16/10/2025
AUDIT PROCEDURE
When auditors walk into an organisation especially one they haven't audited before, the first question they will ask after taking note of the industry IS HOW DOES THE OPERATION OF YOUR ORGANISATION LOOK LIKE, this is to understand the environment they are in and take note of any unique operation that works specifically for the organization not just the industry.
Second steps is to ask for the audited account inclusive of NOTES TO THE ACCOUNT.
Next, there will be a thorough understanding of relevant LINE ITEMS and its connection to the NOTES TO THE ACCOUNT to demand for a TB.
Not TUBERCULOSIS rather TRIAL BALANCE. The trial balance captures line item pertaining to the financial statement cm notes to the account.
To further break the transactions down, they ask for the General ledger which do not sum up transactions eg Administrative expenses like trial balance do but shows each Administrative expenses and what constitute it.
To still further break the transaction they look at the journal of each general ledger to see which was debited and credited, here the work gets cumbersome, there is need for MATERIALITY (if any)
Sales are therefore matched with the inflows from the bank statement while taking note of trade receivables, capital and revenue expenditures matched with outflows (purchases inclusive)
Total amount of purchase in the P/L is usually the COST OF SALES which the amount of closing inventory will be added to get the TOTAL PURCHASES PAID from the bank statement while taking note of TRADE PAYABLES.
VAT input and output difference balances VAT liability after difference is paid which will be reflected in the bank statement or have a VAT CREDIT (starts 2026)
Withholding tax payables balances when paid on behalf of customers which will also reflect in the bank statement.
Withholding tax credit meant to be remitted on the organizations behalf by the customers reduces or wipes off current year tax liability.
Adequate stock taking done to reflect the closing inventory value as reflected in the SOFP.
Asset register checked for PPE and depreciation schedule.
Payroll checked for salary paid which is reflected in the bank statement and other emolument which is embedded in the TB, GL and stated earlier.
Basically audit is a total scrutiny, and follows the double entry procedure but in a working back way. The question in audit is, what should have been the original entry of this transaction ,which account will this possible affect and possible Recognition of the second leg of a transaction.
Agu Oy
