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Lecture 1
Topic 1
Introduction to Auditing
1
Introduction
• Pre-requisite:
1 BAC1614 Fundamentals of Accounting
2 Financial Statements for Limited Companies
3 Users/Purpose of Annual Report and Financial
Statements
4 Malaysian Accounting Standards (MASB,
FRS, IFRS)
5 Companies Act (CA)1965, relevant sections
and 9th Schedule
6 Relevant websites: CCM, MIA, MASB, MICPA,
ACCA
2
Course Outcome, Assessment
• Group Assignment 20%
• Mid-term Test – Written Exam 15%
• Final Exam – Written Exam 65%
5
Purpose (Reasons) of Audit
• Credibility of FS and AR necessary. Why?
The FS may:
1 contain errors
2 not disclose fraud
3 be inadvertently misleading
4 be deliberately misleading
5 fail to disclose all relevant information
6 fail to conform or comply with and to statutory
regulations or other requirements (CA 1965,
MASB, FRS, Securities Commission, Stock
Exchange)……….
6
Objectives of Auditing
• Primary Objective:
to produce an audit report by the auditor of his opinion of
truth and fairness of financial statements so that any
person reading and using them can belief in them.
• Secondary/Subsidiary Objective:
to detect errors and fraud, to prevent errors and fraud by
the deterrent and moral effect of the audit, to provide
spin-off effects (auditor able assist with accounting,
systems, taxation, financial and other problems)
7
Difference between Accounting
and Auditing
• Accounting:
The process of measuring, recognising economic events and related
data, in monetary terms and then communicating the resultant
information (quantitative and qualitative information) to interested
persons, or decision makers.
• Auditing:
The process by which a competent, independent person
accumulates and evaluates (examination) about quantifiable
information (given in the financial statements) related to a specific
entity for the purpose of determining and reporting on the degree of
correspondence between quantifiable and established criteria (CA
1965 and MASB).
8
Types of Audits and Auditors
• Statutory Audit - audits carried out because the law requires them
(CA 1965).
11
Statutory Audit and the Companies Act
1965
• Statutory Audit – conducted for companies and
are governed by the rules of the CA 1965.
12
Auditing Standards
The professional accounting bodies have among their
objectives, the provision of technical papers designed to
improve the competence and efficiency of members.
A series of statements on best auditing practice have been
adopted/formulated by The Malaysian Institute of
Accountants, known as MALAYSIAN APPROVED
STANDARDS ON AUDITING.
Auditors must comply with the Standards. Apparent failure
to comply may be enquired into by the appropriate
committee of the relevant accountancy body and may
lead to disciplinary or regulatory action (suspend or
withdraw registration of membership, cannot conduct
company audits, court actions for negligence).
13
References
• Lecture Notes
• Tutorial Questions
• Past Mid-term and Final Exam Questions (last 4 exams)
• Companies Act 1965
• MASB – 2008 Malaysian Accounting Standards
• MIA – 2008 Malaysian Approved Standards on Auditing
• MIA – 2008 By-Laws on Professional Conduct and
Ethics. MIA. Kuala Lumpur
• Messier, W. F. and Margaret Boh, 2006, Auditing and
Assurance Service in Malaysia. 3rd ed. McGraw Hill,
Kuala Lumpur
• Relevant Articles, Journals, Newsletters, Magazines on
Auditing – ACCA, MIA, ICAEW
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