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small entities.
.67 In the audit of small entities, there are particular problems in obtaining audit evidence to support the assertion of completeness. There are two principal reasons for this:
(a) The owner-manager occupies a dominant position and may be able to ensure that some transactions are not recorded; and
(b) The entity may not have internal control procedures that provide documentary evidence that all transactions are recorded.
.68 The auditor plans and conducts the audit with an attitude of professional scepticism. In the absence of evidence to the contrary, the auditor is entitled to accept representations as truthful and records as genuine.
.69 The auditor of a small entity need not assume that there will be limited internal controls over the completeness of important populations such as revenue. Many small entities have some form of numerically based system to control the dispatch of goods or the provision of services. Where there is such a system to ensure completeness, the auditor may obtain audit evidence of its operation,
9 AUS 502, “Audit Evidence,” which was revised and issued in February 2004, contains small ent,ity audit considerations and, is applicable for audits of, a financial report for periods commencing on or after 15 December 2004. Paragraphs .66 to .70 of this AGS will be withdrawn when the revised AUS becomes effective.
by means of tests of control, to assist in determining whether control risk can be assessed at less than high in order to justify a reduction in the extent of substantive testing.
.70 Where there are no internal controls relevant to the assertion, the auditor may be able to obtain sufficient evidence from substantive procedures alone. Such procedures may include the following:
• Comparing recorded amounts with amounts calculated on the basis of separately recorded data, for example, goods issues recorded in physical stock records may be expected to give rise to sales income, and job sheets or time records may be expected to give rise to charges to clients.
• Reconciling total quantities of goods bought and sold.
• Analytical procedures.
• External confirmation.
• A Review of transactions after the balance sheet date.
AUS 512: Analytical Procedures
Analytical Procedures in Planning the Audit
.71 The auditor applies analytical procedures at the planning stage of the audit. The nature and extent of analytical procedures at the planning stage of the audit of a small entity may be limited by the timeliness of processing of transactions by the small entity and the lack of reliable financial information at that point in time. Small entities may not have interim or monthly financial information that can be used in analytical procedures at the planning stage. The auditor may, as an alternative, conduct a brief review of the general ledger or such other accounting records as may be readily available. In many cases, there may be no documented information that can be used for this purpose, and the auditor may obtain the required information through discussion with the owner-manager.
Analytical Procedures as Substantive Procedures
.72 Analytical procedures can often be a cost-effective means of obtaining evidence required by the auditor. The auditor assesses the controls over the preparation of information used in applying analytical procedures. When such controls are effective, the auditor will have greater confidence