of April 24, 2017 No. 272
About approval of the procedural standard "Financial records audit"
According to the subitem 2) Item 2 of article 8 of the Law of the Republic of Kazakhstan "About the state audit and financial control" PRIKAZYVAYU:
1. Approve the enclosed procedural standard "Financial records audit".
2. To department of methodology of financial accounting and audit of the Ministry of Finance of the Republic of Kazakhstan (Bekturova A. T.) in the procedure established by the legislation of the Republic of Kazakhstan to provide:
1) state registration of this order in the Ministry of Justice of the Republic of Kazakhstan;
2) within ten calendar days from the date of state registration of this order the direction it the copy in paper and electronic type in the Kazakh and Russian languages in the Republican state company on the right of economic maintaining "The republican center of legal information" for official publication and inclusion in Reference control bank of regulatory legal acts of the Republic of Kazakhstan;
3) within ten calendar days after state registration of this order the direction it the copy on official publication in periodic printing editions;
4) placement of this order on Internet resource of the Ministry of Finance of the Republic of Kazakhstan.
Minister of Finance of the Republic of Kazakhstan
It is approved
Chairman of Calculating committee on control of execution of the republican budget
May 11, 2017
________________ N. Abdibekov
Approved by the Order of the Minister of Finance of the Republic of Kazakhstan of April 24, 2017, No. 272
1. This procedural standard "Financial records audit" (further - the Standard) is developed according to the subitem 2) of Item 2 of article 8 of the Law of the Republic of Kazakhstan "About the state audit and financial control" (further - the Law).
2. The purpose of financial records audit (consolidated financial statements) is receipt of reasonable confirmation of reliability of the financial reporting of administrators of the budget programs and public institutions, except for National Bank of the Republic of Kazakhstan.
The financial reporting of the public institutions containing at the expense of republican and local budgets in amount and in the forms established by the Rules of creation and accounts presentation approved by the order of the Minister of Finance of the Republic of Kazakhstan of August 1, 2017 No. 468 is subject to financial records audit (it is registered in the Register of state registration of regulatory legal acts at No. 15594), and consolidated financial statements of administrators of the budget programs containing at the expense of republican and local budgets in amount and in the forms established by Rules of creation of consolidated financial statements by the administrators of the budget programs and local authorized bodies on budget implementation approved by the order of the Minister of Finance of the Republic of Kazakhstan of December 6, 2016 No. 640 (it is registered in the Register of state registration of regulatory legal acts at No. 14624).
3. Person responsible for auditor action, and the head of group of the state audit bear responsibility for management, control terms and quality of carrying out audit according to Item 3 of article 36 of the Law.
The assistant to the statutory auditor bears the personal responsibility for the documents constituted and signed by him during audit according to Item 3 of article 36-1 of the Law.
4. This Standard determines the sequence of actions of the statutory auditor and assistant to the statutory auditor in auditing process of the financial reporting.
5. Lists of objects of the state audit are created according to the procedure, established by Chapter 2 of the Rules of carrying out internal state audit and financial control (further - Rules of carrying out internal state audit) approved by the order of the Minister of Finance of the Republic of Kazakhstan of March 19, 2018 No. 392 (it is registered in the Register of state registration of regulatory legal acts at No. 16689).
6. Stages of carrying out financial records audit:
planning (testing of internal control system; determination of methods of research (continuous or selective), creation and approval of the plan and program of audit);
carrying out audit on being (collection of auditor proofs, audit procedures, auditor selection);
audit completion (generalization of results of audit and their documentary registration).
7. Working documents are source to information and the proof of results of the performed work of the statutory auditor.
8. Action of this Standard extends to officials of authorized body on internal state audit and its territorial subdivisions, and also to the assistant(s) to the statutory auditor, the involved employee(s) of services of internal audit and the expert(s).
8-1. In this Standard the following concepts are used:
audit risk - risk of the statutory auditor about inadequate expression of auditor opinion and inefficiency of audit inspection;
the auditor file - the document package systematized and grouped in chronological procedure constituted by members of group of the state audit on all stages of auditor action, including received from object of audit and other external sources of information;
repeated accomplishment is control actions of the statutory auditor concerning management and workers of object of audit on the control facilities applied by them;
external confirmation - the auditor evidence obtained by the statutory auditor in the form of the direct written reply of the third party (the confirmatory party) on paper, electronic carriers;
procedures for risk assessment - the auditor operations performed by the statutory auditor for receipt of information on the organization and conditions of its activities including internal control system of the organization, for the purpose of identification and risks assessment of essential misstatement of information on the reason of fraud or mistake at the level of the financial reporting and written confirmations.
