international auditing overview

5/28/2018 international auditing overview

1/36[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007

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International Auditing Overview

Principles of Auditing: An Introduction to

International Standards on Auditing - Ch. 1

Rick Stephan Hayes,

Roger Dassen, Arnold Schilder,Philip Wallage



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Historical background

Records of auditing activity in early Babyloniantimes (around 3,000 BC).

Ancient China, Greece and Rome.

The Latin meaning of the word 'auditor' was a

'hearer or listener' because in Rome auditorsheard taxpayers.

Modern auditing dates

to beginning of the

modern corporation



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Brief history of auditing

The attitude of profit maximization fromend middle ages - merchant houses inItaly.

Double-entry bookkeeping was firstdescribed in Italy (Pacioli 1494).

Industrial Revolution Great-Britain1780 lead to the emergence of largeindustrial companies.

1853 the Society of Accountants inEdinburgh was founded.



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Auditing Standards and Regulation are Rapidly Changing



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By the audit process, the auditor enhances the

usefulness and value of the financial

statements, and also increases the credibility

of other non-audited information released bymanagement.



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The function of auditing is to lend credibility to the financial

statements

Is the company a going concern? Is it free of fraud?

Is it managed properly?

Is there integrity in its database?

Do directors have proper and adequateinformation to make decisions?

Are there adequate controls?

What effect do the company's products and by-products have on the environment?

Can an unfortunate mistake bring this companyto its knees?



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International Financial Reporting Standards

International Financial Reporting Standards (IFRS)are the standards that are applied for financialaccounting.

IFRS were formerly called International AccountingStandards (IAS)

The International Accounting Standards Board (IASB)has accounting standard setting responsibilities forIFRS.

The EU has agreed to apply most of the IFRS from

2005 onwards.



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Advantages of International Auditing

Standards

worldwide

increases confidence in non-domestic

investment

consistent international investors comprehend financial

statements from different countries

high quality Non-national standards encourage better

quality, less political influence



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International Auditing and Assurance Standards Board (IAASB)

Issues: International Standards on Auditing (ISAs)as the standards

to be applied by auditors in reporting on historical financialinformation.

International Standards on Assurance Engagements (ISAEs)as the standards to be applied by practitioners in assuranceengagements dealing with information other than historicalfinancial information

International Standards on Quality Control (ISQCs)as thestandards to be applied for all services falling under theStandards of the IAASB, and

International Standards on Related Services (ISRSs)as thestandards to be applied on related services, as it considers

appropriate International Standards on Review Engagements (ISREs) asthe standards to be applied to the review of historicalfinancial information.



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ISAs

100-999 International Standards on Auditing

(ISAs)

100-199 Introductory Matters

120 Framework of International Standards on

Auditing200-299 General Principles And Responsibilities

200 Objective and General Principles Governing an

Audit of Financial Statements

210 Terms of Audit Engagements

220 Quality Control for Audit Work

230 Documentation (ED)



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240 The Auditors Responsibility to Consider Fraud and Error inan Audit of Financial Statements (ED)

250 Consideration of Laws and Regulations in an Audit ofFinancial Statements

260 The Auditors Communication with Those Charged withGovernance (ED - Final)

300-499 Risk Assessment And Response To Assessed

Risks300 Planning (ED)

310 Knowledge of the Business

315 Understanding the Entity and Its Environment andAssessing the Risks of Material Misstatement (ED)

320 Materiality in the Identification and Evaluation ofMisstatements (ED final)

330 The Auditors Procedures in Response to Assessed Risks(ED)

ISAs

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[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007

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400 Risk Assessments and Internal Control

401 Auditing in a Computer Information SystemsEnvironment

402 Audit Considerations Relating to Entities Using

Service Organizations

500-599 Audit Evidence

500 Audit Evidence

500R Audit Evidence

501 Audit EvidenceAdditional Considerations forSpecific Items

505 External Confirmations

ISAs

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510 Initial EngagementsOpening Balances

520 Analytical Procedures530 Audit Sampling and Other Selective Testing Procedures

540 Auditing Accounting Estimates and Related Disclosures(Other than Those Involving Fair Value Measurements andDisclosures) (ED- final)

