Principles of Auditing KASNEB Notes

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This paper is intended to equip the candidate with knowledge, skills and attitudes that will enable him/her to undertake non-complex audit assignments.


A candidate who passes this paper should be able to:

  • Plan an audit assignment
  • Comply with the regulatory framework during an audit assignment
  • Obtain audit evidence
  • Prepare an audit report.


Nature, purpose and scope of auditing

  • Definition of auditing, auditor and an audit
  • Explain the principles and processes of an audit
  • Differences between auditing and accounting
  • The types and timing of audits
  • Internal versus external and a focus on the complimentary role of internal to external, interim and final audit
  • The users of audited financial statements and auditor reports

Legal and professional requirements

  • Appointment  of an auditor
  • Qualifications of an auditor
  • Duties and rights of an auditor
  • Dismissal of a company auditor
  • Professional ethics
  • Auditing standards and guidelines

Panning and conducting an audit

  • Objectives of planning for the audit work
  • Audit plan for a new client
  • Audit plan for an existing client
  • Developing an overall audit plan
  • Limitations of audit plans
  • Methods and techniques of an audit

Internal control system

  • Definition of internal controls and internal control systems
  • Purpose of internal control system
  • Designing an internal control system
  • Benefits and limitations of internal control system
  • General controls on:
    • Revenue
    • Expenditure
    • Assets
    • Liabilities

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Error and fraud

  • Definition of error and fraud
  • Differences between error and fraud
  • Types of errors and frauds
  • Causes of frauds and fraud triangle

Audit evidence

  • Nature and source of audit evidence
  • Financial statement assertion
  • Types of audit evidence
  • Gathering audit evidence
  • Reliance on the work of an internal auditor
  • Contents of audit working papers (excluding their preparation)
  • Audit tests
  • Substantive tests
  • Analytical tests

Audit risk

  • Definition of audit risks
  • Components of audit risks
  • Risk-based audit

Computerised auditing

  • Benefits and drawbacks of computerized accounting systems
  • Computer Aided Auditing Techniques (CAATs); Auditing around and through the computer

Auditor’s report

  • Purpose of the auditor’s report
  • Legal provisions on auditor’s report
  • Elements of the auditor’s report
  • Key audit matters
  • Forms of audit opinion

Emerging issues and trends

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