9. The state audit and financial control in special state bodies of the Republic of Kazakhstan is exercised in the procedures determined by the first heads of data of bodies in coordination with the Highest auditor chamber of the Republic of Kazakhstan and authorized body by internal state audit according to Item 3 of article 2 of the Law.
10. The head of group of the state audit develops the plan where the type and terms of the state audit, objects of the state audit and routes, necessary personnel resources, the amount of means and (or) assets covered by auditor action are reflected.
11. Planning - the initial stage of financial records audit which consists in development and scheduling, the program and amount of audit procedures.
12. Nature and scale of works on planning of financial records audit depends on the size and complexity of organizational structure of object of audit, the purposes determined by the audit engagement, understanding the statutory auditor of features of activities of the audited object.
13. Before determination and risks assessment of essential misstatements when planning it is necessary:
1) to study system of financial accounting and internal control of object of audit;
2) to perform analytical procedures within risks assessment;
3) to determine materiality level.
4) to perform analytical procedures concerning components of consolidated financial statements.
Components of consolidated financial statements of the administrator of the budget programs - separate financial statements of subordinated public institutions of the administrator of the budget programs, and also consolidated financial statements of its departments.
14. In planning process the statutory auditor considers the received data on activities of object of audit by continuous process of data collection and processing. At the same time, information obtained at the subsequent stages supplements the data obtained at the previous stages.
The plan and the program of audit is constituted taking into account requirements of Rules of carrying out internal state audit.
15. The statutory auditor studies activities of object of audit to identify and correctly to estimate events, transactions, the used accounting methods which can exert impact on reliability of the financial reporting, on the course of carrying out audit, or on conclusions which are the basis for audit opinion.
16. The statutory auditor estimates the factors influencing financial transactions and the financial reporting (consolidated financial statements) of the audited object:
1) application of regulatory legal acts of the Republic of Kazakhstan on financial accounting and financial reporting preparation;
2) structure of object of audit, distribution of obligations between structural divisions;
3) system of financial accounting;
4) internal control system;
5) availability of legal disputes and legal proceedings which results influence or already influenced the financial reporting;
6) risk assessment, including results of the previous financial records audits (studying of results of the previous audits, acquaintance with folders of storage containing auditor documentation (auditor files), control of execution of recommendations and elimination of the violations revealed during the previous audits).
7) analysis of components of consolidated financial statements, including materiality of separate components or Articles of their financial reporting.
17. The statutory auditor estimates sources of proofs by the following methods:
studying of documents;
holding interview and receipt of information at responsible persons of object of audit;
assessment of information obtained from mass media and other information sources;
accomplishment of preanalytical researches (comparison of these financial tables; communication assessment between financial and non-financial data; comparison of data of current period with data of previous periods; assessment of the budget and financial reporting).
18. Preliminary action research of object of audit is carried out according to the procedure, the established paragraph 2 of Chapter 3 of Rules of carrying out internal state audit.
Results of preliminary studying of object are documented in the folder of storage, containing auditor documentation (the auditor file).
19. The statutory auditor studies structure and system of financial accounting of the audited object and reveals inherent risks.
20. The statutory auditor in system of financial accounting of object of audit considers:
creation of financial and budget reports;
holding accounting procedures taking into account specifics of activities;
accomplishment of accounting transactions.
21. The statutory auditor needs to receive data on system of financial accounting to determine:
methods of systematization and storage of source accounting documents;
procedure for financial accounting from the moment of emergence of transactions before their reflection in the financial reporting;
income types and expenses;
assets, obligations, their assessment and recognition;
changes in structure of net assets / capital;
availability of reserves and their recognition.
The system of financial accounting of object of audit is effective if proper financial accounting and preparation of the authentic financial reporting is provided.
22. The statutory auditor studies, estimates safety and reliability of the applied information system of financial accounting, tests her for correctness of reflection of transactions and implementation of calculations.
