By
Y. O. OLAJIDE (FCA, FCTI)

• CONTROL OF AUDIT
• AUDIT PROGRAMME
• REPRESENTATION LETTER

AUDIT EVIDENCE
The basic duty of an auditor is the expression of an opinion on the true and fair view of the financial statement. Before this expression can be expressed, he must have been able to have enough audit evidence. The characteristics of audit evidence are:

Relevance
Reliability
Sufficiency

I.e. how relevant, reliable and sufficient are the information.

INFORMATION RELEVANT TO THE FINANCIAL STATEMENT
This is with respect balance sheet and profit and loss account.

Balance sheet

• Information to show that all assets and liabilities have being fully recorded
• Do these assets actually exists e.g. by physical verification
• Are there any information to show that the assets and liabilities belong to the company
• Are there any information to disclose these information as required by the CAMA 1990

THE PROFIT AND LOSS

• Ensure sales are fully recorded
• All expenses are documented and see that documents exist on the expenses.
• Ensure that sales are actually made and at arms length.
• That profit is stated by tax, auditors remuneration etc

Anything that will assist the auditor in the above is relevant.

RELIABILITY OF INFORMATION
it is basically agreed that documented evidence is more reliable than oral evidence
further, independent third party evidence is likely to be more reliable than document generated internally.

• Documented evidence
• Independent third party evidence
• Generated internal evidence
• Oral evidence

Consulting the company lawyer, bank and debtor/creditor circularization.
It has also being agreed that documents originated by the auditor himself are far more reliable than all the above evidences e.g. auditors alternative procedure compared to confirmed circularization which may not be current. Also, auditors computed accounting ratios and analytical review i.e. computed percentages for this  year and last year and raise question s on variations in the percentage; information into like  this is called analytical review. When all these type of evidence are in agreement, then reliance can be placed on the auditor evidences. The auditor can express his opinion.

SUFFICIENCY OF INFORMATIOON
i.e. information that should be enough for audit evidence. This will depend on the experience or judgment of the auditor.
The following factors will be considered by enough

• The materiality of the item.
• Auditors past experience with management
• Disclosure requirement
• Financial position of the company
• How passive is the evidence on the evidence shown.

LIST OF THE SOURCES OF AUDIT EVIDENCE
From the accounting records of the client.
From the management staff by asking questions.
From outsiders/suppliers
From solicitor
From banker
From insurance companies

The audit working paper is a documented evidence of all these information

TYPES OF AUDIT EVIDENCE

• observations – during the stock taking
• Physical inspection of Assets.
• third party confirmation
• internal control
• evidence with the firm, like the representation letter
• last year financial statement
• external/subsequent events (i.e. cut-off procedure evidence)

TECHNIQUES FOR COLLECTING AUDIT EVIDENCE

1. Counting e.g. physical inventory
2. Confirmation
3. examination of original documents – shares certificate
4. enquiries
5. Re-compute i.e. of depreciation rates etc.
6. performance of analytical review
7. Trace book keeping procedures.

CONTROL OF AUDIT (QUALITY CONTROL OF AN AUDIT)

• General procedure
• Specific procedure

• General procedure

Is to ensure that the audit firm is audited in an official manner, relate t5o the firm as a whole

• Specific procedure                                                                                                  this relates to each audit assignment i.i. of each client.

General procedure

• Will relate to criteria for accepting clients i.e. should the company be a medium firm, or fees, or professional qualification of an company account.
• There should be rules for corresponding ensuring the independent of audit staff e.g no loan to auditor, no share acquisition from clients, etc.
• Criteria for recruiting staff and promotion. These are criteria to ensure that the firm is being conducted in an efficient manner.
• Guideline for training staff e.g. manuals, indoor or outdoor training of staff.
• There should be an orderly process of review of audit work
• audit training
• juniors
• seniors
• managers
• partners

as audit progresses each staff review the work of the others and the partners round it up.

Specific procedure
The aim of specific procedure is to ensure the quality of audit work.

