What Is an Audit Methodology?

Audit method is a general term for various means used by auditors in the process of audit supervision. The audit method was created and summarized in the long-term practice of audit work. These methods are not fixed. With the development of society and economy and the progress of science and technology, audit methods have also been continuously improved and developed, and gradually improved and improved to form a relatively complete scientific method system. At present, the commonly used auditing methods include two basic auditing methods and auditing technical methods. The basic auditing methods are audit investigation, analysis, adjustment, and reporting. The auditing technical methods refer to the verification method, review method, inquiry method, analysis method, inventory method, Experimental identification method, detailed inspection method, random inspection method, etc. They are organically combined into a complete audit method system. ^[1]

Audit method

Right!

From single item inspection to system random inspection

The audit method evolved from a single detailed inspection to a systematic random inspection, which reflects the changes in auditing guiding ideology. It has undergone detailed inspection, general random inspection, and reliance.

The historical evolution of auditing methods has its intrinsic motivation. In a nutshell, this is based on improving audit efficiency and quality, avoiding audit risks and responsibilities,

The audit work is not without rules. The audit method has its own system, and its main contents should include the following aspects:

Audit planning method

The audit planning method refers to all audit activities or specific

The correct selection of audit methods is an important condition to ensure the effective role of audit supervision and achieve audit objectives. To make the right selection, you must follow certain principles and pay attention to related issues.

Selection principle

1. in accordance with

1. Look at issues in a connected way and have a systematic perspective

Generally speaking, when auditing a specific audit project, it is not possible to solve the problem by using a certain method, often multiple methods are required. Therefore, in the audit, comprehensive consideration shall be given to other audit items, and the methods of forward and reverse inspection, detailed inspection and spot inspection, auditing and investigation, analytical reasoning and verification shall be combined to thoroughly investigate all issues.

2. Be good at catching the essence

With some auditing methods, sometimes only superficial phenomena are seen. Auditors should be good at adopting these phenomena, reveal their essence, and then select audit methods in a targeted manner. For example, in the audit of financial accounts, one of the important contents is to check the profit situation.

The specific methods of auditing are mainly the collection of audit evidence, which can be broadly divided into methods of reviewing written information and methods of confirming objective things, and also include audit investigation methods.

Method of reviewing written information

According to the technology of reviewing written information, it can be divided into verification method, review method, complex algorithm, comparison method, and analysis method; according to the order of review data, it is divided into reverse search method and smooth search method; according to the scope of review data, it is divided into detailed search method And spot checks.

.Check method

The verification method is to compare two or more identical values or related data in the accounting records and related data to verify whether the contents are consistent and the calculation is correct. The purpose of the audit method is to find out between the certificates, accounts, and tables. Whether they match, confirm that the financial status and financial results of the audited unit are true, correct and legal. Generally check the following information:

a. One is the original voucher and related original vouchers, original voucher and summary original voucher, accounting voucher and summary accounting voucher (or account summary table). Check whether the number of original documents attached or related is complete, and whether the date, business, content, and amount are consistent with the accounting titles and amounts on the accounting vouchers. Is it consistent?

b. The second is vouchers and books. Check whether the date, accounting title, detailed title, and amount of the voucher are consistent with those recorded in the books; whether the summary voucher (or account summary table) matches the account, amount, and direction recorded in the general ledger.

c. Third, the detailed ledger is the same as the general ledger. The main check is whether the opening balance, the current balance and the closing balance match.

d. Four are books and statements. Based on the ending balance of the general ledger or detailed ledger or the current period's balance, check whether the account records match the relevant report items.

e. Five are reports and statements. Check whether the statements are prepared according to the requirements of the system and whether the corresponding relationship between the statements is correct.

If errors or doubts are found during the check, the cause should be promptly ascertained. In particular, it is necessary to point out that the data used for the verification method as evidence must be true and correct, otherwise the verification is meaningless. When there is no basis, cross-checked data should be from at least two different sources and matched.

Review method

The review method is to read and review the contents of documents and materials such as vouchers, books and statements, and business decisions, plans, budgets, contracts, etc. in order to check whether economic business is in compliance with laws and regulations, whether economic data is true and correct, and whether it meets accounting standards. Claim. The review method is mainly accounting information such as verification certificates, accounts, and tables.

a. First, review the original vouchers and accounting vouchers. It is necessary to review both formally and technically, as well as content. The former is mainly to check whether the voucher is complete and correct, such as whether the date, summary, amount, capitalization, signature, etc. should be completed and whether it has been altered; the latter is mainly to check whether the economic business complies with the relevant procedures, and whether it violates the law of financial brokerage, accounting The system stipulates that even the fact of engaging in illegal business activities.

b. The second is to review whether the records of economic data conform to relevant principles and principles. For example, whether the accounts in the accounting books are used correctly, whether the corresponding relationship between the accounts is normal and reasonable, whether the accounting statements are prepared according to the rules of the system, and whether the statements should have correct relationships.

c. The third is to review the records of economic data for any abnormalities. For example, whether there are alterations, scratches, excavations, forgeries, and writing and alterations that do not meet the requirements in the books; whether there is any abnormal increase or decrease in each item of the statement.