23. In planning process the statutory auditor needs to get acquainted with means of internal control of object of audit.
Means of internal control are the methods, acceptances and procedures established by management of object of audit, allowing to reveal and prevent emergence of risks is able also activities of object of audit.
The statutory auditor considers means of internal control for achievement of the following purposes:
timeliness of accounting of all transactions and events on accounts of financial accounting during the corresponding accounting periods;
regular comparison of accounting data on assets and liabilities to their actual availability, acceptance of proper measures concerning any discrepancies.
24. Assessment of audit risk represents the major task, determination of risk degree depends on quality of audit inspection.
25. The audit risk consists from:
risk of control facilities;
risk of nondetection.
The audit risk is determined in the amount of 5% of amount of the planned auditor actions.
26. Inherent risk - exposure of account balance or class of transactions to misstatements which can be essential separately or in total with misstatements of other accounts balances or classes of the transactions connected with lack of necessary means of internal control.
The inherent risk arises in the absence of appropriate means of internal control. The inherent risk and risk of control facilities do not depend on actions of the auditor, treat risks of the audited object, are result of activities of object and arise irrespective of financial records audit.
27. Risk of control facilities - risk that misstatement will not be timely prevented or it is revealed, and also it is eliminated with internal control system.
The risk assessment of internal control system represents process of determination of efficiency of systems of financial accounting and internal control for prevention or detection, and also elimination of essential misstatements.
After studying of systems of financial accounting and internal control, the statutory auditor needs to carry out provisional estimate of risk of control facilities at the level of approvals on each essential account balance of financial accounting or group of the same transactions.
At the level of provisional estimate the risk of internal control system is estimated as high if systems of financial accounting and internal control are inefficient and assessment of their efficiency is inexpedient.
The risk assessment of control facilities is lower, the more competent evidence is obtained by the statutory auditor concerning efficiency of functioning of systems of financial accounting and internal control.
When carrying out the analysis of results of testing of control facilities the statutory auditor takes the fact that control facilities can be inefficient during different periods of time into account.
If during the checked period different control facilities at different times were applied, the auditor treats each of them apart. In that case when application of control facilities stops in certain time of the checked period, it is necessary to carry out separately the analysis of nature, time frames and amount of audit procedures concerning transactions of this period.
The major factors influencing risk of control facilities depend on the head and the chief accountant of object of audit responsible for the organization and effective functioning of systems of financial accounting and internal control.
During audit the statutory auditor describes elements of systems of financial accounting and internal control, notes shortcomings and estimates risk degree of control facilities.
28. Risk not of detection - risk that the audit procedure will not find essential misstatements, both separately, and in total with other misstatements.
Application of inefficient audit procedures or the wrong application of effective audit procedures or the wrong interpretation of results of audit can result in high risk of nondetection. Therefore, when planning audit it is necessary to provide professional competence of members of auditor group and the involved external experts, to provide proper control of carrying out audit.
29. The risk of essential misstatement is risk that essential misstatement was allowed in the financial reporting prior to carrying out audit.
For development of the procedures directed to identification of essential misstatements of the financial reporting, the statutory auditor considers risk of essential misstatements at two levels:
at the level of the financial reporting in general;
at the level of specific prerequisites of preparation of the financial reporting for groups of the same transactions, accounts balance of financial accounting and cases of disclosure of information in the financial reporting.
determines risks by receipt of understanding of activities of object of audit and its circle, including the control facilities connected with these risks and also by consideration of classes of transactions, account balances and disclosure of information in the financial reporting;
finds out how the revealed risks can influence indicators of the financial reporting;
studies how significant the revealed risks are and whether they can lead to essential misstatement in the financial reporting.
Calculation of risk of essential misstatements is estimated on the basis of quantitative and high-quality values of risk of control facilities and inherent risk.
30. The audit risk consists of risk of essential misstatement and risk not of detection.
The risk of essential misstatement consists of inherent risk and risk of control facilities.
The statutory auditor uses professional judgment for assessment of the factors influencing the size of inherent risk as at the level of reflection of information in the financial reporting, and at the level of accounts balance and class of economic activities.
Assessment of control facilities is carried out after acquaintance with system of financial accounting and internal control, and receipt of auditor proofs by conducting testing of control facilities.
