auditing : an overview. auditing defined it is a critical and systematic examination or review of...
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AUDITING : AN OVERVIEW
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Auditing defined
It is a critical and systematic examination or review of accounting reports, documents, records, procedures and controls, for the purpose of determining whether they conform with prescribed criteria, or to enable the expression of an opinion on the propriety of financial statements.
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General Types of Audit
Financial Statements Audit an independent / external audit involves the basic financial statements designed to obtain reasonable assurance expresses an opinion on the FS as a whole
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General Types of Audit
Operational Audit also known as “Management” or “Performance”
audits. design to determine the effectiveness and efficiency
of management operations. expected output are the recommendations for
improvements
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General Types of Audit
Compliance Audit performed to determine whether specific
procedures or rules are being followed. the auditee generally determines the standard to
be followed. the output is directed to a specific user rather
than a broad spectrum of users
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General Types of Audit
Fraud Audits
- the investigation of anomalies
- gathering of evidence of fraud
- the legal goal is conviction
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General Types of Audit
Information Technology Audits
- assessing the proper implementation, operation and control of computer resources
- establishes congruence on the major
management assertions
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Types of Auditors
Certified Public Accounting Firms Internal Auditors Specialized Auditors – CIA, CFA,CISA Government Auditors
- Commission On Audit
- Bureau of Internal Revenue
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Benefits of Independent Audit
adds credibility and reliability to the FS
- basis for tax returns
- basis for financial assistance
- basis for additional investments improves business operations commission of fraud is minimized
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The Audit Process
A. Pre- engagement Activities
B. Planning Activities
C. Internal Control Evaluation
D. Substantive Testing
E. Reporting Activities
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Phase 1 – Pre-engagement and Audit Planning
Starts with the engagement letter signed by both parties.
Followed by the understanding of the clients : - industry environment - business and management - accounting system - internal control Assessment of the audit risk
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Phase II – Internal Control Evaluation and Substantive Testing
Tests the controls over the basic transaction cycles :
- revenue and collection
- expenditure
- financing and investing Tests of transactions, tests of details, and analytical
procedures
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Management Assertions that are to be substantiated by the auditor
C - Completeness
E - Existence and Occurrence
A - Accuracy
V - Valuation
O - Obligations and Rights
P - Presentation and Disclosure
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Phase III – Issuing the Audit Report
the type of audit report depends on evidence accumulated and the audit findings
The report includes the following : - description of the auditors responsibility - the nature of the examination - the audit finding and opinion
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Types of Audit Opinion
A. Unqualified Opinion
B. Qualified Opinion
C. Adverse Opinion
D. Disclaimer of Opinion
E. Piecemeal Opinion