Auditing Practices Overview

Real-time Audit and Assurance interview Q&A Q1: What is the primary objective of an audit? A: The primary objective of an audit is to express an opinion on the fairness and accuracy of the financial statements in accordance with applicable financial reporting frameworks (e.g., GAAP, IFRS). It ensures that the statements are free from material misstatement, whether due to fraud or error. Q2: How do you test internal controls during an audit? A: Testing internal controls involves: Understanding the Process: Reviewing process documentation, flowcharts, and walkthroughs. Assessing Design Effectiveness: Ensuring controls are designed to mitigate risks effectively. Performing Tests of Controls: Conducting sample testing, inspecting evidence, or performing re-performance to check operational effectiveness. Evaluating Results: Concluding whether the controls are working as intended or if there are deficiencies. Q3: What are substantive procedures? Can you give examples? A: Substantive procedures are audit techniques used to detect material misstatements in financial statements. Examples include: Test of Details: Verifying individual transactions or balances, such as checking invoices or contracts. Analytical Procedures: Comparing trends, ratios, and variances, such as comparing gross profit margins year-over-year. Q4: What is the audit risk model, and how is it applied? A: The audit risk model is: Audit Risk (AR) = Inherent Risk (IR) × Control Risk (CR) × Detection Risk (DR). Inherent Risk: The risk of material misstatement without considering controls. Control Risk: The risk that controls fail to detect or prevent misstatements. Detection Risk: The risk that the auditor's procedures fail to detect misstatements. Auditors apply this model to determine the nature, timing, and extent of audit procedures. Q5: How do you determine materiality in an audit? A: Materiality is determined based on the following: Quantitative Factors: A percentage of benchmarks like total revenue, net profit, or total assets. Qualitative Factors: The nature of the transaction, regulatory impact, or stakeholder significance. Materiality thresholds help focus audit efforts on areas with potential significant misstatements. Audit Reporting Q6: What are the different types of audit opinions? A: Unqualified Opinion: Financial statements are free from material misstatement. Qualified Opinion: Financial statements are fairly presented except for a specific issue. Adverse Opinion: Financial statements are not fairly presented. Disclaimer of Opinion: The auditor cannot express an opinion due to a lack of sufficient evidence. Q7: Explain the difference between vouching and verification. A: Vouching: Examining source documents to ensure transactions are recorded correctly (e.g., verifying invoices and receipts). Verification: Checking the existence, ownership, and valuation of assets and liabilities (e.g., physically inspecting inventory or confirming balances with third parties).

#Audit & #Inspection: Know the Difference ➤ Audit is a comprehensive, structured process and part of the Quality Assurance (QA) system. It digs deeper, aiming to identify root causes of issues. Since it follows specific rules and standards, audits are less frequent and more thorough, presenting a bigger picture of your entire program. ➤ Inspection, on the other hand, is part of the Quality Control (QC) system. It's more straightforward, but it may miss underlying issues, especially those that take extra time to identify. It usually focuses on fewer characteristics and is more frequent compared to audits. Both serve crucial roles, but understanding their purpose helps in deploying the right one at the right time for your operations. 🔑 Key takeaway: Audits are about root causes and structure, inspections are about identifying issues quickly.