Quantitative and high-quality methods are applied to assessment of audit risk.
Calculation of audit risk in case of quantitative method is made on formula:
ARE = NR x PK x PH, where: AR - audit risk, NR - inherent risk, RK - risk of control facilities, RN - risk of nondetection.
The qualitative method of assessment of audit risk is that the statutory auditor, as a matter of experience and knowledge of field of activity of object of audit, determines audit risk at the level of the financial reporting in general or separate classes of transactions as high, average, low and uses this assessment when planning.
The risk assessment of essential misstatements is drawn up by the working document "RD — the Risk Assessment of Essential Misstatements (RD-RSI)" in form according to appendix 1 to this Standard.
The risk of nondetection expresses measure of readiness of the statutory auditor to recognize probability of content in the financial reporting of material mistakes after completion of audit and forming of audit opinion without clauses.
The size of risk of nondetection is determined by formula:
RN = ARE / NR x RK, where: RN - risk of nondetection, AR - audit risk, NR - inherent risk, RK - risk of control facilities.
The risk of nondetection depends on efficiency of application of audit procedures and is classified as follows:
in case of assessment of internal control system effective, but the statutory auditor does not rely upon it completely, planning detailed procedures for detection of possible material mistakes, the risk of nondetection is classified as low;
in case of assessment of internal control system inefficient and the statutory auditor plans detailed procedures, the risk of nondetection is classified as average;
in the absence of internal control system and the statutory auditor plans continuous check, the risk of nondetection is classified as high.
Depending on that, the size of the expected risk of detection of misstatements in the financial reporting is how high, the risk of nondetection is so low.
The risk of nondetection does not decrease to zero as the statutory auditor all classes of transactions, accounts balance or disclosure are not exposed to detailed check.
In case of risk assessment of nondetection it is necessary to determine the factors characterizing the main components of risk of efficiency and quality of work of the statutory auditor.
control of work of members of auditor group;
qualification of specialists of auditor group;
possibility of direct contact with accounting service;
experience of work in objects of similar profile.
Results of work are drawn up by the working documents "RD — the Risk Assessment of Control Facilities (RD-ORSK)" in form according to appendix 2 to this Standard, "RD - Assessment of inherent risk (RD-ONR)" in form according to appendix 3 to this Standard, "RD - the Risk assessment of nondetection (RD-ORN)" in form according to appendix 4 to this Standard.
31. Materiality - variation when making by object of the state audit of financial and economic activities from requirements of regulations of the legislation of the Republic of Kazakhstan, acts of the subjects of the quasi-public sector adopted for their realization and also other mistakes exerting impact on the made decisions most of which admissible size is determined according to the legislation of the Republic of Kazakhstan on the state audit and financial control depending on specifics of activities of object of the state audit and measure category.
Materiality is considered at the level of the financial reporting and concerning accounts balance, classes of transactions and disclosures.
In case of determination of assessment of level of materiality the statutory auditor applies professional judgment.
The statutory auditor does not apply concept of materiality when the purpose of the audit engagement is assessment of the caused damage to objects of audit.
At the same time, the statutory auditor considers the insignificant misstatements arising in the small amounts, in total having significant effect on the results reflected in the financial reporting.
Determination of level of materiality is necessary in the following cases:
when planning audit inspection and carrying out audit procedures, determination of the period of carrying out audit, objects of audit, including the objects which are not included in the verification plan;
when planning amount of selection and its adjustment in verification process in essence;
in case of assessment of results of check and influence of the revealed violations on reliability of the financial reporting, that is on form of expression of auditor opinion.
Level of materiality is determined in the amount of 2% of balance currency minus Article amount "Long-term financial investments.
32. The audit risk depends on risks of essential misstatements and risk of nondetection.
Between the level of materiality and audit risk there is feedback. The materiality level is higher, the audit risk and vice versa is lower, the materiality level is lower, the level of audit risk is higher.
33. In case of plan development of audit it is necessary to establish the acceptable level of materiality for identification of misstatement of the financial reporting. The statutory auditor needs to consider quantity and quality characteristics of misstatements.
In case of determination of the quality characteristic essential nature of variations from requirements of the legislation of the Republic of Kazakhstan about financial accounting and the financial reporting and influence of these variations on the financial reporting is established.