Complex algorithm

The review algorithm is a method for rechecking and verifying vouchers, books and statements, and written materials such as budgets, plans, and analyses. This method is included in the collation method. The main aspects of the review check are: one is the product of the unit price multiplied by the quantity in the original voucher, the subtotal, and the total; the other is the total amount of the detailed amount in the bookkeeping voucher; the third is the subtotal of the amount in each column of each page in the account book. Total, balance, the fourth is the subtotal, total, total and other calculations of the related items in the report, and the fifth is the relevant data in the budget, planning, and analysis.

The complex algorithm is generally used in combination with the review method, which can improve the insurance factor of the audit.

Comparative method

The comparison method is to compare and analyze the actual and plan of the same project under review, the current period and the previous period, and the amount of the company and similar enterprises, and check for abnormal conditions and suspicious problems in order to follow up and provide clues and obtain audit evidence. For example, if you compare the relevant projects in this period (such as the profit has not increased in synchronization with the sales income of the product), compare the reviewed project with the same projects in other units (such as comparing the working capital turnover level with advanced enterprises), you can explain the situation. ,problem found.

The comparison method can be divided into an absolute number comparison method and a relative number comparison method. There is only one purpose for the two, which is to better audit and check.

Analysis

The analysis method is to decompose the content of the audited project to reveal its essence and understand the relationship between its constituent elements. it includes:

a. Ratio analysis. It is to make a comparative analysis of the ratio relationship between related projects, such as the capital turnover rate, capital profit rate, and cost of sales rate, to find out the situation, or to judge whether the economic activity of the audited unit is economical and reasonable.

b. Account analysis. It is based on the principle of account correspondence, to analyze and analyze the amount of borrowers and lenders in some accounts and their corresponding accounts to find abnormal conditions. For example, combining "product sales", "bank deposits" and "sales receivables" for analysis, on the one hand, you can check for errors, and on the other hand, you can learn more about product sales and accounts receivable. Anomalies should be further audited by other methods.

c. Trend analysis. That is, a method of analyzing the development trend of an economic indicator over several periods. Using this method, there are three steps: first, determine the economic indicators to be analyzed (such as contributions, accounts receivable, accounts payable, finished products, etc.), second, determine the number of base periods, and finally the amount of each indicator for each year Divide by the number of base periods to find the annual trend ratio to the base period. This method can be used to observe the changes and development trends of an indicator at different periods. If abnormal conditions such as excessive or small changes are found, further in-depth review is required.

In addition, there are also age analysis methods for categorizing related accounts according to the length of the period, so as to further focus on tracking; a balance analysis method that compares and analyzes the balance and correlation between related items in the accounting statements; analyze and calculate each factor Factor analysis method of the influence degree of change on relevant economic indicators. According to the time and purpose of the application method, analysis can be divided into pre-analysis, in-event analysis and post-event analysis.

The above analysis method is mainly used for economic benefit audit and management audit. Of course, it is also used for financial management and other business management aspects, such as financial analysis, technical analysis, statistical analysis, and economic activity analysis. Main method.

Back check

It is the audit method from the end point to the starting point in the reverse order of economic activities. In financial revenue and expenditure auditing, it is to review the accounting statements in accordance with the reverse order of the accounting procedures, find errors and disadvantages, and then review and analyze statements, books and vouchers in a targeted manner.

The main advantage of this method is that it starts with the big points and has a wide auditing area. The focus and purpose of the review are clear. It is easy to find out the main problems and the effectiveness of the audit. Accounts may omit or neglect some of the more important issues, making it difficult to uncover wrongdoings. And the reverse check method is more difficult, therefore, it requires higher professional quality of auditors.

Search method

It is the auditing method from the starting point to the end point according to the sequence of economic activities. The examination of the accounting information will be based on the sequence of the accounting procedures, and the documents, books and statements will be reviewed and analyzed in turn.

The specific method is: first review the original voucher and the accounting voucher, then further check the account book with the voucher, and finally review the accounting statements based on the book.

The main advantage of this method is that it is simple and easy to implement. Because it is checked carefully and carefully according to the accounting procedures, the audit content is detailed. Generally speaking, accounting errors and disadvantages can be left out, and the audit results are more reliable. Disadvantages are that they are equally treated regardless of their size, they often cannot grasp the focus and the primary and secondary directions, and focus on the mechanical check of the account books, which is time-consuming and labor-intensive, and may be caused by small mistakes. The unit used in the audit.