How to do Audit??📝 Sharing a simple step-by-step guide to help fellow CA articles understand the process. Share and Repost Audit Process – Step-by-Step ⸻ 1️⃣ Pre-Audit Preparation ◆ Understand Scope: • Period: Financial Year / Quarter ◆ Collect Documents: • Financial Statements (Trial Balance, P&L, Balance Sheet) • GST Returns, Income Tax Returns • Bank Statements, Loan Statements • Fixed Asset Register, Stock Register • Agreements, MOUs, Lease Deeds ⸻ 2️⃣ General Ledger Review ◆ Export GL from Tally/ERP ◆ Scan for unusual entries: ✅ Large round-figure entries ✅ Negative balances in assets/liabilities ✅ Suspense Account, Misc. Expenses ⸻ 3️⃣ Revenue Audit ◆ Match Sales Register → GSTR-1, GSTR-3B, Income ◆ Check: ❗ Unbilled Revenue ❗ Revenue Cut-off (sales booked in correct period) ❗ Discounts/Rebates accounted ⸻ 4️⃣ Purchase and Expense Audit ◆ Purchase Audit • Match Purchase Register → GSTR-2A / 2B • Check invoices, POs, GRNs, approvals • Verify rates, quantities, vendor details • Review input tax credit (ITC), TDS compliance ❗ Watch for duplicate or missing entries ◆ Expenses Audit • Purchase → GSTR-2A/2B match • Salary → Check with payroll, TDS return • Rent, Professional Fees → Verify TDS compliance ◆ Look for: ❗Personal expenses booked in business ❗ Large cash expenses (> ₹10,000 disallowed under Income Tax) ⸻ 5️⃣ Bank & Cash Audit ◆ Reconcile bank balance → Bank statement ◆ Check cash balance → Cash book, physical count (if internal audit) ⸻ 6️⃣ Fixed Assets Audit ◆ Check: • Additions & disposals during the year • Depreciation as per Companies Act / Income Tax Act • Physical verification (if done) ◆ Watch for: ❗ Capital expenses wrongly booked as revenue ❗ Missing asset identification ⸻ 7️⃣ Statutory Compliance Audit ◆ Verify compliance: • GST returns (GSTR-1, 3B, 9) • TDS returns, Form 26AS • PF, ESI, PT filings • Income tax advance tax, returns ◆ Check: ❗ Penalties for late filings ❗ Interest on delayed payments ⸻ 8️⃣ Receivables & Payables Audit ◆ Ageing analysis: • Debtors → overdue & doubtful • Creditors → old balances ◆ Review: ❗ Provision for bad debts ❗ Excess credit balances ⸻ 9️⃣ Inventory Audit ◆ Physical stock verification report ◆ Check valuation (FIFO, weighted average) ◆ Identify: ❗ Slow-moving, non-moving, obsolete stock ⸻ 1️⃣0️⃣ Loans & Advances Audit ◆ Verify loan agreements ◆ Confirm balances with lenders ◆ Check: ❗ Interest rates, repayment schedule ❗ Security/collateral ⸻ 1️⃣1️⃣ Internal Controls Review ◆ Review approval processes ◆ Check segregation of duties ◆ Evaluate fraud prevention controls hashtag #CharteredAccountant hashtag #Caarticles hashtag #Form3CD hashtag #Form3CA hashtag #IncomeTax hashtag #TaxCompliance hashtag #CATools hashtag #Finance hashtag #AuditSeason hashtag #Excel

List of Documents(PBC) auditors should normally ask from clients at start of audit : During a year-end statutory audit, auditors typically request a variety of documents to assess the financial position and performance of a company. While the specific documents may vary based on the nature of the business and audit scope, here's a general list: 1. **Financial Statements:** - Balance Sheet - Income Statement - Cash Flow Statement - Statement of Changes in Equity 2. **Ledgers and Journals:** - General Ledger - Subsidiary Ledgers - Cash Book - Sales Journal - Purchase Journal 3. **Bank Statements:** - All bank statements for the audit period 4. **Invoices and Receipts:** - Sales invoices - Purchase invoices - Receipts and payment vouchers 5. **Contracts and Agreements:** - Any significant contracts or agreements affecting financial statements 6. **Depreciation Schedule:** - Schedule of fixed assets and depreciation 7. **Inventory Records:** - Details of inventory, including valuation methods 8. **Payroll Records:** - Payroll registers - Employee contracts and records 9. **Tax Documents:** - Tax returns - Correspondence with tax authorities 10. **Legal Documents:** - Articles of Incorporation - Bylaws - Board meeting minutes 11. **Bank Reconciliation Statements:** - Reconciliations for all bank accounts 12. **Audit Confirmation Letters:** - Letters sent to third parties to confirm balances and transactions 13. **Fixed Assets Register:** - Register detailing fixed assets, additions, disposals, and depreciation 14. **Management Letters:** - Letters from management regarding internal controls and other matters 15. **Revenue Recognition Documentation:** - Evidence supporting revenue recognition methods 16. **Loan Agreements:** - Details of any loans, including terms and covenants 17. **Insurance Policies:** - Details of insurance coverage 18. **Contingent Liabilities:** - Information on any potential liabilities 19. **Minutes of Board Meetings:** - Records of board meetings held during the audit period 20. **Subsequent Events:** - Information on events occurring after the balance sheet date This list is not exhaustive, and auditors may request additional documents based on the specific circumstances of the company being audited. It's crucial for the audited entity to cooperate and provide accurate and complete information to facilitate a thorough and effective audit. #statutoryaudit #uscpa #cpa #cpafirms #charteredaccountants #acca #accaglobal #interviewpreparation #interviewquestions #interviews #pbc #documents #clients