545 Auditing Fair Value Measurements and Disclosures

550 Related Parties (ED)

560 Subsequent Events

570 Going Concern

580 Management Representations

ISAs

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600-699 Using Work Of Others

600 The Audit of Group Financial Statements (ED final)

610 Considering the Work of Internal Auditing

620 Using the Work of an Expert 700-799 Audit Conclusions And Reporting

700 The Auditors Report on Financial Statements

701 The Independent Auditors Report on Other Historical FinancialInformation (ED final - new)

705 Modifications to the Opinion in the Independent AuditorsReport (ED final - new)

706 Emphasis of Matter Paragraphs and Other Matters Paragraphsin the Independent Auditors Report (ED final - new)

710 Comparatives

720 Other Information in Documents Containing Audited FinancialStatements

800-899 Specialized Areas

800 The Independent Auditors Report on Summary AuditedFinancial Statements (ED final)

ISAs

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Slide 1.15 2000-2699 International Standards on Review Engagements

(ISREs)

2400 Engagements to Review Financial Statements (PreviouslyISA 910)

2410 Review of Interim Financial Information Performed by the

Independent Auditor of the Entity (ED - new) 3000-3699 International Standards on Assurance

Engagements (ISAEs)

3000 Assurance Engagements (Previously ISAE 100)

3000R Assurance Engagements Other Than Audits or Reviews ofHistorical Financial Information

3400 The Examination of Prospective Financial Information(Previously ISA 810)

4000-4699 International Standards on Related Services (ISRSs)

4400 Engagements to Perform Agreed-upon ProceduresRegarding Financial Information (Previously ISA 920)

4410 Engagements to Compile Financial

Information (Previously ISA 930)

ISRE

ISAE

ISRS

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ISA 200states the objective of an auditof

financial statements is to enable the auditorto express an opinion whether the financial

statements are prepared, in all material

respects, in accordance with an identifiedfinancial reporting framework.

Terms used 'give a true and fair view'or

present fairly, in all material respects

equivalent terms?

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Audit Definition

An audit is a systematic process of

objectivelyobtaining and evaluating

evidence regarding assertions about

economic actions and events to ascertainthe degree of correspondence between

these assertions and established criteria

and communicating the results tointerested users.American Accounting Association

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General Princ ip les Governing an Aud i t of

Financial Statements

An auditor should comply with the Code of

Ethics for Professional Accountants issued by

IFAC.

An auditor should conduct an audit in

accordance with International Standards on

Auditing.

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Scope of an audit - the audit procedures deemednecessary to achieve the objective of the audit.

Certain inherent limitations in an audit affect the

auditors ability to detect material misstatements.

Test and sampling

Internal control

Audit evidence

Audit process permeated by judgment

Management is responsible for the financial

statements, accounting, and internal control.

General Principles Governing an Aud it of Financial

Statements

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Business Risk and Audit Risk

Companies, depending on the natureof their operations and industry, the

regulatory environment in which theyoperate, and their size andcomplexity, they face a variety ofbusiness risks.

The risk that causes the greatestconcern by the auditor is the risk thatthe auditor expresses aninappropriate audit opinion when thefinancial statements are materially

misstated (known as audit risk). Theauditor should plan and perform theaudit to reduce audit risk to anacceptably low level that is consistent

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TYPES OF AUDIT

Audit of financial statementsExamine financial statements, determine if they give

a true and fair view or fairly present the financialstatements.

Operational AuditA study of a specific unit of an organization for thepurpose of measuring its performance.

Compliance Audit

A review of an organizations procedures andfinancial records performed to determine whetherthe organization is following specific procedures,rules, or regulations set out by some higher

authority.

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Types of Auditors

Internal auditors are employed by individualcompanies to investigate and appraise the

effectiveness of company operations for

management. Independent auditors are typically certified

either by a professional organization or

government agency.