The reverse search method and the smooth search method each have their own emphasis, each has its own advantages and disadvantages. In order to make the audit more practical, the two methods are often combined and used in practice. Detailed check; when the method of follow-up check is adopted, the reverse check method can also be used for important matters to avoid omission.

Scrutiny

It is to carry out a comprehensive and detailed examination of all the account statements of the unit under review, or all the accounts included in an important (or suspicious) item. Early financial audits often used this method.

Spot check

It refers to extracting a part of the audited objects of the audited unit for review; based on the review results, it can be inferred whether there are errors and disadvantages in the audited group as a whole. Its basic characteristics are: according to the specific circumstances of the audit object and the purpose of the audit, after selection, select a representative and relatively important project as a sample, or randomly select a certain number of samples from the data under review, and then based on the results of the sample review To infer the correctness of the overall, or to infer the wrongness of the remaining unextracted parts. The key of this method is to take samples, so it is also called sampling audit method. Modern audits often use this method.

Sampling methods can be divided into three types: arbitrary sampling method, judgment sampling method and statistical sampling method.

(1) Arbitrary sampling method. This method is that the auditors randomly select a part of the overall population for auditing. The starting point of the spot check is purely to reduce the workload of the auditors. What content, what economic information and economic activities to choose, how much content, how many samples to choose, etc. have no certain rules and basis, and the auditors have countless hearts. Therefore, the audit evidence it obtains is relatively high-risk, sometimes with great contingency and arbitrariness.

(2) Judgment and spot check method. It is also called the key spot check method. It is based on the purpose of the audit, the completeness of the internal control of the unit being audited, and the required evidence. Based on the experience, the auditors selectively and focus on auditing a part of the audit overall, so as to infer. This method is focused and targeted, but it is difficult to determine whether the obtained random check results are valid. This spot check is inseparable from the quality of the auditors.

Obviously, the above two methods are too subjective and have poor objectivity, which cannot reflect the effect of audit work correctly.

(3) Statistical sampling method. It is also called the mathematical and mathematical spot check method. It refers to the use of the principle of probability theory by the auditors to select a certain amount of content in the audit population as a sample for auditing based on the random principle, and then infer the overall characteristics based on the sample results. The statistical sampling method has three main characteristics: Reliance on the principle of probability theory for spot checks, independent of the auditor's experience and judgment ability, the sample size is determined by the quantitative factors of the audit population; the sample is not an artificial key choice, but based on the random principle , To ensure that all parts of the overall project being audited have the same chance of being selected for sampling; It is more scientific and reasonable to infer the characteristics of the population based on the results obtained from randomly selected samples. There are two specific applications of statistical sampling. One is to use conformance testing to estimate the incidence of overall characteristics, and the other is to use substantive testing to estimate the difference in overall amount. The former is called attribute sampling and the latter is called Variable sampling.

The focus of the spot check review is clear. If you choose the right target, it saves time and effort, and it has the effect of getting twice the result with half the effort. However, if the target and object are not selected properly or are not representative, you often cannot find the problem, or even give up your previous achievements. In the financial revenue and expenditure audit and the financial law discipline audit, the spot check method is often inferior to the detailed check method, so it still has certain limitations. It is often used in conjunction with other methods in practice.

Method of confirming objective things

In addition to collecting information on written data, the audit work must also obtain information on the physical existence, that is, to prove the form, nature, place of existence, quantity, value, etc. of the objective object to verify whether the accounts are consistent, whether there are errors and disadvantages. These methods mainly include inventory method, adjustment method and identification method.

Inventory method

Refers to an audit method in which auditors verify the trueness and correctness of economic data and economic activities, and whether the economic data are consistent with the real object by checking the actual situation of the real object in terms of quantity, variety, specifications, and amount of physical property.

Inventory methods are divided into direct inventory methods and supervised inventory methods. The direct inventory method is performed by an auditor in person to verify whether the written information is consistent with the relevant property materials. This method is generally used for inventory of valuable properties such as rare metals, treasures, valuable cultural relics, and cash. In other cases, The audited unit should conduct an inventory check and sign the seal with the unit's leaders and supervisors as well as the auditors. The supervision and inventory method is where the auditors observe and inspect the site in person, and the audited unit organizes the inventory by itself. When necessary, the auditors can conduct spot checks and rechecks to ensure the quality of the inventory. This method is generally used for a large number of physical objects, such as factory buildings, machinery and equipment, materials, and commodities.

2. Regulation method

If the ready-made data and the data to be verified are inconsistent on the surface, in order to verify the authenticity of the data, the adjustment method must be used. The adjustment method is a method of starting the data from a certain starting point and conducting necessary increase and decrease surveys on the data that has occurred in the normal business. For example, reconciliation methods are often used to prepare bank deposit section statements to verify that the balance of a bank deposit account is correct based on the balance of a bank statement. In addition, the reconciliation method can also be used to compile the reconciliation table of property and materials to verify whether the book value of the relevant property and materials on the checkout date is consistent with the actual storage. The basic method is: when the inventory and written data balance date are different, first Physical inventory, and then you can check whether the accounts are consistent.

