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FINANCIAL AUDITING
Student ID: 305764/406477
Submitted to: Julia Spencer
Total Word: 2650
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Introduction:
Financial auditing is an accounting process which is used in business. It uses an independent
body(IAASB) to examine a business' financial transactions and statements. The main and ultimate
purpose of this form of auditing is to present an accurate accounting position of a company's financial
business transactions. The practice is used to make sure that the company is trading financially fairly,
and also that the accounts it is presenting to the public or shareholders are accurate and justified. The
results of the audit procedure will be ended with an independent written audit report. According to
company act 2001(section 205)1 this can be presented to shareholders, banks and anyone else with an
interest in the company. Durendez Gmez-Guillamn (2003)2 describe in the journal that financial
decisions like making loan depend on the audit report. Basically the audit report conveys whether the
assertions made by management are credible or not.
Audit has a very important place in society. The audit report is the most visible output from the
auditors and International Auditing and Assurance Standard Boards(IAASB) takes initiative to
improve its relevance and usefulness to shareholders and other parties who have interest. In this
report, we will discuss the IAASBs current and revised formats for the audit reports. Similarities and
differences between International Standard on Auditing 700 current and revised, reasons for the
changes, example of cases where audit report were felt to be inadequate and a critical discussion
between ISA 700 (revised) and ISA 701.
Expectations Gap:
Since 1960s, a rising number of powerful companies got bankrupted, and as a result investors are
questioning about their professional performance. Indeed, auditors weak performance could
potentially mislead the public from a true and fair view. Generally, this types of situations arises when
auditors failed to satisfy the public. Thereafter, for getting an ideal knowledge about publics
expectations Liggio(1974)3 proposed a theory named Expectations Gap. He describes expectations
gap as the difference between the levels of expected performance as envisioned by the independent
1 CA2001, section:205, Auditors Report.
2 Durendez Gmez-Guillamn, Managerial Auditing Journal, 2003
3 Hian Chye Koh, ESah Wooal, Managerial Auditing Journal, 1998
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References to the Accounting Standard Board have now been replaced by Financial
Reporting Council.
The main change from the old ISA 700 is the format of the audit report.
The current format includes title, respective responsibilities of directors
and auditors, basis of audit opinion, opinion and if required an EOM
paragraph
o
The Basis of audit opinion has been replaced with Scope of the
audit of financial statements.
The communication between auditors and investors are enhanced, as well as corporate
governance
Improved audit quality and enhanced information value and its transparency
In particular, the proposals are that every one of evaluators' reports ought to incorporate, having
respect to the pertinent financial reporting system:
A conclusion with respect to the propriety of administration's utilization of the going concern
presumption, and
A articulation with respect to whether, taking into account the review work performed,
material instabilities identified with occasions or conditions that might provide reason to feel
ambiguous about huge the element's capacity to proceed as a going concern have been distinguished.
To minimize potential misjudging, the illustrative report clarifies that, as not every single future
occasion or conditions can be anticipated, the announcement about the nonappearance of material
vulnerabilities is not an assurance as to the element's capacity to proceed as a going concern.
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Paragraph 3 in extant ISA 700 alludes to the requirement for the auditor to consider whether the
financial explanations have been readied as per a "satisfactory" financial reporting structure, but it
does not give any direction on how the examiner surveys the "acceptability" of the framework. ISA
315, "Getting an Understanding of the Entity and Its Environment and Surveying the Risks of
Material Misstatement" as of late affirmed by the IAASB additionally presented the idea of the
"appropriate" money related reporting structure. This presentation draft proposes alterations to ISA
200 and ISA 210 that clear up the inspector's obligations as for administration's distinguishing proof
of a material financial reporting structure and fills the crevice in the ISAs on how the inspector
evaluates whether those systems are "worthy." This direction perceives that appropriate financial
reporting systems vary contingent upon the way of the element (for instance, benefit situated, notrevenue driven, governments) and the goal of the money related articulations (broadly useful or
intended for an uncommon reason). The modifications propose to present the rule that the inspector
ought not acknowledge an engagement for a review of financial articulations when the examiner
infers that the monetary reporting system distinguished by administration is not worthy.
Conclusion:
The IAASB has proposed some critical changes to the structure and substance of the
auditor's report. It can be seen that there are numerous preferences to these
recommendations for the clients of financial explanations, particularly given the
expanding many-sided quality of financial proclamations, and the requirement for
both preparers and auditors to practice significant judgments while performing their
roles. The additional disclosures should enhance users understanding of the audit
process and the nature of risk-based auditing, however there are a few drawbacks to
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the proposition, for example, the expanded length of the auditor's report which, for a
few elements, implies that the expense might well exceed the advantage.
References:
1. Government Gazette of Mauritius. (2001). THE COMPANIES ACT 2001.Available:
http://www.tridenttrust.com/pdfs/mau_comp_act_2001.pdf. Last accessed 10th
Dec 2015.
2. GmezGuillamn, A. (2003). The usefulness of the audit report in investment
and financing decisions. Managerial Auditing Journal. 18 (6/7), p549-555.
3. Hian Chye Koh, ESah Wooal. (1998). The expectation gap in auditing.Managerial
Auditing Journal. 13 (3), p147-153.
4. The National Archives. (2006). Companies Act 2006. Available:
http://www.legislation.gov.uk/ukpga/2006/46/part/16/chapter/3/crossheading/du
ties-and-rights-of-auditors. Last accessed 10th dec 2015.
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