May-2015

AUDITING
other evidences is adopted without making any change.
The proposed audit-model facilitates the cost auditor to
derive his conclusions more precisely. The suggested audit-model
is immensely useful to the audit community as
it facilitate to identify the misstatements in order to direct
the client for taking corrective steps. The proposed audit
model is useful for checking Balance sheet, Income and
expenditure account, Profit and Loss account or Revenue
account.
The proposed audit-model is not susceptible to all auditing
procedures. The general procedures for checking
the records like Minutes, Contract documents or Judgments
of Hon’ble Courts and the records which require
complicated analytical procedures such as identifying the
unusual and outlier items etc, the proposed technique,
could not be adopted. The application of the proposed
technique is also extremely limited, if the prime intention
is to understand the nature of the entity operations or
evaluation of the Internal Control Mechanisms.
Objective of the Study
The primary objectives of the study is to develop appropriate
audit-sampling-model, by adopting the existing
statistical tools which facilitates
• To identify the objectionable transactions as well as its
monetary value within the accounting balance
• To estimate the monetary value of the accounting balance
more accurately
• To confirm the efficiency of the proposed audit model.
Audit Model
The cost auditor expected to espouse compliance testing
as well as substantial testing. The compliance test primarily
aims to check whether the provisions of the Act, Rules
framed thereon, Regulations and Executive Instructions
are properly adhered by the entity. In the compliance
testing, the cost auditor is interested in a specific characteristic
of the accounting balance possesses the characteristic
or they do not have it. On the other hand, the
estimation of aggregate monetary error is the primary
aim of substantial test of details. The error in the financial
statements has to be treated as material, if the knowledge
of the error would affect a decision of a reasonable user
of the statements. If the error in the substantial testing
exceeds the materiality, it becomes absolutely necessary
to give directions to modify the financial statements. The
primary concern of the proposed audit model is to check
the substantial test of details.
The proposed model involves three phases, the first
THE PROPOSED AUDIT
MODEL INVOLVES THREE
PHASES, THE FIRST PHASE
BEING IDENTIFICATION OF
MISSTATEMENTS AND THE
SECOND PHASE TO ASSIST THE
COST AUDITOR IN ESTIMATION
OF THE MONETARY VALUE OF THE
BOOK BALANCE AND THE LAST
PHASE BEING THE EFFICIENCY
TESTING OF THE MODEL
PROPOSED
phase being identification of misstatements and the second
phase to assist the cost auditor in estimation of the
monetary value of the book balance and the last phase
being the efficiency testing of the model proposed.
Phase I- Identifications of Misstatements
It is well known if the cost auditor did not check all the
records and adopts statistical methods there is always audit
risk. The extent of testing by the cost auditor depends
upon the degree of reliability or assurance that cost auditor
requires about the financial information recorded in
the accounts. The risk for issuing the unmodified audit
report due to non-detection failure may be further classified
primarily into two categories i.e. risk of incorrect
acceptance (Beta Risk) and risk of incorrect rejection
(Alpha risk).
The proposed audit-model aids the cost auditor to reduce
both alpha and beta audit risks to a maximum possible
extent. The proposed model applies statistical methodologies,
which arise in auditing where the distributions
could be adopted.
The first step requires the selection of transactions randomly
and confirms whether the selected transactions
confirm with the consistency of Rules/Regulations etc.
After incorporating the audited value in the transaction
data set, the cost auditor has to apply χ2 to confirm
56 the MANAGEMENT ACCOUNTANT MAY 2015
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