3. Identification method

The appraisal method refers to a method in which relevant professionals need to be invited to use specialized techniques to determine and identify written information, physical objects, and economic activities. For example, the appraisal of physical performance, quality, value, the authenticity of written information, and the rationality and effectiveness of economic activities are beyond the capabilities of ordinary auditors, and a certain number of engineering and technical personnel and lawyers are required to provide appraisal. Conclusion and make independent audit evidence. Therefore, in order to work better, the audit department should improve with the cooperation of the production and technical departments of the legal department.

Audit investigation method

Audit investigation is an indispensable part of the audit method. In addition to reviewing written information and confirming objective things, the audit implementation process also needs to conduct internal investigations and external adjustments of certain objective facts within or outside the economic activity and its activity data to determine the truth, or find new clues, or obtain audit evidence. This requires auditors to conduct in-depth audit investigations. Audit investigation methods include observation method, inquiry method, corroboration method, and special investigation method.

Observation method

It is an investigation method in which auditors come to the field to observe and inspect on the spot to find out the truth of the facts and obtain audit evidence. After entering the audited unit, the auditors went deep into workshops, departments, construction sites, warehouses and other places to conduct direct inspections and inspections on the progress of production and operation management, the storage and use of property and materials, and the implementation of internal control systems. Whether it complies with the auditing standards and written data records, and finds weak points and existing problems, so as to collect evidence other than written data. Gathering sufficient evidence is the key to doing a good job of auditing, otherwise problems cannot be found.

2. Query method

Refers to an investigation method to find out the truth and obtain oral or written evidence of the doubts and problems found in the audit process through oral inquiry or questioning. For the examination of suspicious accounts or abnormal conditions, internal control systems, economic benefits, etc., you can ask the relevant personnel verbally or in writing. For general questions, either verbally or in writing. However, for important issues, try to use written inquiry and obtain written evidence. Written evidence is very important and sometimes the most important factor in the success of an audit.

3. Correspondence

Correspondence law is actually a kind of inquiry method. It refers to an investigation method in which the auditor obtains evidence by sending letters to relevant units and individuals to understand the situation. This method is mainly used for the verification of current funds, as a necessary means of certification of creditor's rights and debts, and can also be used to check the certification of the situation of the bank of the audited unit, insurance company, legal advisory office and other units. Correspondence law has a strong check-up, is very effective in verification, and is an essential part of auditing.

4. Thematic audit investigation method

The special audit investigation is actually a special investigation, which refers to the state audit agency's audit investigation of certain thematic organization forces across the country, a certain region, or an industry. It is a powerful means for audits to promote micro-management and strengthen macro-control functions. It is the information guarantee for government decision-making and rationalization. With the establishment of a socialist market economy, a powerful means to strengthen the role of macro-control is an information guarantee for scientific and rational government decision-making. With the establishment of a socialist market economy, strengthening macro-control has slowed down the necessary levers for the government to manage the economy. Therefore, the audit investigation, which is an important part of the national economy, will be conducted around this center. For example, the audit investigation of the power industry in the past two years, and the audit investigation of the implementation of the "Regulations on the Conversion of Operating Mechanisms of Industrial Enterprises Owned by the Whole People" have provided accurate and reliable information for the government and departments to strengthen macro management.

In addition to the above audit methods, there are also some specialized methods for specific audit types, such as reviewing the questionnaire method and flow and diagram method used in the internal control system, and computerized audits that bypass computer audits and pass computer audits. Audit methods, etc.

As a technical method system, the content of the audit method will be continuously updated with the development of social economy and the deepening of audit science. In fact, in the development process from traditional audit to modern audit, the audit method has gone through three development stages: one is from data-oriented development to system-oriented and data-oriented concurrent development, and the other is from pure financial audit to financial development. Auditing and economic benefit auditing are both carried out. The third is to develop from a manual recording data processing system audit to a manual recording data processing system audit and an electronic data processing system audit. Auditing technology is also constantly being improved and developed. As the times advance, auditing is becoming more complex, systematic and advanced. Some inherent traditional auditing methods may be eliminated, and of course unavoidable.

Finally, it should be clear that the use of various methods in actual work is not isolated and single. Usually, an audit content should use multiple audit methods to complement each other and promote each other in order to find out the economic activities and economic information as soon as possible. The correctness, authenticity, legitimacy, rationality, and effectiveness, and the "comprehensive use" of various methods are worthy of vigorous promotion.

What Is an Audit Methodology?

Audit method

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