In case of determination of the quantity characteristic it is necessary to estimate excess of the established materiality level separately and in total, the found and probable misstatements of indicators of the financial reporting.
34. Level of materiality is the cumulative amount of admissible misstatements in the financial reporting which is not exerting impacts on quality of the decisions made by users based on the analysis of this reporting.
Level of materiality is determined at stage of planning and joins in the plan of audit.
Value of level of materiality depends on many factors, for example, special activities of the audited object, balance currency, the added reserves and others.
Determination of level of materiality depends on professional judgment of the statutory auditor and understanding of activities of object of audit and its circle, availability of coordination of estimations with other auditor proofs.
For calculation of level of materiality basic indicators of financial statement elements are determined:
separate accounts balances of the balance sheet;
size of the balance sheet item;
indicators of the financial reporting.
The statutory auditor considers materiality at the level of the financial reporting, concerning accounts balance, separate classes of transactions, disclosure of information on financial transactions. Receipt of set of various levels of materiality for the same object is as a result possible.
Materiality assessment at the level of accounts balance, classes of transactions and disclosures helps to determine structure of Articles which are subject to check and gives the chance to reveal and decide what to apply in relation to them audit procedures to reduce audit risk to acceptable level.
35. Determination of groups of the significant accounts of financial accounting subject to misstatements is important.
Financial statement line items are the main sources for establishment of significant accounts and disclosure of information.
Recognition of the account significant indicates the need studying of cash flow on this account. The significant account should be considered in case of determination of level of materiality and (or) amounts of selection.
36. Criteria of reference of accounts of financial accounting to significant are:
availability of the balance remaining balance exceeding materiality level;
big turnovers on the account during the accounting period;
availability of the unusual postings and account transactions confirmed by documents and containing objective estimates of workers of the audited object. For example, determination of the size of reserve on asset impairment, recognition of provisions, reserves on unused leaves and doubtful debts.
37. Having installed system of basic indicators for calculation of the level (levels) of materiality, the statutory auditor calculates quantitative value of level of materiality of the financial reporting in general in the following procedure:
determines levels of materiality of significant Articles and accounts of financial accounting;
determines in total the general level of materiality of the financial reporting.
38. The following approaches are applied to determination of quantitative value of level of materiality:
single level of materiality for all indicators of the financial reporting is established;
arithmetic-mean value of the established percentage shares from the basic indicators chosen for determination of level of materiality is calculated;
several values of levels of materiality are established.
For different indicators of the financial reporting, depending on their relevance and importance, the relative size of materiality in the form of specific percent or percentage row is chosen.
Materiality level in the balance sheet is established minus the article "Long-term Financial Investments".
Calculation of level of materiality is drawn up by the working documents "RD — Calculation of Level of Materiality (RD-RUS)" in form according to appendix 5 to this Standard.
39. The threshold of materiality is applied during the planning and accomplishment of audit and represents extreme value of the amount of admissible misstatements, is higher than which the revealed misstatements are essential.
The calculated thresholds of materiality are subject to distribution on financial statement elements in proportion to shares of elements in total result of the corresponding form of the financial reporting.
40. If the probable mistakes and misstatements revealed during audit in total constitute size more than the established level of materiality and variation of high-quality level are essential, then the financial reporting is recognized doubtful.
41. The statutory auditor comes to conclusion that misstatements in classification are not essential and will regard them as insignificant even if the established materiality level applied in case of assessment of other misstatements is exceeded. In this case, similar misstatements accumulate to be convinced that the amount will not have significant effect on the financial reporting.
At the same time, expression "insignificant" in case of assessment of misstatement shall not be apprehended as expression "insignificant".
42. If mistakes are insignificant, the statutory auditor recommends to correct error.
If there is large number of separate insignificant uncorrected misstatements, the statutory auditor provides information on quantity and total amount of uncorrected misstatements in terms of money.
43. Forming of the plan and program of audit is the final stage of planning.
The procedure for scheduling and the program of audit, the audit engagement is performed according to paragraph 3 of Chapter 3 of Rules of carrying out internal state audit.
The plan and the program of audit are constituted in forms according to appendices 2 and 3 to Rules of carrying out internal state audit. In case of need, forms are supplemented with necessary information.