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Certification of the Auditor

Certified Public Accountant(CPA)

Chartered Accountant (CA) Contador Pblico (CP)

Other

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Management Assertions and Audit

Objectives

The audit starts with the financial statementsprepared by the client and the claims or

assertions. that the client makes about these

numbers. It is the auditor's job to validate management's

assertions. In order to do so, the auditor will

identify audit objectives, which can be

regarded as the auditor's counterpart ofmanagement assertions.

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Management

assertions

Management assertionsare implied or expressedrepresentations bymanagement aboutclasses of transactions

and related accounts inthe financial statements.An example of amanagement assertion isthat the companysfinancial statements areprepared based oninternational financialreporting standards.

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Assertions about classes of transactions and events for the

period under audit

Occurrence. Transaction and events that have

been recorded have occurred and pertain to the

entity.

CompletenessAll transactions and events that

should have been recorded have been recorded..Accuracy- Amounts and other data relating to

recorded transactions and events have been

recorded appropriately.

Cutoff- Transactions and events have beenrecorded in the correct accounting period.

Classification- Transactions and events have

been recorded in the proper accounts.

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Assertions about account balances at the period end.

Existence:- Assets, liabilities and equity interestsexist.

Rights and obligations:- An entity holds orcontrols the rights to assets, and liabilities are the

obligations of the entity. CompletenessAll assets, liabilities and equity

interests that should have been recorded havebeen recorded

Valuation and allocationAssets, liabilities, andequity interests are included in the financialstatements at appropriate amounts and anyresulting valuation or allocation adjustments areappropriately recorded.

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Assertions about presentation and disclosure

Occurrence and rights and obligations

Disclosed events, transactions, and other mattershave occurred and pertain to the entity.

CompletenessAll disclosures that should have

been included in the financial statements have

been included..Classification and understandabilityFinancial

information is appropriately presented and

described, and disclosures are clearly expressed.

Accuracy and valuation

Financial and otherinformation are disclosed fairly and at appropriate

amounts.

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Audit Process Model

Phase I - Client Acceptance

Phase II - Planning

Phase III - Testing and Evidence Phase IV - Evaluation and

Judgment

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Phase IClient Acceptance

Objective: The client acceptance phase of theaudit plan, Phase I, involves deciding whether to

accept a new client or continue with an existing

one.

Procedures: 1)Evaluate the client's backgroundand reasons for the audit. (2)Determine whether

the auditor is able to meet the ethical

requirements regarding the client. (3)Determine

need for other professionals. (4)Communicatewith predecessor auditor; (5)Prepare client

proposal. (6)Select staff to perform the audit,

and (7)Obtain an engagement letter.

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Phase IIPlanning the audit

Objective: Determine the amount and type ofevidence and review required to give the auditorassurance that there is no material misstatementof the financial statements.

Procedures (1)Perform audit procedures tounderstand the entity and its environment,including the entitys internal control; (2)Assessthe risks of material misstatements of the

financial statements. (3)Determine materiality;and (4)Prepare the planning memorandum andaudit program, containing the auditors responseto the identified risks.

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Objective Test for evidence supportinginternal controls and the fairness of the

financial statements.

Procedures: (1)Tests of controls; (2)Substantive tests of transactions; (3)

Analytical procedures; (4)Tests of details of

balances. (5)Search for unrecorded liabilities.

Phase III Testing and Evidence

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Phase IV, Evaluation and Reporting

Objective: Complete the audit proceduresand issue an opinion.

Procedures: (1)Evaluate governanceevidence; (2)Perform procedures toidentify subsequent events; (3)Reviewfinancial statements and other reportmaterial; (4)Perform wrap-up procedures;(5)Prepare Matters of Attention forPartners; (6)Report to the board ofdirectors; and (7)Prepare Audit report.

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International Public Accouting Firms

The Big Four:

Deloitte & Touche; PricewaterhouseCoopers;

Ernst & Young; KPMG

Audit Staff

Staff Accountants (or Junior Assistants then Senior)

Senior Accountants (or Supervisor)

ManagersPartners/Directors

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Thank You for Your Attention

Any Questions?

international auditing overview

Documents

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function of auditing

modern auditing datesto

pearson education limited

roger dassen

arnold schilder

rick stephan hayes

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