Auditing is the systematic examination and verification of a firms books of accounts, transaction records, other relevant documents and

physical inspection of inventory by qualified accountants (called Auditors)

To express an expert and independent opinion on the truth and fairness of the financial statements; and To ascertain and evaluate the reliability of the accounting systems

Financial Audit the examination of a clients accounting records by an independent auditor to formulate an audit opinion. Internal Audit investigation of the Credit union procedures and operations by an Internal Auditor to assure that they conform to Credit unions policies Management Audit evaluation of managements effectiveness Compliance Audit ascertains compliance to the laws, regulations and policies of the organization

Audit Cycle period of time in which the Auditor conducts audit procedures. Audit Guide A booklet that deals with the accounting practices in different industries Audit Evidence proof that the Auditor uses to substantiate a recorded item so proper reliance may be placed on the Financial Statements

Audit Procedures the techniques in gathering audit evidence to substantiate the reliability of accounting records. Audit Process the sequential steps followed by the Auditor in the examination of the clients records. Auditing Standards guideline the Auditors follow when examining the financial statements and other data

Audit Opinion the report rendered by the independent Auditor. The Auditor reports on the nature of his work, the degree of his responsibilities and his opinion of the financial statements. Audit Opinions may be: qualified, unqualified, adverse or disclaimer of opinion. Audit Risk possibility that the Auditor will not uncover irregularities in the financial records resulting from fraud, negligence or other reasons

Audit Test procedures applied to a sample within a population. E.g sending out 75% confirmation for Accounts receivable. Audit Trail - recorded flow of a transaction from initiation (source document) to finalization (financial statements) Working papers document prepared or obtained by the Auditor in performing an examination of the financial records.

Unqualified Opinion auditors judgment that he has no reservations as to the fairness of presentation of the financial statements and their conformity to acceptable accounting standards. Qualified Opinion judgment by the Auditor that except for something, the financial statements fairly present the financial position and operating results of the organization. Adverse Opinion the Auditor reports that the financial statements do not present fairly the financial position, results of operations and changes in financial position or do not conform to accounting standards. Disclaimer of opinion rendered by the Auditor when insufficient evidential matters exist to form an audit opinion. E.g. where the Auditor cannot reasonably predict the ultimate outcome of uncertainties (lawsuits) that can have devastating effects on the organization

Audit Phase

Documentation

Planning Phase

Audit Planning File

Execution Phase

Audit Execution File

Completion Phase

Completion & Reporting File

Auditing standards require that the Auditor plan his work so that the audit is performed in an effective manner. Efficient planning helps to ensure that appropriate attention is devoted to the important areas of the audit, potential problems are identified and the work is completed expeditiously. The extent of planning will vary according to the size and complexity of the organization

Developing an overall Audit Plan Detailed Audit Planning leading to development of an Audit Program Documentation in the form of an Audit Planning File Audit administration and other matters

This is a summarized strategy for the audit engagement which primarily consist of strategy decision of expected scope and conduct of the audit based on: - managements structure and philosophy - accounting and internal control systems - audit risk and materiality and - the audit administration

Development of an Audit Program for each component of the financial statements (assets, liabilities) Audit programs need to be reviewed to ensure they lead to obtaining sufficient and appropriate audit evidence An important area of detailed planning is the study and understanding of the internal control systems and whether they can be relied upon. Document the overall audit plan, program, time budget, planning checklist as part of the documentation of this phase of the audit

Internal Control Systems the policies and procedures adopted by management of an entity to assist in achieving mgts objectives ensuring as far as practicable, the orderly and efficient conduct of its business, including adherence to mgts policies, the safeguarding of assets, the prevention and detection of fraud and errors, the accuracy and completeness of the accounting records and timely preparation of reliable financial information.

