Activity Based Risk Evaluation Model of Auditing

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Inquiry

Inquiry (or enquiry) is a type of evidence gathering activity performed in all five audit stages.

A request for information (either written or verbal) may be made by the auditor either to the client's management/staff or a third party. Where the response (either written or verbal) is by the client's management/staff, or where the response by the third party is verbal, the activity is referred to as inquiry. Where the response by a third party is written, the evidence gathering activity is referred to as confirmation.

In the audit planning stage, the auditor gathers evidence as to the effectiveness of design of internal control procedures. For example, the auditor may inquire about:

• the manner in which the control procedure is to be performed,
• the soundness of design (i.e. the theoretical ability of the control to achieve its objective),
• the proposed timeliness of the application of the procedure,
• the competence of the staff member proposed responsible for its execution,
• whether that staff member has any incompatible duties,
• whether the control is designed to be applied continuously throughout the auditor's intended period of reliance,
• the contingency plans that exist to take effect when the person responsible for executing the procedure is on leave or ill,
• the action that should take place when an exception is detected and how any exception detected is corrected and re-entered,
• whether the planned supervision(or review) of the procedure is adequate to ensure the control is (or was) executed in the manner proposed, at the planned time, by the person proposed and continuously throughout the period of intended reliance. Note that the review by the client's management of the results of the procedure after it is performed could be critical as it may not be possible to supervise a procedure while it is being performed.

In the control testing stage, auditors make inquiries of management to gather evidence as to whether control procedures upon which reliance has been planned are effective as to their operation. In particular, auditors inquire whether such procedures were performed continuously throughout the period of intended reliance, by the persons proposed to perform the procedure, at the proposed time and supervised as planned. ^[fn]

In the substantive testing stage, auditors make inquiries of management to gather evidence that account balances and classes of transaction are compete, valid and accurate. For example, an auditor may inquire as to how management proposes to collect overdue debts as evidence of the accuracy of valuation of accounts receivable.

Auditors usually consider evidence gathered through inquiry from the client's management/staff, particularly where both the inquiry and response are verbal, to provide evidence that is less than reliable as the competence and integrity of the person responding may not be capable of being ascertained with any degree of certainty and/or the inquiree may be motivated to be less than completely honest. Note that where an auditor's suspicions are aroused, the auditor is particularly astute when making inquiries. See Journal of Accountancy article Answer Please: Fraud-Based Interviewing.

Note that auditors do not consider responses by management, whether written or verbal, to be a substitute for other evidence the auditor might expect to gather. When auditors gather evidence through inquiry, it is supported by corroborative evidence.

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