THE OVERALL AUDIT APPROACH

The auditor must gather sufficient competent evidential matter as a basis for forming his opinion on :

•  the truth and fairness of the accounts and also their compliance with the provisions of the related laws, rules and regulations;
•  the proper keeping of the accounting records, and other records and related registers of the client. These broad objectives may be amplified as follows :

To determine whether :

1.  all assets and liabilities are properly stated and classified on a basis consistent with that of the previous year;
2.  proper disclosure is made of securities for liabilities and of assets charged or secured;
3.  the client has complied with the provisions of the applicable laws and documents created under them, loan agreements and other documents to which he is a party;
4. income and expenses are properly classified and disclosed and are properly matched. They relate to the period in which they are reported and have been determined on a basis consistent with that of the previous year;
5.  all contingencies and commitments are properly disclosed;
6. no material omissions have been made in the financial statements;
7.  no material error or inaccuracy in reporting or disclosing income, expenses, assets and liabilities has been created in the financial statements; the books and records have been properly kept in accordance with the of the client.

The expression of opinion on the overall balance sheet and profit and loss account involves initially forming an opinion on each of the balance sheet or profit and loss items; it is necessary first to decide what are the essential conditions or pre-requisites for each balance sheet or profit and loss account item in order to give a true and fair view of the particular assets or liabilities or item of income or expense being represented. These conditions are well established and may be illustrated by reference to the areas of sundry debtors and sales revenues.

Sundry Debtors : The audit of sundry debtors should be sufficiently comprehensive to enable the auditor to form an opinion as to whether :

1.  The amounts shown represent bonafide receivables of the company.
2.  The receivables are properly classified.
3.  Adequate provisions have been made for uncollectible receivables and for discounts and freight allowable, returns adjustments, etc.
4.  Any receivables have been pledged, discounted, assigned or sold, and if so whether they are
   properly disclosed.

Sales Revenues : Specific objectives in the audit of sales revenues are to determine whether :

1.  Sales accounting procedures are operating effectively to produce reliable sales revenue figures for the period.
2. Sales revenues have been recorded in the proper accounting period and are not overstated through improper credits for fictitious sales of goods neither supplied nor set aside. Conversely, whether sales or other revenues are understated through deferring the recording thereof to subsequent periods or omitting to record sales despatched as sales.
3.  Allowance, returns and other sales deductions are fairly stated and properly treated in the financial statements and that adequate provisions have been made for any significant additional amount that may be anticipated to be paid but not yet finally settled.
4.  Non-operating revenues have been segregated from sales revenues and have been appropriately treated in the profit and loss statement.