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Dependable financial information is

essential to our society. We often


rely upon information provided
by others in making economic
decisions. The need of various
users for more reliable financial
information has created a
demand for an independent audit
of financial statement

The primary function of an


Independent audit is to lend
credibility to the f i n a n ci a l
s t a t e m e n t s p r e p a re d b y a n
entity. The auditor's opinion
h e l p s t o e n h a n ce the value
and usefulness of the financial
statements. By attaching a
report to the financial
statements, the auditor
provides increased assurance
to users that the financial
statements are reliable.

Auditing Defined
PSA 200 defines auditing
b y s t a t i n g t h e objective o f
a f i n a n c i a l sta te me n t au d i t,
th a t is, to en a bl e th e a u di to r
to exp re ss a n o pi n io n
whether the financial statements
are prepared, in all material
respects, in accordance with an
identified financial reporting
framework. T h i s d e f i n i t i o n
confines the audit to
examination of the
f i n a n c i a l statements. Although
the great majority of audit work
today deals with a u d i t of
fina ncia l statemen ts,
operational and compliance
auditing a re becoming more and
more important. A more
comprehensive definition of
auditing is given by the
American
Accounting Association:

"An audit is a systematic process of


objectively obtaining and evaluating
evidence regarding assertions about
economic actions and events to ascertain
the degree of correspondence between
these assertions and established criteria
and communicating the results to
interested users."

1. Auditing is a systematic
process

Auditing proceeds by means of


an ordered and structured series
of steps
2. A n a u d i t i n v o l v e s o b t a i n i n g
and evaluating evidence
a b o u t a sse rti o n s re ga rd i ng
e co no mi c a cti o n s an d e ve n ts

Assertions are representations


made by an auditee about
economic actions and events.
The auditor's objective is to
determine whether these assertions
are valid. To satisfy this objective, the
auditors perform audit procedures.
And gathers evidence that
corroborates or refutes the
assertions.

3. An audit is conducted
objectively

The auditor should conduct


the audit without bias.
Impartial attitude must be
maintained by the auditor
w h e n e v a l u a t i n g evidence
and formulating his conclusion.

4. A u d i t o r s a s c e r t a i n t h e
degree of correspondence
b e t w e e n assertions and
established criteria

Established criteria are needed to


judge the validity of the assertions,
these criteria are it . Important
because they establish and inform
the users of the basis against
which the assertions have been
evaluated o r m e a s u r e d . I n a n
audit, the auditor determines
the degree by wh ic h t h e
assertions conform to the
established criteria. For
example, when auditing financial
statements, the auditor judges the
fair presentation of the
financial statements (assertions)
b y c o m p a r i n g the statements
with an identified financial
reporting framework (criteria).