1.
Auditing
is defined as a process, carried out by an appointed qualified person or body,
whereby the records and financial statements of an entity are subjected to
independent examination in such detail
as will enable the auditor form an opinion as to the truth and fairness of the
financial statements.
The key words and phrases in this definition
are further explained below:
“Independent
Examinations” means the conduct of the audit should
be carried out independent of the person who provided the records and the financial
statements.
·
The work of the auditor should not,
under any circumstance, be influenced by the client.
·
An auditor cannot give an unbiased
opinion unless he is independent of all the parties involved.
·
Not only must the auditor be independent in fact
and in attitude of mind, but he must also be seen to be independent in person.
Records
and financial Statements include written authorization to
effect the transactions, the source documents, the Books of Prime Entry, the
Ledgers, the Trial Balance, the Statement of Profit or Loss and Other
Comprehensive Income, the Statement of Financial Position, the Statement of
Changes in Equity, the Statement of Cash Flow, the Statement of Value Added,
the Directors’ Report and other reports issued in accordance with current
corporate governance practice.
Opinion
is the expression of the auditor’s professional viewpoint about the financial
statements after exercising his judgment about skills and based on the evidence
gathered.
True and Fair means that the financial
statements are free from material misstatement; proper books of accounts have
been kept; the financial statements are consistent with the underlying records;
the financial statements have been prepared in accordance with the acceptable
accounting standards and relevant legislation; the assets and liabilities
exist, are properly valued and pertain to the entity; and that all expenses and
revenues stated relate to the operations of the business.
“Truth”
implies that the information is factual and conforms to reality with no
material errors; it is not false. In addition, the information conforms to
required standards and law. The accounts have been correctly extracted from the
books and records.
“Fair” means that the information is
free from discrimination and bias and are in compliance with expected standards
and rules. The accounts should reflect the commercial substance of the
company’s underlying transactions.
2.
Auditing has developed into a core business subject because of the need for
credibility and transparency in stewardship accounting.
3.
Company laws of many countries have made audit of financial records and
statements of corporate bodies a mandatory requirement.
4.
The objective of an audit of financial statements is to enable the auditor to
express an opinion whether the financial statements prepared was examined.
5. The examination of the financial
statement is in accordance with an identified financial reporting framework and
to show that the financial statements give “a true and fair view” or “present
fairly, in all material respects” the financial results and state of affairs of
the client entity.
6.
The need for audit arose from the stewardship function.
7.
Detection of errors and frauds in financial records are only by-products of the
audit process.
8.
The role of assurance services is to give the desired confidence to various
parties.
9.
Complete
Audit, Interim Audit and Continuous Audit
Complete
audit applies to smaller concerns where the volume
of transactions and complexity of records do not require the auditor’s
attendance more than once each year. This visit normally takes place as soon as
the business’ financial year ends and continues until it has been completed and
the audit report signed. Interim Audit:
In the case of larger clients, the auditor will often find it necessary to
proceed with the audit on an interim basis in view of the volume of testing to
be undertaken in order to reach an opinion on the reliability of the records.
Interim audits, as arranged with the co-operation of the client, may be
bi-annual, quarterly or even monthly, depending on the volume of audit work
considered necessary. Continuous Audit:
Where the system of internal control operated by a large company displays
fundamental and material weaknesses, the auditor may be obliged to check a
higher proportion of transactions than would otherwise be necessary, and in
exceptional circumstances, members of the audit team may be 16 required to
execute checking work continuously throughout the period to which the accounts
relate.
10.
Systems
Audit and Balance Sheet Audit: Systems
Audit is the review of the internal control systems through which the
transactions are processed. Whereas, balance
sheet audit refers to the audit of the accounts balances.
11.
Private
Audit and Statutory Audit
A
private audit is one undertaken at the instance of
an interested party (e.g. a sole trader) or parties (partners of a
partnership), even though there is no legal obligation that an audit be carried
out. In the case of private audit, the scope of the audit may be determined as
narrowly or as broadly as the client wishes. A statutory audit arises under the Company law as a result of which
it is a statutory obligation for the accounts of every limited liability
company to be audited annually by a professional qualified auditor. Statutory
audits have their scope largely determined by the governing legislation which
the client or the auditor has no authority to vary in any way. Despite the fact
that the appointment of an auditor is a statutory requirement, the relationship
between the company and the auditor is governed by contract.
12.
External
and Internal Audit
External
audit is where independent persons are brought in
from outside an organization to review the accounts prepared by management. The
definition and objective of audit stated earlier in this chapter relate to
external audit. Internal audit is
where an organization appoints a full time staff to monitor and report on the
running of the company’s operations.
13.
Scope of an audit The term “scope of an
audit” refers to the audit procedures deemed necessary in the circumstances
to achieve the objective of the audit. The procedures required to conduct an
audit in accordance with ISAs should be determined by the auditor having regard
to the requirements of ISAs, relevant professional bodies, legislation, regulations and, where appropriate,
the terms of the audit engagement and reporting requirements.
14.
General principles of an audit The auditor
should comply with the Code of Ethics for Members issued by the International
Federation of Accountants. Ethical principles governing the auditor’s
professional responsibilities are:
a)
Independence; b) Integrity; c) Objectivity; d) Professional competence and due
care; e) Confidentiality; f) Professional behaviour; and g) Technical standards
15.
The auditor should conduct an audit in accordance with International Standards
on Auditing (ISAs). These contain basic principles and essential procedures
together with related guidance in the form of explanatory and other materials.
16.
Objective of an audit
The primary objective
of an audit of financial statements is to enable the auditor to express an
opinion whether the financial statements are prepared, in all material
respects, in accordance with an identified financial reporting framework and
that the financial statements give “a true and fair view” or “present fairly,
in all material respects” the financial results and state of affairs of the
client entity. Although the auditor’s opinion enhances the credibility of the
financial statements, the user cannot assume that the opinion is an assurance
as to the future viability of the entity nor the efficiency or effectiveness
with which management has conducted the affairs of the entity.
The subsidiary objectives are:
• To detect errors and fraud • To prevent errors and fraud • To help the client
to improve upon his accounting and internal control systems.
ARTICLE BY MONDAY DESMOND
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