Task 3

3.1 Duties and responsibilities of auditor

The true and fair reporting is the first and foremost duty of auditors in most of the countries. The
statutory duty is the fair presentation of the financial position and organizational picture. Asit has
been presented in the earlier discussion of this study that auditor is liable to play a role in the
audit and fair presentment of the annual reports. The aiudit and the financial position of the
worganization has dual working and interrelationship with one another. External audit has only
one working of presenting an existing and benchmark situation in the market. Auditor has
reservations to provide their opinion on all of the matters and act in favour of organizational
benefits and objectives. Following four requirements must be considered by auditor for
transparency and audit,
1. Accounting records kept by organization must be proper and viable;
2. Profit and loss statements and balance sheet must be complied with all of the accounting rules.
3. All of the explanations and information considered as the most crucial for audit purpose must
have been attained and whether enough returns for their reporting has been attained from the
departments that was not included in the audit program.
4. Disclosure must be relied with and the audit process must be complied with the legislations
and rules. A statement of thje required rules and regulations must be provided in case when there
is no compliance with the rules and regulations at any stage of the audit process.

3.2 Relationship between internal and external audit

Internal and external audit proicess is mpore crucial and have an extensicve research based upon
the conditions and organizational set up. An organization that has more long term opinion and
Viewpoint that can not be correlated with the old rules and regulations must have an internal
audit start up along with the external audit start up. In the start of organization, there must be an
additive edge of introducing all of the organizational set ups and objectives in a single statement.
Risk control is the second major activity that is considered for going for internal and external
audit. The problems that an external aiuditor can face is lacking in the information and facts
provided to him by internal management. Internal auditing has diuffernet management and audiot
reposnibilities in relation to the organizational objectives as they are the definitions to internal
auditor whereas the external objectives are defined by the external auditing services and the
objectives as per the auditing organizations and managing bodies at national level.
3.3 Appropriate audit tests
Audit Test meaning: A priocess to apply the audit analysis in the financial position of
organization in case of both internal and external audit process.Internal controls testing and
substantive testing are two major and most utilized audit tests categories. Audit objectives are
reached byu the usage of both these tests as it can also be added up in the audit checklist or can
be assessed from the audit questionnaires. Similar transactions based similar groups are included
in the audit tests. Non statistical and statistical are two common forms of Sampling, with an
effective objective to get the most appropriate sample of the entire population before of the start
of testing.

Types of audit tests

It is crucial to understand the test nature and the working of any task that ius related to this test.
The testi9ng and thew varities of the testing services are lionked with the exposure to new
services and audit procedures. Auditors have an access to the relevant information in their
internal and external auditing. Sampling can be used to provide an initial level knowledge and
information regarding why and how much sample size is required to audit any process.
Beginning audits are not pertained as the audits at later stages and later time periods.
Simple Random Sampling: In auditing procedures, the sampling method in which all of the
sample sizes in the population will have an equal opportunity to be selected and present the
population in a true manner is called as the normal and simple random sampling. This is the
more transparent and more viable to be used for generalization. Random number tables or
computer programs must be used by the auditors.
Systematic Sampling: All of the items in this process are having an equal interval in them for
selection purpose. All of the Nth items in thei way are selected on a random and most supportive
way.
Stratified Sampling: In this method there is a definition of more than one strata in a specific
environment and then all of these stratas are considered for the final selection of the samples.
These samples will be an exclusive approach for the external and internal auditing as they have
to comply with all of the approaches. Each of the stratum is then considered on a specific base.

Audit tests
There are many forms, but the major three forms of the audit process are as follow,
Process mapping analysis: Account payable and supplier survey are analysed and mapped iut as
they would have the key concern for the intenral control and define the audit support. The
processing and support for internal and external audit is equally necessary as they would have
been treated for the supplier processing and account poaybale concerning programs.
Analytical review: Best practices in the market are analysed and then they are compared in the
industrial practices and their concerning and relevant results.
Inquiry through facilitated groups: A focus group is made that include various suppliers,
account payable process and the supp;ioers and all of the major departments involved in the
authorized procedures.
Difference between management and auditors responsibilities:
A manager is the person who has to deal with the management and all of the internal controlling
efforts for maintaining the management needs. The more all of the organizational needs are
revolving around the objectives of organization in financial sense, the lesser will be the benefits
those can be attained from the objectives. Managemnt and attaining a highly motivated
organizational workforce is more criucial as compared to the financial objectives and sales of the
entity. Risk assessment is the task fo the management and they have to deal with the internal
auditor hiring,c ompensation, training and all related working. Marketing and other fields can
have a stake and role of just sales and having high profitability due to working in an effective

