Audit an overview

Audit an overview

• 1.
  AUDIT - An Overview
• 2.
  Auditing  A systematicprocess of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between these assertions and established criteria and communicating the results to interested users.
• 3.
  Audit 1. systematic process 2.objective 3. obtaining and evaluating evidence regarding assertions about economic actions and events 4. ascertain the degree of correspondence between these assertions and established criteria 5. communicating the results to interested users.
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  Financial Statement Assertions Assertions made by management  Existence  Completeness  Rights and obligations  Valuation  Presentation and disclosure  Related evidence is obtained for accounts and disclosure in financial statements
• 5.
  MANAGEMENT’S FINANCIAL STATEMENT ASSERTIONS Existenceor Occurrence • Refers to existence of assets and liabilities • Refers to occurrence of recorded transactions Completeness • Refers to inclusion of all transactions and accounts in financial statements Valuation or Allocation • Refers to inclusion of accounts in financial statements at appropriate amounts Rights and Obligations • Refers to assets being the rights of an organization • Refers to liabilities being the obligations of an organization Presentation and Disclosure • Refers to components of financial statement being properly classified, described, and disclosed
• 6.
  Audit P - Planning I- Internal Control E - Evidence gathering R - Report
• 7.
  Types of Audits Financial statement audit – to determine if FS are presented fairly in accordance with accounting standards.  Compliance Audit –to determine if an organization has adhered to specific procedures, rules or regulations.
• 8.
  Types of Audits Operational/Internal audit – to assess entity’s performance, identify areas for improvement and make recommendations to improve performance. Although these may differ, they have some similarities: systematic examination and required written report
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  Types of Auditors External auditors – independent CPAs who offer professional services specifically FS audit  Internal auditors – entity’s own employees who investigate and appraise the effectiveness and efficiency of operations and internal controls, specifically through operations audit  Government auditors – gov’t employees whose function is to determine if persons or entities comply with gov’t laws and regulations
• 10.
  Independent FS Audit To enable the auditor to express an opinion whether the FS are prepared, in all material respects, in accordance with an identified financial reporting framework or acceptable financial reporting standards
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  Responsibility for theFS  Embodied in the Statement of Management Responsibility  Management is responsible for preparing and presenting the FS. They are responsible for its reliability.  It is management’s responsibility to adopt internal control procedures and prepare reliable financial statements.
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  Assurance provided byAuditor  Audit opinion is not a guarantee that the FS are dependable.  PSAs states that an audit is designed to provide only reasonable assurance (not absolute assurance) that the financial statements taken as a whole are free from material misstatements.
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  Audit limitations  Useof testing / sampling risk  Error in application of judgment / non- sampling risk  Reliance on management’s representation  Inherent limitations of the client’s accounting and internal control systems  Nature of evidence
• 14.
  General principles governingthe audit of financial statements  The auditor should comply with the Code of Professional Ethics for CPAs  The auditor should conduct an audit in accordance with PSAs  The auditor should plan and perform the audit with an attitude of professional skepticism recognizing that circumstances may exist which may cause the financial statements to be materially misstated.
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  Need for anindependent FS audit  Conflict of interest  Expertise  Remoteness  Financial consequences
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  Theoretical framework ofauditing  Audit function operates on the assumption that all financial data are verifiable  The auditor should always maintain independence with respect to the FS under audit.  There should be no long-term conflict between the auditor and client management
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  Theoretical framework ofauditing  Effective internal control system reduces the possibility of errors and fraud affecting the FS  Consistent application of GAAP or PFRS results in fair presentation of FS  What was held true in the past will continue to hold true in the future in the absence of known conditions to the contrary  An audit benefits the public