44. By preparation of the plan and it is necessary to install programs of audit the acceptable level of materiality and audit risk allowing to consider the financial reporting reliable.
In respect of carrying out audit the method of carrying out audit based on results of the preliminary analysis, assessment of reliability of the control system, risks assessment is determined.
The program of audit represents the detailed list of the procedures necessary for implementation of the plan.
The statutory auditor needs to draw up documentary the program of audit, to designate in it the carried-out audit procedures to have opportunity in the course of audit to refer to them in the working documents.
Conclusions according to each Section of the program documentary are reflected in working documents and are the basis for creation of the audit report and audit opinion, and also formulation of auditor opinion.
45. Modification of the plan and the program of audit for adjustment and refining is performed according to the procedure, determined by Item 51 of Rules of carrying out internal state audit.
46. Accomplishment of audit is the sequence of carrying out audit procedures necessary for collection of auditor proofs according to the purposes and tasks of auditor action.
47. Auditor proofs are the information used by the statutory auditor for the purpose of opinion forming.
Auditor proofs can include:
information obtained by results of the previous audit;
requests and observations;
48. The statutory auditor and the assistant to the statutory auditor needs to collect auditor proofs based on written and oral requests.
Sources of auditor proofs are:
source accounting documents;
the bookkeeping registers based on primary accounting records;
calculations as in paper, and electronically;
the financial reporting for the accounting period;
protocols of meetings, meetings of management of object of audit.
Additional sources for collection of auditor proofs are:
information obtained from mass media;
information obtained during the previous audits;
reports of service of internal audit.
The part of the auditor evidence is obtained by conducting testing, for example, the reconciliation statement of settlings with debtors and creditors received from the third parties.
The number of auditor proofs depends on risk of misstatements of the financial reporting and their quality.
49. The statutory auditor uses approvals on classes of transactions, accounts balance, representations and disclosures for risks assessment of essential misstatements.
Approvals on classes of transactions:
event - transactions are made, events took place and are connected with object of audit;
completeness - all transactions are reflected in financial accounting and considered in the financial reporting;
accuracy - transaction amounts are reliably reflected;
closing - transactions are considered in the accounting period;
classification - transactions are considered on the corresponding accounts.
Approvals on accounts balance:
existence - assets and liabilities really exist;
the rights and obligations - object of audit has rights to assets, the accounts payable is the obligation of object of audit;
assessment and distribution - assets, obligations and net assets / the capital are reflected on the corresponding amounts and considered as appropriate.
Approvals on disclosures in the explanatory note to the financial reporting:
the rights and obligations - transactions and events really occurred and belong to object of audit;
completeness - all disclosures are included in the financial reporting;
classification and clearness - information is provided in the financial reporting correctly;
accuracy and assessment - is authentically disclosed information and in the proper amounts.
50. The principles of auditor proofs are sufficiency and compliance.
Sufficiency is indicator of number of auditor proofs which depends on risks assessment (the risks are higher, the high quality there are more auditor proofs, the, the there are less auditor proofs).
Compliance is indicator of quality of auditor proofs (relevance and reliability) for confirmation of the conclusions on which the auditor opinion is based.
Criteria of auditor proofs are relevance and reliability.
Relevance is reliability of class of transactions, accounts balance, the opened data and the related prerequisites of preparation of the financial reporting, and also detection of misstatements in them.
Relevance of information is logically connected with the purpose of audit procedure and influences it.
Reliability of auditor proofs depends on their source and nature of receipt of proofs.
are received from external sources;
the received documents are authentic;
are received by directly statutory auditor.
For receipt of high degree of reliability the statutory auditor needs to receive confirmations from various and independent external sources.
The auditor evidence obtained from external sources is drawn up by the working document "RD — Information from External Sources (RD-IVI)" in form according to appendix 6 to this Standard.
52. Collection of auditor proofs consists of the following stages:
collection of actual data and information is made on the principles of completeness, reliability and compliance, sufficiency;
the analysis of collected actual data and information regarding sufficiency;
collection of additional actual data and information in case of their insufficiency for forming of auditor proofs.
Collection of auditor proofs is not based on doubtful actual data.
The auditor evidence obtained in case of audit accomplishment needs to be included in auditor documentation.