way. Startaefgies that have a link in the management and auditing are correlated in a manner that
Management has first number in the organizational priorities that is followed by the strategies
and the audit services given to them by managing authorities.
Audit testing: Direct tests of account balances and transactions are designed by determining the
most efficient manner to substantiate the assertions embodied in the account or transactions.
There are many alternatives open to the auditor in planning audit tests. The following are the
types of audit tests.
Tests of effectiveness: It is essential to determine whether the controls are effective over cash
disbursements. Utilize the information performing an integrated audit of controls and account
balances.
Dual-Purpose Tests of Controls and Account Balances: It is useful to determine whether the
controls are effective to help plan the nature, timing, and extent of other audit tests, and test the
accuracy of recording the related transactions.
Substantive Analytical Tests: It is essential to determine whether account relationships meet
expectations, including the possibility that some of the receivables are not collectible.
Direct Tests of Account Balances: It is sessential to test the existence and dollar accuracy of
account balances as stated at historical cost.
Direct Tests of Transactions: It is essential to test the existence of sales transactions (Gramling,
et.al, 2009, Auditing: A business risk, Cengage Learning Publishing (Gupta, 2009).

Evidences that auditors collect from audit files and working papers: There are 7 broad categories
of evidence from which the auditor can choose which are physical examination, confirmations,
documentation, analytical evidence, written representations, mathematical evidence, oral
evidence, and electronic evidence.
Audit files and testing papers:
Working papers provide evidence that an effective, efficient, and economic audit has been
carried out. They should therefore be prepared with care and skill.
Importance of working papers: Working papers are important because they are necessary for
audit quality control purposes provide assurance that the work delegated by the audit partner has
been properly completed provide evidence that an effective audit has been carried out increase
the economy, efficiency, and effectiveness of the audit contain sufficiently detailed and up-todate facts which justify the reasonableness of the auditors conclusions retain a record of matters
of continuing significance to future audits(Online resource, accessed at 18th May 2010:
www.accaglobal.com/pubs/students).
Task 4
4.1 Meaning of Statutory Audit
Statutory Audit is a checking of accounts required by law where a municipality may be required
by its own law to have an annual audit of financial records or a company which is governed by
any Law, the Law may require the audit to be conducted and the manner in which audit should
be conducted and to whom the report of auditors should be presented (Stittle, 2003)

Statutory Audit Report

Statutory Auditors Report is prepared in accordance with Article L(225-235) of the French
Commercial Code, on the report prepared by the Chairman of the Supervisory Board of Peugeot
S.A., on the Internal Control procedures relating to the preparation and processing of financial
and accounting information(Stittle , 2003).
Purpose of statutory Audit Report
The purpose of Statutory Audit Report is to present the fair presentation and the consistency with
the financial statements of the information given in the Management Report of the Board of
Directors, and in the documents addressed to the shareholders with respect to the financial
position and the financial statements; the fair presentation of the information provided in the
Management Report of the Board of Directors in respect of remuneration and benefits granted to
certain company officers and any other commitments made in their favour in connection with, or
subsequent to, their appointment, termination or change in function(Stittle , 2003).
Contents of Audit Report
The subjects of audit report are title, addressee, opening or Introductory Paragraph, Scope
Paragraph, opinion paragraph, signature, place of signature, and date of report. Auditor's view of
a financial statement, given without any reservations, such view basically states that the auditor
feels the company followed all accounting rules properly and that the financial reports are an
accurate demonstration of the company's financial condition opposite of qualified opinion(Stittle,
2003).

Statutory audit report: The Audit Commission's auditors issue two types of statutory reports:
reports in the public interest (RIPIs) issued under Section 8 of the Audit Commission Act 1998
immediate referrals to the Secretary of State issued under Section 19 of the Audit Commission
Act 1998
Reports in the public interest
Where matters are serious and an auditor decides a matter should be brought to the attention of
the public he does this by issuing a report under S8 of the Audit Commission Act 1998
This report is issued to the health body concerned and copied to the Secretary of State. It is for
the health body concerned to make this public and to respond to the report and for the NHS
Executive to ensure they do so( Sangster, and Wood, 2008)
4.2 Qualified and unqualified report:
An unqualified report is a report from an independent auditor who has examined the accounting
records and found no irregularities which has the following demerits
a) Lack of consistent application of generally accepted accounting principles
b) Substantial doubt about going concern
c) Auditor agrees with a departure from promulgated accounting principles
d) Emphasis of a matter

e) Reports involving other auditors

A Qualified Opinion report is supplied when the auditor met one of two types of situations which
do not comply with normally accepted accounting principles, however the rest of the monetary
statements are properly presented. This type of judgement is very alike to an unqualified or
"clean opinion", but the report states that the monetary statements are clearly presented with a
certain exception which is otherwise misstated. The two types of situations which would cause
an auditor to issue this opinion over the unqualified opinion are:

Single deviation from GAAP this type of qualification occurs when one or more areas of the
financial statements do not conform to GAAP, but do not affect the rest of the financial
statements from being fairly presented when taken as a whole. (Accounting Standards Board,
1988)