidence obtained allocation of work between the audit team members etc. Audit working papers are the documents. Documents and evidences that an auditor collects and written with himself during the audit.

[00:08:50]This first par is more sufficient. First par we have to write audit working papers are documents. What this is a record this is a document and evidence that auditor collects and writtens himself during with the audit and uh the working paper may include there are some points planning documents and all etc that go through and in gray box there is a question question arise that whether the working papers are the property of the client or auditor whether the client can demand custody of such working papers. Client cannot demand that is sure. So we'll go through this. Working paper are the record of various audit procedures performed. Audit evidence obtained allocation of a work between the audit team members etc. Audit workp papers are the documents. See what we have read in the first paragraph that itself repeating here. Audit working papers are the documents and evidences that an auditor collects and returns with himself during the audit. Thus the audit working papers are the property of the auditor and not of the client. Okay.

[00:09:47]audit working papers or the property of auditor. So we can in intro we can add working paper is record property and document and evidence of the auditor. So he will collect and return with himself during the audit. Uh no client cannot demand demand custody of the such working papers. The auditor may on his discretion. So it is a discretion of the auditor make portion or extracts of working papers available to his client.

[00:10:16]But the client cannot ask the auditor for custody of working papers. So answer is he cannot demand. It is a discretion of the auditor whether to give or no.

[00:10:26]And one more case study is related to cross referencing. If you cannot understand cross referencing, you can go through the case study for more clearly understanding of cross referencing.

[00:10:36]Next, standard working papers. Standard set of working papers will include at least two following documents. Standard means it will include two papers. What?

[00:10:45]At least the following documents not two three are there. Okay. General file, work paper file, future audit consideration. General file, work paper file, future audit consideration. So again next type of working papers, permanent, current, permanent, current, permanent, current, permanent means majorly remains same for all the companies whichever the companies going undergoing audit. Current file may differ depending on the organization.

[00:11:13]Next working paper review. So in this third line uh fourth line actually the auditor should review all audit review notes to be certain that all notes have been resolved within the working papers.

[00:11:26]This line we can add and the review will consist of compliance recognition reaching conclusion review audit program discuss with the management review audit procedure document review notes.

[00:11:40]Six points are there. Next filing and protection of the working papers. So this is like um all working papers are considered confidential and is the property of auditor. So it should be kept under adequate control. This should be protected from unauthorized used and working paper is process also need to be controlled by the auditor. This this is general topic identification of the event and corporate actions.

[00:12:05]Here in second line to to understand the company suffers the following points considered as events or information on which the auditor should specifically verify the compliance required. So these are the events or information which auditor should specifically verify whether the company has complied or no.

[00:12:28]These are the events or information what and all acquisitions for feature of shares revision in ratings means uh before company was in AAA now like the ratings revision in ratings and outcomes of the meetings board meet board or directors board of directors agreements frauds direct change in the directors appointment or discontinuation of the share transfer agent corporate restructuring one-time settlement enough testing methods used during the audit procedure.

[00:13:02]So audit procedure there are five core testing methods auditors used to confirm the facts and answers that a business wants to attend during an audit. Okay. Five types of testing method using used during the audit. So five types of testing methods used during the word during is important. If question is during the audit like uh a CS is uh conducting an audit during the audit he wants to test the compliance related matter what meth testing methods he can deploy. So inquiry observation examination or inspection of the evidence reperformance computer assisted audit technique computer assisted auditor technique. So first inquiry, observation, examination or inspection of evidence, reperformance, computer assisted audit techniques.

[00:13:58]So next is audit sampling. Before we write questionaire, questionaire is useful tool to gather information and audit sampling is investigative tool. So this is the investigative tool um within the population of the items will be selected. Some of the items will be selected. investigative tool. No matter what kind of audit is being performed, internal, external, government or audit sampling needs to be used so that auditors can complete their audits without wasting the resources in checking every single item. So this this line also may come uh the uh a company has appointed auditor he want to complete the audit without wasting resources in checking every single item.

[00:14:46]Which tool he can use? Answer is audit sampling.

[00:14:52]Write an introduction. It is an investigative tool in which less than 100% of the total item within the population of the items are selected to be audited. Okay. Next comes purpose.

[00:15:02]Purpose what? Gather enough evidence to conclude an audit opinion. Why this is useful to conclude an audit opinion.

[00:15:08]Reduce the number of resources used.

[00:15:10]Provide the basis of basis for auditors to issue and many more are there. Forms of sampling. Statistical audit sampling.

[00:15:18]Non-statistical audit sampling. In statistical audit sampling, we will use a uh technique called random sampling.

[00:15:26]Random sampling.

[00:15:28]In stats, we have read about random sampling. Randomly the auditor will choose some of the transactions on that he will verify random sampling statistical audit tool based on the random sampling. Non-statistical means based on his judgment or his experience he will select few of the samples.

[00:15:48]Internal controls.

[00:15:50]Internal controls are rules and procedures established by the company to ensure business continuity. Prevent fraud and preserve integrity and accuracy of financial. This is the first time in intro. A test of internal controls is an evaluation of existing controls either as a part of an official audit or in preparation. So test of internal controls either as a part of official audit or in preparation of for an audit to see if the controls are in place identify weakness. So next there are two primary purpose shortening the audit process providing additional audit evidence. Two pro two purpose form which why we are using the internal controls is shorten the audit process and provide additional audit evidence.

[00:16:38]Type of audit test of internal controls.

[00:16:42]There are below types internal control test. Each one is progressive and more comprehensive.

[00:16:49]Progressive and more comprehensive.

