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No audit firm wants to have to explain to the press the loss of a big client. This gives the directors of the large company a commanding position over its audit firm and they may look to take advantage of it. The audit team would feel pressured to satisfy the needs of the directors and in doing so would lose their independence.
It serves to guide the auditor on obtaining audit evidence through the application of an appropriate mix of tests of control systems and substantive tests of transaction and balances. It requests the auditor to obtain 'sufficient' and 'appropriate' audit evidence in order to draw reasonable conclusions on which to base the audit opinion.
ISA 400 talks about the "walk through testing" or auditing in depth test. This standard was withdrawn in 2004, and has been replaced with the ISA 315, “Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement” and the ISA 330, “The Auditor’s Procedures in Response to Assessed Risks” [ citation needed ]
In the control testing stage, audit evidence is used by the auditor to consider the mix of audit test of controls and audit substantive tests. [9] In the substantive testing stage, audit evidence is defined as the information that the auditor needs to support the appropriation of financial statement assertions. [10]
Audit working papers are the property of the auditor. In order to keep professional ethic , it cannot reveal to third parties without client consent unless limited specified situations mentioned in ISA 230 Documentation and required by law , the examples are court order , for public interest and so on.
Analytical procedures include comparison of financial information (data in financial statement) with prior periods, budgets, forecasts, similar industries and so on. It also includes consideration of predictable relationships, such as gross profit to sales, payroll costs to employees, and financial information and non-financial information, for examples the CEO's reports and the industry news.
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Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes. [1]