🔍 Risk-Based Auditing: Auditing What Truly Matters In today's dynamic business environment, Risk-Based Auditing (RBA) is not just a method—it's a mindset. Rather than treating all processes equally, RBA helps organizations focus their audit efforts on areas with the greatest potential for impact, whether it's operational, financial, or reputational. ✅ Prioritize high-risk processes ✅ Strengthen internal controls where they matter most ✅ Enable data-driven decision-making ✅ Drive real, sustainable improvements By aligning audit efforts with risk exposure, organizations not only enhance compliance but also add strategic value across departments. Whether you're in aviation, healthcare, infrastructure, or manufacturing — RBA transforms your audit function from a checklist activity into a strategic partner. 📌 Key takeaway: Risk-based auditing is about asking “What could go wrong here, and how do we prevent it?” before issues arise. Let’s stop auditing for the sake of it. Let’s audit with purpose. #RiskBasedAuditing #InternalAudit #QualityManagement #OperationalExcellence #Compliance #RiskManagement #ISO9001 #Leadership #ContinuousImprovement

🚨 AI + Font Forensics = ₹68 Lakh Tax Fraud Busted in Hyderabad 🚨 The Income Tax Department in Hyderabad recently used AI-powered font forensics to uncover a Long-Term Capital Gains (LTCG) fraud worth ₹68.7 lakh. A taxpayer claimed improvement costs from a bill dated 2002, but AI tools flagged the use of the Calibri font—which was only released in 2006–07. This inconsistency exposed the document as forged, prompting a revised ITR and additional taxes paid . 🔍 Why This Matters for Auditors & Risk Professionals 1. Innovative Forensics AI isn't just for big data and predictive insights—it’s now a frontline tool in document authenticity verification. Font analysis is a low-cost, high-impact method. 2. Red-flag Awareness It’s not enough to verify the content—verify the context. Details like font age, metadata timestamps, or even document origin can reveal fraud. 3. Regulatory Relevance Tax authorities are stepping up forensic capabilities. Expect similar methods to be applied in other regulatory areas—GST, money laundering, financial filings. 4.Upgrade Your Toolkit Incorporate similar forensic checks—font, metadata, version histories—into due diligence, vendor audits, expense claim reviews, and whistleblower investigations. ✅ Action Steps ✅ Add font & metadata analysis to your internal audit and investigation playbooks. ✅ Train teams to look beyond signatures—validate document authenticity at a granular level. ✅ Evaluate simple AI tools that can detect anomalies in fonts or document history. ✅ Share this knowledge in audit committees, risk forums, and compliance training. This case is another reminder: fraudsters adapt, but so must we. In a world where even fonts can betray deception, staying ahead requires curiosity, precision, and technology-backed scrutiny. What forensic techniques are you using to catch today’s more subtle frauds? #Forensics #Audit #RiskManagement #AI #InternalAudit #Compliance

Manual evidence collection is a relic of point-in-time audits. Continuous monitoring flips the script: The system sends us evidence. - Use AWS Config, Security Hub, or GCP SCC to emit JSON findings continuously. - Land everything in an S3 “evidence lake” with stamped hashes. - Every failed control triggers a Slack alert and writes a record auditors can inspect. - Quarterly audit? The data is already there. No heroic screenshot sprints required. If your evidence isn’t collected by code while you sleep, is it really “continuous”monitoring? Automating evidence frees humans to interpret risk instead of hunting files. This is exactly where smart GRC engineers add value. #GRCEngineering

