External Auditing
Understand the purpose of an audit: to express an opinion on whether financial statements are prepared, in all material respects, in accordance with the applicable framework. Learn audit risk (inherent, control, detection), materiality, and the stages: planning, risk assessment, evidence gathering, review, reporting.
Evidence types and assertions: occurrence, completeness, accuracy, cut-off, classification, existence, rights and obligations, valuation. Procedures include inspection, observation, enquiry, confirmation, recalculation, re-performance and analytical procedures. Know the difference between tests of controls and substantive procedures, and the audit report types: unmodified, qualified (except for), adverse, disclaimer.
Traps: confusing completeness (understatement) with existence (overstatement); thinking auditors guarantee no fraud; overlooking that internal audit is not external audit; forgetting that sampling risk and non-sampling risk both exist; misidentifying the effect of a scope limitation versus a misstatement.
Rule of thumb: match procedure to assertion. Worked example: to test completeness of trade payables, select goods received notes after year end and trace to purchase invoices and the payables ledger - testing for understatement rather than existence.