1. Let us assume a bank(may be branch) having 1 Lakh deposit customers who do not transact in any time during a audit year. every month they get interest at some specified rate. hence, every month 1 Lakh interest expense entry will be done. in a year total 12 Lakhs entry has been made.
2. now assuming that all given workforce of a audit firm/auditor has equal capacity to execute a given work of auditing interest expense. rate of their working is 1 voucher per minute. they work 6 days in a week or 24 days in a month. suppose audit assignment is to be completed within 3 months then total available working hours for 72 days for a single labor. Having 8 Hours per day working hour, total hours that can be worked (without any break in between during working hours in any day) is 576 Hours or 34,560 minutes. given the rate of 1 voucher per minute he/she can vouch 34,560 vouchers in three months. audit of bank interest expense without sampling can be done by around 3 workers devoting 100% of his/her working time on interest expense.
3. By scaling number of vouchers by 10 only we need to scale number of workers by scale 10 too. scaling of numbers of voucher is not unrealistic in banking sector and I can not say about scaling of workers. for auditing 10 Lakhs interest vouchers alone it will take 30 workers 3 months which is unrealistic assumption for any firm given the amount of audit fee provided (national average can be done of A class bank if anyone is interested).
4. given the nature of banking business and its complexity, fluctuation in interest rates depending upon macroeconomic variables, main cost of bank, interest expense can be shown to have high inherent risk. I assume that the auditor is experienced enough, so he/she doesn't need to spend time on inherent risk assessment. Now the possible strategy to give reasonable assurance due to mathematical impossibility as proved in point no. 3, firstly he/she must rely on control ICOFR for interest expense for which control risk and test of control should be done on detail. And secondly he/she must take help of sampling. As sampling increases the detection risk assuming uniform distribution of risk over the population by a factor of (100-coverage%), a possible solution may not be that much appropriate given inherent and control risk both become high.
5. Auditing standards has taken two front approach to reduce detection risk. One is top down approach through Planning and another is bottom up approach using review mechanism. However, this is choice of auditor to use any combination of resources while planning and review is prescribed at working level only to the extent that senior should review work of junior.
6. Challenge of the auditor is to manage resources in such a way that DR risk is reduced appropriately to give a reasonable assurance.
7. Does the structure of the audit team affect detection risk? Yes, of course. In above example on scaling of 10, 30 team at minimum can be assigned equal no. of vouchers to audit without sampling for 3 months to meet objective on interest expenses which is impossible task for given budget constraints for the auditor.
8. We can reduce time to execute the given work by increasing capital i.e. using CAAT at high level. Other than this it can be done using different team structure too. For example, in a given case three functional team are made, one is responsible for getting information in an auditable form, one is responsible for checking for assertions and last one is analyzing and finalizing the work. first team gets 5 members, next 20 for vouching and last 5 for finalizing. This functional approach will reduce overall time on an average per team member though I am not optimistic they can cover it all in economically sound manner.
9. As above explained functional approach to team can generate greater efficiency in audit work. there more advanced system structures which can reduce work giving the exact same result of procedural structure (in our example dividing work equally). By generating efficiency in audit work by using advance system structure, cost can be saved and detection risk can be lowered.
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