The IC System comprises two main areas: The Control Environment The Control Procedures The Control Environment the overall attitude, awareness and actions of directors and management regarding the internal control systems and its importance in the entity. - the functions of the BOD and its committees - Mgts philosophy and operating style - the organizations structure and methods of assigning authority and responsibility - mgts control system including the internal audit functions, personnel policies and procedures and segregation of duties

Those policies and procedures in addition to the control environment which mgt has established to achieve the entitys specific objectives. - reporting, reviewing and approving reconciliations - checking the arithmetical accuracy of records - monitoring and reviewing control accounts and trial balance - comparing internal data with external sources - approving and controlling of documents - comparing the results of cash, security and inventory counts with records - comparing and analyzing the actual with the budgeted

Recent statement of financial condition and income statement. Recent Regulatory Authoritys Inspection Report. Credit union rules. Credit union policies and procedures. Board meeting minutes. Roster of employees and officials. Last years internal audit reports and working papers. Last years external audit reports and management letters. Surety bond company risk management audit report. Loan, cash, investment, deposits and share internal control check lists. Agreement signed with the external auditor. Agreement signed with the independent compensated internal auditor (where applicable).

To do so the Auditor would perform a walkthrough test tracing transactions through the accounting system in order to understand the IC system. - inquiring from mgt with reference to documentation such as procedures manual, job descriptions etc - inspection of records and reports produced by the accounting and IC systems - observations of the credit unions activities and operations - computation of work already done to test its accuracy

Preventive Detective Preventive Controls attempt to deter or prevent undesirable events from happening. They are proactive controls to prevent losses. E.g. segregation of duties, proper authorization, adequate documentation and physical control over assets.

Detective Controls attempt to detect undesirable acts. They provide evidence that a loss has occurred but do not prevent such loss. E.g. reviews, bank reconciliations

Detective
Bank Reconciliation Review of Performance Security of Assets Control over information systems

Preventive
Approval Verification Security of Assets Control over information systems Authorization Segregation of duties

Completeness Occurrence Measurement Presentation and Disclosure Aggregate carrying value Rights and Obligations Existence CAPER assets and liabilities COMP events and transactions

Completeness there are no unrecorded assets and liabilities Occurrence all disclosed transactions & events did in fact occur and relate to the entity during the related period. Measurement accuracy, cut-off and classification Presentation & Disclosure all items are disclosed, classified and described in accordance with the applicable accounting framework. Appropriate carrying value recording assets and liabilities at the correct value and the correct treatment of all subsequent measurements depreciation, impairments etc. Rights and Obligations an asset or liability relates to the credit union at a given date Existence an asset or liability truly exist at the stated date

Inspection Observation Inquiry (or Enquiry) Confirmation Recalculations Re-performance Analytical procedures

Completeness All assets are recorded on the Balance Sheet. Aggregate carrying value values are accurate. Presentation & Disclosure all assets are categorized correctly and in the correct period Existence all assets on the Balance Sheet do exist and belongs to the credit union Rights and obligations the credit union has all rights to the use of the assets

Completeness All liabilities are recorded on the Balance Sheet. Aggregate carrying value values are accurate. Presentation & Disclosure all liabilities are categorized correctly and in the correct period Existence all liabilities on the Balance Sheet do exist and were made by the credit union Rights and obligations the credit union is obligated to discharge those liabilities

Completeness all expenses are accounted for and recorded in the credit unions books for the appropriate period Occurrence the expenses are genuine and not fictitious Measurement accurate cut-off was used for all expenses Presentation and Disclosure expenses are disclosed, classified correctly capital and revenue expenditure.

Have a list of all employees and their gross salary Ensure there are no fictitious employees are on the payroll Calculate the NIS and tax payments Confirm all deductions to hire purchase houses, insurances etc Ensure all deductions have the written authority of the employees Check changes in payroll deductions Is there a Salary Control Account that ensure that all salaries and deductions are paid

Check Investment listing to ensure all income due from investments are included Check the source documents to verify that all passbooks sold, statements given etc. are accounted for Verify all Other Income

Has a Strategic Plan Has a Budget approved by the AGM Has Policies and Procedures in key areas of operations Hires qualified staff using scientific methods Discusses financial statements at meetings and use them to make decisions