Which of the following procedures would an auditor most like

Which of the following procedures would an auditor most likely use to identify unusual year-end transactions?

A. Obtaining a client representation letter

B. Obtaining a legal inquiry letter

C. Performing analytical procedures

D. Testing arithmetic accuracy of the accounting records

Solution

Auditors are ebntrusted with great responsbilities and duties towards society, public, institutions and governments as their audited fonancial statements are accepted by them as correct. An auditor is required to ascertain and comment about the true and fair view of the financial statements. While conducting the audit they have to look at all the transactions and have to determine about their correctness and completeness.

Auditor should exercise professional judgment and maintain professional skepticism throughout the planning and performance of an audit and, among other things, identify, assess and respond to risks of material misstatement, whether due to fraud or error. An auditor may encounter with some unusula year end transactions. In such case he should perform anlytical procedures to ascertain about the correctness of such transactions. In such analysticla procedures he can perform the audit throigh following steps-

1. Compare with the Previos year Financial Statement

2. Whether Income recorded also corresponds with proper expenses such as Sales with purchases.

3. Whether transactions have been done with related parties to inflate the Sales figure or to overstate the expenses.

4. Whether Bogus Purchases and Sales have been recorded through a new Vendor/Customer.

5. Whetehr transactions have been done with non-consolidated related parties, including special purpose entities, which have not been properly reviewed or approved by the management or those charged with governance of the entity.

6. Selecting a sample of the entries posted at the year end to verify the complete audit trail of the transactions.