• first, ensure the work is properly planned. Involving the number of staff to be used.
• ensure proper allocation of work.
• ensure there is an appropriate audit programme.i.e. List of audit work to be carried out.
• ensure that the assignment time budget is strictly adhered to.
• ensure that the audit work is reviewed at interval. Because at the end of the audit but at interval to ensure quality of work.
• there must be proper and adequate documentation of the audit.

TYPES OF AUDIT REVIEW

• Supervisor/Manager/Partner
•  

Hot Review i.e.

• Done by the partner – ensure that all accounting principles and policies adhere to standard e.g. stock valuation, contract account profit/ loss taking.
• Whether the accounting policy consistent.

External Review
The partner is the auditor and he is only being helped by other staffs.
A partner who is not in-charge of the auditor can review the audit work and is called external review. i.e. exchange of audit files.
Here, partners from other firms review the work of another partner.

Per Review
This is done by partners of other firm out of the same size.

PROCEDURES TO ADOPT IN-REVIEW OF AUDIT WORK

• Review the accounting policies adopted by the client to ascertain compliance with IAS or SAS.
•  Consistency with previous years
• The analytical review of the financial statement
• checked by means of ratios.
• Compare figures of previous and present years
• Compare result of similar companies.
• Compare the trend.
• Te completion review to ensure that all disclosue requirement the being disclosed
• Cross reference the financial statement with the audit working paper which may be changed by the partner
• Review the internal control to see if there are a need of weaknesses.

• check lists

this has questions relating to requirement of IAS,SAS the CAMA 1990. These are to be ticked aand if all yes, then the audit is ok.

Hence control can be general or specific as in above.

AUDIT PROGRAMME
An audit programme is a list of the work an auditor does on the occasion of his audit.
The advantages of audit programme are

• It provides clear set of instruction on the work to be done.
• It ensures that work is not duplicated.
• It provides a clear record of work to be done and by whom.
• The work can be easily reviewed by a supervisor, manager or partner.
• it ensure that no important point is overlooked.
• it can be used as a define for negligence.

DISADVANTAGES

• The work may become mechanical.
• Initiative may be stifled. Since the programme is given already.
• where the audit programme is not covering the system in full, only part of the scheme may be executed without the whole.
• If the work is performed to a pre-determined plan, the clients staff may become aware of the fact and fraud.

REPRESENTATION LETTER
A representation letter is a letter to the auditor from the management confirming in writing opinions convened to the auditor already. It is usually obtained in the occasion of each audit. A representation letter is a form of audit evidence.

Content of representation letter

1. The letter should contain only matters which are material to the financial statement.
2. Matters which the auditor can not obtain independent evidence.

The above can contain

• Stocks
• Debtors
• Current Assets
• Liabilities
• Commitments
• Assets

ASSETS
The company had satisfactory title to all assets shown in the balance sheet.
All assets were free of any encumbrances.

STOCKS
All the company’s stocks and work in progress were physically verified at the year end and there were no material unexplained differences. All third party items were excluded.
Full provision has been made for obsolete, damaged and slow moving stocks. All stocks and work in progress have been valued at the lower of cost and act realizable value/

LIABILITIES
All liabilities have been recorded in the accounting records.

CONTIGENT LIABILITIES
There were no contingent liabilities other than those provided for and those included as note in the account.

PROVISION FOR LOSSES
Provision has been made in the accounts for all losses of material amount which has resulted or may be expected to result by legal action or otherwise from event which had occurred at the balance sheet date.

COMMITMENTS
There was no purchase commitment in excess of normal requirement or at prices in excess of prevailing market prices.

PROFIT AND LOSS ACCOUNT
Except as disclosed in the account, the results for the period were not affected by transactions of a sort not usually undertaken by the company and charges or credits relating to prior year.

In summary, a letter of representation must address liabilities at the balance sheet date, contingent liabilities, secured liabilities, valuation of stocks, book value of fixed assets and associated depreciation policies, post balance sheet events, inclusion of all known expenses and income in the accounting policy during the year if this is is the case.
Where the auditor prepares the account and audit, the auditor should make the management acknowledge the fact that they are responsible for preparing the account by the use of the representation letter.

PREPARED BY
Y.O.OLAJIDE (FCA, FCTI)
MANAGING PARTNER
Olajide and Associates Nig.
www.olajideassociates.com