Spiral Design Model to Teach Steps in Conducting an Audit of Financial Statements

Background and description of scenario

Auditing involves the development of understanding of the nature of risks associated with a case
or engagement throughout the entire audit procedure. An auditor has to gather evidence that is
appropriate and sufficient to support any conclusions or decisions and opinions formed during
the audit. Here we will look at a scenario of teaching a junior auditor, who has just completed a
first degree in accounting the major phases of the audit process using the spiral model to show
how risks in the audit procedure exists at various levels, and the testing that is done iteratively.
The spiral model is used to ensure that learning about various stages tests, and further tests done
to ensure an objective audit is made meaningful to learner.
Review of engagement is the first step in learning the audit process. This involves a review of
the client corporate tax files to become familiar with the nature of the business. Here the auditor
will check prior notes in the file for any constraints such as exemption from taxes and to
determine the audit scope going forward.
Plan the audit this step involves developing the overall strategies that will be used during the
conduct of the audit. The auditor will learn how to identify strategies to be used that are
situational to an engagement.
Test details is done by interrogating internal databases in the Standard Integrated Government
Tax Administration System (SIGTAS). Here the junior auditor will learn to verify details
presented. For example; learn to navigate and look in Value Added Tax reported figures to check
for accuracy of revenue figures reported on the financial statements presented.
Investigate Internal Control in this step, the junior auditor will learn to look for relationships
and trends that can provide evidence that the organization is operating within compliance
guidelines with laws, regulations, policies, and are practicing reliable financial reporting.
Identify audit assertions to test in this step the junior auditor will learn that there are implicit or
explicit assumptions made by management in the presentation of the statements. For instance,
the assertion that the value of inventory is correct can be tested statistically for accuracy.
Determine audit objectives, here the auditor will learn to relate objectives to assertions, and
develop procedures to test specific financial information presented.
Risk analysis/audit tests , here the auditor will learn to identify risks inherent in the audit
procedures such as sampling risk, and appreciate how these can be mitigated.
Evaluate test results, here the auditor will learn how to process the results of test conducted to
conclude if conclusions based on sampling is an appropriate representation of the population.
Accounts, analysis, and verification of controls is an iterative process that is ongoing
throughout the course of the procedures performed in the audit, and the auditor will learn with
experience to identify trends that will aid in evaluation.
Test of statutory requirements checks for compliance, the auditor will learn to identify
breaches by being directed to the various laws and regulations, and with practice will become
proficient in memorizing details.
Test Validation, here the auditor learns to run different inquiries such as compliance for property
taxes etc., and verify compliance or non compliance to refer taxpayer name to relevant sections
for follow up.
Assess risk of misstatement here the auditor learns to use Excel to perform tax computations
and analysis to check for calculated accuracy of figures presented.
Risk analysis/define further audit tests will teach the auditor to learn to identify situations in
which significant materiality errors exist, and to design further tests to validate and verify
accuracy of figures presented.
Test account balances will allow the auditor to learn to determine balance accuracies and is a
further test that is conducted when material errors are significant and pervasive.
Accounts analysis will allow the auditor to appreciate and learn the relationship between entries
in asset, expense, equity, liability and revenue accounts in the financial statements, and what to
look for in an audit.
Assess control risks in this step the auditor will learn to gain a deeper appreciation for the
relationship between detection and prevention aspects of the internal control to determine how
well it is functioning in terms of identifying misstatements in a timely manner.
Perform test of controls this step will teach the auditor to observe what actually takes place in
the organization when working in the field to note any discrepancies while doing a walkthrough.
Substantive procedures integration and analysis testing will help the auditor to learn to
discriminate between the conclusions gathered from performing different procedures by analysis
and integration of assertion validation and test results for completeness, disclosure, existence and
valuation of assets etc.
Risk analysis of transactions and disclosures will help the auditor to learn techniques to know
may pose a risk in future audits in terms of identifying the areas tested and the results gained to
strengthen evaluative skills.
Review management will help the auditor to develop insight in observation of management
lifestyle patterns to determine if inconsistencies exist in portrayal of business data presented
Evaluation of operations will help the auditor learn to look for evidence of related party or
other transactions that may not be above board. From the audit transactions that point to
involvement in other business operations or indicated are referred to investigations.
Summation of audit notes is done to teach the auditor to learn how to properly compile findings
into correspondence, supporting schedules, working papers and tax lead information.
Detailed documentation is done to teach the auditor in learning proper documentation
procedures for preparing file information to be possibly shared with other sections in the
department
Complete audit procedure will show how to finalize a case, the auditor will learn to review the
audit operation to examine the evidence obtained in coming to a conclusion about audit findings
in the financial statements.
Audit report preparation will teach the final stage in preparing findings from the audit
process. The auditor will learn how to write up assessments, reassessments, estimates, and other
documents that will be sent to the taxpayer and will be filed in the registry with the audit report
for future reference.
Reflection of applying scenario to model
When I chose the spiral model, I had not thought of how I could find a learning problem to solve
using it because it was developed for software development. After much long and hard thought
and consultation with a member of my team, I decided I could only use it to solve a learning
problem in my workplace. The more I thought about the similarity in risk analysis in software
development and in the audit process, the more I wanted to try to map the process onto the spiral
model. At first, I could not figure out how to edit the model, but after much trial and error with
Paint, I figured out how to map my scenario to the model.
I used this model actually by sheer chance, I picked the name at random from reading about it in
my research of instructional design models in the required reading by Gustafson & Branch
(2002). Honestly, I do not know how to justify using it, except that while I was working on my
instructional design assignment which was submitted last Friday, I thought that perhaps the
model I created may not work linearly because of having to gauge risk analysis in the audit
process at different stages, but could perhaps work spirally. How I was going to design that, I
actually had no sense of an idea then. However, now, it seems that subconsciously, cognitive
processes have allowed me see how the actual tasks performed in my section could fit on to the
spiral model and kind of make some sense.
Lessons learned in trying to apply my scenario to the model would have to be that I did not know
how to do it when I started, but after many hours of thinking, pondering and wondering, the thing
just happened! I hope that I was able to somehow describe in some detail what the auditor will
learn. But, I also learned that in revisiting the procedure to teach a new auditor, I was forced to
think deeply about the steps involved in the audit process, and made new connections to already
existing prior knowledge.