Part 6 The misunderstanding of AEIOU

There is always an issues for students when it come to the understanding of AEIOU or how to answer question related to the audit work, audit testing or audit procedure that need to be carry out.
When such type of question is asked what the examiner wanted to know is probably as an auditor you are given an accounting area to “check and investigate” so as to ensure that you can obtain reasonable assurance that there is no material misstatement in the particular area.
Therefore remember the accounting area is there and all control elements and financial assertion should exist when the audit client record any transaction into the financial records. You as the auditor should assume all the above is in place and your present is to present an assurance to the 3rd party whom are also the person who appointed you- the shareholder (and sometimes the stakeholders)
So how do you carry out? As mentioned in previous post there are many ways that you can do it. But for exam purpose and an easy way for you as a student to start with maybe you can take AEIOU as a guide.
I shall now provide in this post some common solution to it before I get into more specific area in the next post. Let take AEIOU as a guide and I would like to mention again as this is just a guide to you. If you are clear of what audit procedure is all about do it “Your Way”
For easy start we should look at financial statement first before we get into the control system.
Analytical review (AR)
What is analytical review? In simple it is the comparison of data. What data ? it can be financial data and even non financial data. We should look at financial data for now. Well as an auditor you should at the start of the “field audit “perform analytical on some key data for example the Cost for property plant and equipment.
If there is no different between current year figure and previous year figure meaning that there is no movement in PPE. However such comparison should be carry out by class of PPE like land, building, motor vehicles and others.
If there is an movement the next audit procedure that an auditor should do is compare (which is also part of AR) on the differences. This is also part of an investigation. Remember auditor is the to give assurance and highlight any “audit issues” you are not an executor to do any work that a company finance team should do.
From this point on ward you might see that AEIOU is a continuous process whether it is inter related when it comes to the flow of audit checking.
From the AR you might then go to other audit testing method such as “EIOU”
Enquiries
What It mean by enquiries? To me it is simple, it mean discussion ask and probably meeting. Any conversation with another person will be considered as enquiries. Of course it must be related to the audit. Or in audit term it must be relevance.
Discussion with the Account staff, accountant financial controller and the director are considered as part of the evidence collection too. However it must be properly documented and some important area should be in formal communication method ie letters and memo.
Inspection of documents
This is the easiest process as auditor is checking on the relevant documents to collect evidence. This can include Company’s internal documents or external documents. Internal documents like those invoices, minutes of meeting and external documents like bank statement and valuations reports are all considered as related documents where auditor could collect evidence from.
Observation
This could probably be the hardest way for student to interpret during exam. What to observe and how observation can help in audit? This I shall leave it to the actual scenario as it is hard to explain!
Calculation
Well this is the easiest. Arithmetical checking make sure right calculation and right valuationGet yourself familiar with the above as this is key part of the exam. Leave a comment if you have a question