[00:16:51]These are the two keywords which you need to keep in mind. Each one is progressive and more comprehensive types of audit test of internal control.

[00:17:01]Inquiry, observation, examination or inspection, reperformance, computer edited audit tools. These are similar to the one which we have already read.

[00:17:09]Substantive testing.

[00:17:11]Substantive testing in is an audit technique. audit technique that checks for any errors or material misstatements in a company's accounts, financial statements or supporting documents.

[00:17:24]Means this generally will not be used uh used by the auditor. When he will use checks for any errors or material misstatements. If auditor is in doubt that any errors or material misstatements are there in the company only then he uses the substantive testing technique. audit technique.

[00:17:43]When company claims their financial records are accurate, complete and valued, substantive testing supports this claim as evidence that there are no errors.

[00:17:55]Even means companies claiming there are no um errors and all in substantive testing. If disproved, it acts as an evidence for the company what they are saying is correct means. Okay. Who does substantive testing either company's internal audit staff or hire external auditors both can do. Okay.

[00:18:19]So internal audits uh internal audit staff uh why they will do substantive checking means to improve the system or eliminate the problem so the company performs better in the next audit. Internal auditors typically conduct substantive testing at regular intervals throughout the year. External audits often get hired to conduct the substantive testing once a year usually at the end of the year. How do substantive test work or question may turn up as steps elucidating how substantive audit works?

[00:18:55]In both the way question may turn up how do substantive testing work? Steps elucidating how substantive audit works.

[00:19:03]So answer is a company makes assertion.

[00:19:06]Assertion means declarations. A company makes assertions, occurrence or existence, disclosure and presentation, obligations and rights, accuracy or valuation, completeness. And next, this is the first one. What related to assertion? Compan makes assertion.

[00:19:25]Second point is auditor creates a plan.

[00:19:29]In plan, three general activity.

[00:19:32]Three general activities auditor will include in this plan. What? Examine the physical adjustments and journal entries. Match the underlying accounting records with the company financial statements and the supporting documents. Test the different classes of account balances, transaction and disclosure. Third is an auditor shares audit result with a company. What happens when substantive testing finds an error? Usually there are only errors or misstatements. If if external auditors don't detect an error during the audit procedure which is called detection risk. If they are unable to find it is called detection risk. Internal auditors or internal record system don't identify or fix an error which is called control risk.

[00:20:20]Control risk the company or auditor does not detect initial initial initial errors when the financial process and reporting begin. And there are few examples of substantive testing.

[00:20:35]Verify, confirm, confirm, check. Next, audit trials.

[00:20:40]In this rule, three is very important.

[00:20:43]So, audit trial can be done by three.

[00:20:45]First, internally by the company itself or they can hire the external auditor even the government also. government will appoint uh do the government audit to know that whether the companies um uh can look into a company's records to check for mismanagement of funds or tax evations. So three first internal by the company or they can hire external auditor or government audit and this is uh it is a useful to trace all events right from the transaction entered into books of accounts to all the changes such as alteration deletion etc. So it is useful to trace all the events. So audit trail is a useful to trace all the events and u audit sampling is a investigative tool. Questioner is a useful tool to gather the information.

[00:21:33]Okay. So to to ensure this uh in company's accounting software there should be a audit trial feature inbuilt in the accounting softwares and rule three is the very important when it comes to audit trial. So it says about audit trial feature. Okay. How does audit trial work? Key financial details to track as a part of audit trial. Five points are there. Purpose of audit trial.

[00:22:02]Benefit of an audit trial. MCA audit trial system has several benefits. So increased transparency, improved accuracy, great accountability, enhanced regulatory compliance, full proof of company books are clean and in a healthy state.

[00:22:19]Next, analysis of audit findings. This is like means a written summary of all the instances of nonconformance with the requisite provision. So question may turn up like a written summary of all instances of nonconformance with the requisite provision. Comment what analysis of audit findings determine the plan of action done chapter 10 and answers to module backside questions is like first one is list down the various audit techniques.

[00:22:53]So uh points are examination of record, inquiry, sampling, confirmation, compliance, compliance test, use of computer technique, substantive test, dependence on experts, auditors, analytical review. Second question is define testing methods used during the audit procedure.

[00:23:12]Answer is um inquiry, observation, examination or inspection of the evidence, reperformance, computer assisted audit technique. And third question is what is audit sampling? What is the purpose of audit sampling? So first in intro it is investigative tool and purpose is let five six 1 2 3 4 seven points are there to gather to reduce to provide to detect to prove used as a tool for investigating audit sampling. importance and here one uh one line is there when auditing financial statement is not feasible to audit and check every single item within the financial statement it will be very costly and will take a lot of resources and time to do so. So auditor sampling works here that we can write in intro. Fourth question what is substantive checking? How does substantive testing work? So answer is first we have to write it is an audit technique that check any errors or material misstatements and if company claims all the financial records are clean and completeness uh it acts as an evidence for the statement given by the company and how do uh ex um substantive test work means three points. First one is company maker assertion in that sub points are there. Second point is auditor creates a plan. In the three sub points are there general activity related. And third one is an auditor shares audit results with the company.

[00:24:39]Next the last question explain audit trial. What are the benefit of audit trial? Here we can write audit audit trial uh done by three. first internal audit, external audit or government audit. And uh rule three that is um um from on or after the 1st April 2023, every company has to use the accounting software to maintain the books of accounts. That is the rule three and benefits. Benefits are increased transparency, improved accuracy, greater accountability, enhanced regulatory compliance, foolproof and we are done with chapter 10. Thank you.