53. Audit procedures - collection of mathematical evidences for the purpose of formulation of conclusions on which the opinion of the statutory auditor on financial position of object is based.
Audit procedures consist of testing of control facilities and the procedure of check in essence.
54. Testing of control facilities is held for receipt of auditor proofs about efficiency of functioning of systems of financial accounting and internal control.
Procedures of check are in essence carried out for the purpose of receipt of auditor proofs about availability or about lack of essential misstatements in the financial reporting.
For receipt of sufficient and competent auditor evidences it is necessary to perform in essence procedures of check for material classes of transactions, accounts balance and disclosures.
Procedures of check in essence include detailed testing and analytical procedures.
The following methods of audit procedures are applied to receipt of auditor proofs:
observation and survey;
request and confirmation;
Inspection consists in check of internal or external records or documents, in paper or electronic form, or on other data carriers that provides auditor proofs of various degree of reliability (depending on nature and source).
Observation and survey provide themselves the auditor evidence obtained during observation of process or the procedure performed by other persons. For example, observation of activities of the audited object by studying of documents (provision, constituent documents, the strategic plan, the operational plan, government programs of administrators of the budget programs, development programs of subjects of the quasi-public sector, annual plans of public procurements, investment and concessionary projects, irrevocable grants, internal crediting, loans and others).
The request and confirmation are applied as amendment to other audit procedures. Requests happen oral and written. Replies to the requests provide information considerably differing from earlier received. Sometimes replies to the requests are the basis of accomplishment of supplementary audit procedures for receipt of sufficient and competent auditor evidences.
Recalculation includes check of arithmetic accuracy of documents or records. For example, check of calculations for the salary or reserves on unused leaves.
Analytical procedures represent the analysis and assessment of the acquired information.
Analytical procedures are carried out for identification of risks when planning disclosure of information of unusual transactions or events which exert impact on the financial reporting subsequently.
Analytical procedures include:
comparison of information for previous periods;
comparison of indicators of financial statement elements;
studying of interrelation between data of indicators of financial and non-financial information for the audited period;
studying of interrelation between financial statement elements;
the analysis of balance on accounts;
analysis of unusual transactions.
External confirmations use concerning significant accounts.
55. Application of methods of audit procedures depends on professional judgment of the statutory auditor.
56. Auditor selection represents the procedure of selection of elements of group of transactions, financial statement line items and components of consolidated financial statements.
56-1. Selection of components of consolidated financial statements is carried out according to separate financial reportings of subordinated public institutions of consolidated group.
Financial reportings of subordinated public institutions or individual clauses of their financial reporting belong to sample units.
56-2. Selection of elements is made by the following criteria:
the greatest amounts of balance currency of components in consolidated group;
the greatest amounts of accounts balance of the balance sheet of components in consolidated groups (to check individual clauses of the financial reporting of component are subject);
the greatest amounts of the income and (or) expenses in components to consolidated group (to check the income and (or) expenses of the financial reporting of component are subject);
key values, in case of use of this criterion the statutory auditor uses professional judgment for determination of essential components or Article of their financial reporting in consolidated financial statements.
The statutory auditor makes selection of components taking into account the factors characterizing the main components of risk of efficiency and quality of the state audit (labor, temporary resources).
57. For collection of auditor proofs the statutory auditor at stage of planning of audit procedures determines methods of selection of sample units.
Population is complete structure of elements from which selection is made.
The sample unit is the separate elements constituting population. Such elements are invoices, accounts balance on receivables and payables, accounting entries on realization.
58. Developing audit procedures, the statutory auditor needs to carry out one of the following procedures:
select all elements of population (continuous check);
select specific elements proceeding from professional judgment and understanding of activities of object of audit;
carry out auditor selection of population elements.
59. Continuous inspection is carried out when:
population consists of small amount of elements with high cost. This method can be applied when there is significant risk and it is impossible to obtain the auditor evidence other means;
application of information system allows to carry out repeated methods of audit procedures. For example, recalculation or repeated accomplishment;
there is substantial risk of misstatement, and other means do not provide sufficient auditor evidences.
60. Selection of specific elements is made when:
population consists of elements with high cost and is subject to risk or elements which were connected with mistakes or unusual transaction earlier;
elements for receipt of information on specifics of activities of object of audit, to nature of transactions and internal control are performed.
