AUDITING : AN OVERVIEW

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.

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

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

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

General Types of Audit

Fraud Audits

- the investigation of anomalies

- gathering of evidence of fraud

- the legal goal is conviction

General Types of Audit

Information Technology Audits

- assessing the proper implementation, operation and control of computer resources

- establishes congruence on the major

management assertions

Types of Auditors

Certified Public Accounting Firms Internal Auditors Specialized Auditors – CIA, CFA,CISA Government Auditors

- Commission On Audit

- Bureau of Internal Revenue

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

The Audit Process

A. Pre- engagement Activities

B. Planning Activities

C. Internal Control Evaluation

D. Substantive Testing

E. Reporting Activities

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

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

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

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

Types of Audit Opinion

A. Unqualified Opinion

B. Qualified Opinion

C. Adverse Opinion

D. Disclaimer of Opinion

E. Piecemeal Opinion