Requires an examination of procedures or records for reliability and accuracy. At the end the auditor can add new ones, modify existing ones or scrap old ones. Attention is paid mainly to:
a. Company internal control system.
b. Laid down guidelines and procedures.
c. As changes made without auditors’ knowledge.
d. Records of the company.
1. Reveals any inefficient procedures.
2. Identifies strengths and weaknesses in the internal control system.
3. Creates harmony and co-ordination of company decision making process.
4. Identifies any bureaucracies
1. It is expensive.
2. Management can frustrate the whole process if they do not want to reveal inefficiencies.
3. It could lead to duplication of effort.
4. It is tedious especially when many procedures are involved.
5. Sometimes the auditor may not understand technical procedures.
6. Procedures change to respond to changes in the economy on the social setting.
7. Where the internal control system is weak, it is of limited applicability.