61. When selection of elements of population is carried out by the statistical technique at the elements which did not get to selection the risk of availability of mistakes is possible. Then it is recommended to increase selection scale.
Process of forming of selection consists of the following stages:
determination of method of selection;
accomplishment of audit procedures;
the analysis of the received results and their distribution on population.
Methods of selection of selection are:
statistical or not statistical;
using the table of random numbers;
systematic or not systematic.
The statutory auditor independently makes the decision on application of one of these methods of selection proceeding from professional judgment and understanding of specific circumstance.
62. The significant effect on determination of method of selection and amount of selection accords welcome to stratification - division of population into separate groups, elements of each of which have similar characteristics. For example, inventories are divided by types of accounts; fixed assets - on groups of depreciation; accounts receivable - on terms of emergence of debt.
In case of division of population into quantitative sign set is stratified on monetary value. For example, at the cost of sample units.
Elements of the greatest cost or crucial elements which can have significant effect on reliability of the financial reporting get out of separate groups.
63. Determining amount of auditor selection the statutory auditor independently establishes the level of admissible mistake which is materiality threshold (extreme value of the amount of admissible misstatements, is higher than which the revealed misstatements are essential).
If mistake availability in the checked set takes place, it is necessary to increase quantity of sample units to be convinced that in total the revealed mistakes do not exceed the level of admissible mistake. The small amount of selection is used if the statutory auditor assumes lack of mistake in the checked set.
64. Between the level of admissible mistake and amount of selection there is inverse relation: the level of admissible mistake is less, the more it is necessary to increase amount of auditor selection.
For various details in total it is necessary to establish various levels of admissible mistake and acceptable risk levels as they have different value when forming reliable information. For example, when checking receipt of fixed assets availability of documents, than determination of the responsible person for this fixed asset is significant.
65. Determining selection amount for tests in essence, the statutory auditor applies results of inherent risk when planning and risk of control facilities under Articles of accounting.
Depending on indicators of inherent risk and risk of control facilities the level of reliability and coefficient of reliability according to appendix 7 to this Standard is determined.
The above the statutory auditor estimates inherent risk and risk of control facilities, the level of reliability is lower and, therefore, the more there shall be selection amount.
66. The amount of selection is determined by formula:
OV = KN x KS, where: OV - amount of selection, KN - coefficient of reliability, KS - set coefficient.
The Set Coefficient (SC) is calculated by formula:
KS = (GS - ENS - KE) / US, where: GS - population, ENS - total cash value of elements of the greatest cost, KE - total cash value of crucial elements, US - materiality level.
Elements which with high probability contain variations belong to crucial elements. Crucial elements are determined by the statutory auditor proceeding from professional judgment and understanding of specifics of activities of object of audit.
Elements which cost value exceeds accuracy degree belong to elements of the greatest cost.
Value of coefficient of set is ranging from 10 to 35.
If by results of calculation value of coefficient of set less 10, then value is accepted equal 10, if more 35, then it is necessary to accept value equal 35.
Elements of the greatest cost and crucial elements are selected in separate group and are subject to continuous check.
67. The statutory auditor applies representative method of selection of elements of population with equal probability to be selected in selection.
Are applied to this method of selection:
Accidental and systematic selections are statistical techniques of selection.
68. In case of random sampling of sample unit the table of random numbers received by means of function of the Excel-program of random number generator is applied. The random number is in a random way. On crossing of column and line there will be required random number.
To each accidentally chosen number of the table there corresponds the specific element of population.
In case of each new creation of the table value of random numbers will change.
Calculation of the document numbers which are subject to check is made in the way:
determinations of number from the table of random numbers;
determinations of document number.
The Document Number (DN) is determined by formula: ND = (KZ - NZ) x (SChL + NZ), where: KZ - final value, means sequence number of the last document of population; NZ - initial value, means sequence number of the first document of population which is equal to 1; SChL - random number.
69. Systematic selection assumes selection of elements through permanent interval, since accidentally chosen number. The interval is under construction or on certain number of elements (for example, every tenth document from all documents of this category is selected), or on their cost assessment (for example, the element of which every tenth amount in aggregate value of elements is the share is selected).
In case of systematic selection calculation of the document numbers which are subject to check consists of two stages:
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