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Unit 2: Auditing Practices

Notes
Example: If the auditor has selected the purchase of any costly machinery, then be has to
follow the following procedure for its audit in depth:
1. To see the minutes of directors meetings to examine that the purchase of machine is
authorized or not.
2. To inspect the copy of purchase order sent for the purchase of the machinery.
3. To check the invoice received from the seller.
4. To check and inspect the machinery purchases.
5. To verify the amount paid to the seller.
6. To verify the expenses incurred for the installation of machinery.
7. To examine the entries made in books of accounts and plant register.

2.8.2 Techniques of Audit in Depth

According to the Institute of Chartered Accountants, England, there are three stages of audit in
depth; they are:

1. Ascertainment: To find out the efficiency of the system of internal check.
2. Testing: To examine the important transactions in detail.
3. Assessment: To determine the limit of verification on the above investigation.

2.8.3 Advantages of Audit in Depth

The main advantages of this technique are as follows:

1. Saving in Time and Energy: The technique of audit in depth saves time and energy of the
auditor and enables him to devote more time and energy in important matters.
2. To Detect the Well-designed Frauds: The technique of audit in depth is helpful in detecting
the well-designed frauds.
3. To Present the Success of Test Checking: This technique presents the success of test checking.
4. Moral Pressure: It puts a moral pressure on the employees.

Append below is some salient points on Depth Test and its objective(s):
2.9 Depth Test

1. Sometimes also known as “cradle-to-grave” tests.
2. Its involves taking a transaction or a number of transactions and following them through
the accounting system from start to finish or vice versa
Purposes/Objectives

Generally, depth test is to provide audit evidence to assist the auditor in arriving at his opinion.
There are also some specific purposes of using depth test:
1. To confirm the accuracy of his client’s accounting system. It is also refer to as “walk-
through checks.” Such a depth test is likely to involve only a small number of
transactions.

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