Page 112 - CA Inter Audit PARAM

CA Ravi Taori

• All items over a certain amount: The auditor may decide to examine items whose recorded values
exceed a certain amount so as to verify a large proportion of the total amount of a class of transactions
or account balance.

• Items to obtain information: The auditor may examine items to obtain information about matters such
as the nature of the entity or the nature of transactions.

Therefore, Sanjeev’s understanding is not proper.

The above approach for selecting items for testing is subject to non-sampling risk. Non-sampling risk is
the risk that auditor may reach an erroneous conclusion for any reason not related to sampling risk.
Like, erroneous conclusion may be reached due to some inappropriate audit procedure.

QNO— Audit Trail New Course – (SM25)
500.20 Bhaskar CNO -SA500.200
Maintaining accounts using accounting software having a feature of recording audit trail can be useful
for an auditor. Discuss some of the advantages for such a feature in accounting software for auditors.
Answer • An audit trail is a documented flow of a transaction. It is used to investigate how a source
document was translated into an account entry and from there it was inserted into financial
statement of an entity.
• It is used as audit evidence to establish authentication and integrity of a transaction.
• Audit trails help in maintaining record of system and user activity. Like, in case of banks, there is
an audit trail keeping track of log-on activity detailing record of log-on attempts and device used.
• It is a step-by-step record by which accounting, trade details, or other financial data can be
traced to their source.
• Audit trails are used to verify and track many types of transactions including accounting and
financial transactions.
• Audit trails (or audit logs) act as record-keepers that document evidence of certain events,
procedures or operations, because their purpose is to reduce fraud, material errors, and
unauthorized use.
• Audit trails help to enhance internal controls and Data Security.
• Audit trails can help in fixing responsibility, rebuilding events and in thorough analysis of
problem areas. For example, audit trails can track activities of users thus fixing responsibility for
users. These can also be used to rebuild events upon occurring of some problem. Audit trail
analysis can specify reason of the problem. It can also help in ensuring operation of system as
intended. In this way, audit trails can help entities in their regular system operations.

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