I have been exploring the topic of audit sampling, particularly from a random sampling perspective to understand how many samples are typically sufficient, especially when dealing with large populations running into thousands. I was primarily interested in identifying an effective random sampling strategy that could help minimize detection risk. This question also stems from discussions with first-line teams striving to remain audit ready. It’s important for them to have a well-articulated rationale for how they gain comfort over the effectiveness of their processes and controls, and how they demonstrate that readiness from an audit perspective. While I was able to find some of the answers I was looking for, captured in the attached slides. I also included some fundamental concepts that may be widely known, but I felt were essential for this consolidation. The analysis is based on my own judgment, shaped by past experiences, and is supported by methodology references from AICPA, The Institute of Internal Auditors Inc. (IIA), and COSO (Committee of Sponsoring Organizations of the Treadway Commission) frameworks, with a focus on ensuring that control testing produces reliable, unbiased, and representative results when random sampling is used. I would love your thoughts, please have a look and let me know if there’s anything you’d like to add or discuss further. Anup Singh, CISA® P.S. The presentation is fairly basic in terms of visuals. My focus was more on the content rather than design, so apologies if the graphics aren't particularly eye-catching. #InternalAudit #ControlTesting #RiskManagement #AuditSampling #IIA #COSO #AICPA #Governance #AuditTechniques #DetectionRisk #AuditInsights #Compliance #DataDrivenAuditing #LinkedIn LinkedIn LinkedIn for Learning LinkedIn Guide to Creating

The use-cases for AI and GenAI are truly limitless.    One of the new ways Deloitte is leveraging #GenAI is by supporting internal audit teams in their development of #AI strategies and applied capabilities. Not only are these tools supporting teams in the day-to-day audit process, but they are allowing them to build toward future-state operating models.    Here are a few of the ways Deloitte is offering AI-powered tools for the audit process:    Dynamic Risk Assessments – We utilize AI to develop end-to-end assessment capabilities to create more proactive models, resulting in a dynamic and iterative #risk assessment lifecycle that evolves with the org’s needs.    AI-on-Demand PODs – Our AI-on-Demand Product Oriented Delivery (POD) service delivery model consists of a team of engineers and designers to help clients develop customizable AI solutions that follow our Trustworthy AI Framework ™ (https://deloi.tt/3ywy7K8).    Automated SOX Scoping – We work with our clients to utilize AI to increase efficiency and save time during the Sarbanes-Oxley (SOX) scoping process. The statistical algorithms we put into place help clients develop a more accurate and risk-aligned scope for their SOX programs.    You can read more about how AI is changing the #audit landscape, here: https://deloi.tt/4d4xRBa Chris Griffin, Trevear Thomas, Dipti Gulati, Lynne Sterrett

Many Auditors face problems in gathering data from the auditee. If someone is not sharing data required for audit purposes, handling the situation diplomatically and professionally is important while ensuring the audit objectives are met. Here are some strategies one can follow. 1. Clarify the Request Please make sure your request is clear, specific, and documented. Misunderstandings can arise if the person does not fully understand what you need or why it’s essential. Specify the format, timeline, and purpose of the data. 2. Explain the Purpose Communicate the importance of the requested data in the context of the audit. Emphasize that the audit process is not punitive but aims to identify risks, improve controls, and enhance operations. 3. Engage Leadership If the person continues to withhold data, escalate the issue to their supervisor or relevant management. Sometimes, a clear directive from leadership can resolve such roadblocks. 4. Leverage Audit Authority Reference the audit charter or mandate that grants you the authority to access necessary information. If applicable, remind them of organizational policies or regulatory requirements mandating cooperation. 5. Document the Issue Record all instances of non-cooperation, including details of the requests, responses received, and any actions taken. This documentation can be included in the audit report or shared with senior management for resolution. it is recommended to have a tracker of all data requirements. 6. Explore Alternative Sources If the primary source is uncooperative, consider obtaining the required information through alternative channels or systems. 7. Maintain Professionalism Avoid confrontations or assigning blame. Maintain a neutral and professional tone in all interactions. Focus on problem-solving and collaboration to achieve your audit objectives. 8. Leverage Risk Implications Highlight how withholding data could negatively impact the organization, such as increased exposure to risks, compliance issues, or inaccurate reporting. 9. Seek Legal/Compliance Support If non-cooperation persists and the data is critical, involve legal or compliance teams to assess the situation and provide guidance. 10. Report as a Limitation If all attempts fail, document the lack of cooperation as a limitation in the audit report. Clearly state the potential impact of the missing data on audit conclusions. #Internalaudit #riskmanagement #Auditor