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independent person accumulates and evaluates evidence about quantifiable information related to a specific economic entity for the purpose of determining and reporting on the degree of correspondence between the quantifiable information and established criteria.
Qualified to understand the criteria used. Know the types and amount of evidence to accumulate to reach the proper conclusion after the evidence has been examined. Independence
Have an independent mental attitude (be independent in fact and in professionalism). Unbiased information and objective thinking are needed for the judgment and decisions to be made.
information used by the auditor to determine whether the quantifiable information being audited is stated in accordance with the established criteria.
Deciding the amount of audit evidence-planning. Accumulation of evidence implementation. Evaluation of evidence implementation. Drawing conclusion based on these evidence. Final stage.
assessed against some criteria/standard/ benchmarks). Established criteria standards against which quantifiable information will be assessed. Example: * GAAP * IAS (International Accounting Standards) * Companies Act *Accounting Standards *Tax Ordinance *SEC Act Criteria used depend upon the objective of the audit.
d. Economic entity:
* corporation
* * * * * unit of govt. partnership, division, department, even individual.
e. Reporting:
Reporting (final stage in audit process) preparing
audit report and communicating findings to users of financial statements. Audit is one of the assurance services/attestation services provided by the competent and qualified professional accountants.
obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users.
statements or related financial information of an entity, whether profit oriented or not, and irrespective of its size, or legal form, when such an examination is conducted with a view to expressing an opinion thereon.
02.Objective of an audit
Primary and Secondary Objective of Audit i) Primary objective- Expression of Expert opinion ii) Secondary objectives- Prevention and detection of material misstatements in the financial statements, which are referred to frauds and errors; and communication of weaknesses in the accounting and internal control systems. i) Primary objective- Expression of Expert opinion As per requirements of the BSA 200 (Objective & general principles governing an audit of F/S) The objective of an audit of F/Ss is to enable to the auditor to express an opinion whether the F/Ss are prepared, in all material respects, in accordance with an identified financial reporting framework. The phrases used to express the auditors opinion are give a true and fair view or present fairly, in all material respects, which are equivalent terms. Para. 2, BSA 200)
Two types of international misstatements are relevant to the auditors consideration of fraud: * Misstatements resulting from fraudulent financial reporting; and * Misstatements resulting from misappropriation of assets.
Responsibility with respect to fraud and error- the primary responsibility for the prevention and detection of fraud and error rests with both those charged with governance and the management of an entity (paragraph 1 &10 of BSA 240). Auditors responsibility with respect to fraud and error- An audit conducted in accordance with ISAs is designed to provide reasonable assurance that the financial statements taken as a whole are free from material misstatement, whether caused by fraud or error. The fact that an audit is carried out may act as a deterrent, but the auditor is not and cannot be held responsible for the prevention of fraud and error (paragraph 13 of BSA 240).
4. Evidence
5. Written Report
give a true and fair view or present fairly, in all material respects, True: Information is factual and conforms with reality, not false. In addition the information conforms with required standard and law. The accounts have been correctly extracted form the books and records. Fair: Information is free from any discrimination and bias in compliance with expected standards and rules. The accounts should reflect the commercial substance of the companys underlying transactions.
Level of Assurance
1. Reasonable level of assurance: which result in a
positive expression of opinion and where the level of assurance given is deemed to be high. 2. Limited level of assurance: which results in negative assurance and where the level of assurance given is deemed to be moderate. Engagement could be either type and this would need to be specified in the terms of engagement.
Example
A report on the effectiveness of the managements
system of internal control structure may be In our opinion mgt has operated in effective system of internal control- A positive form of opinion. Nothing has come to our attention that indicates material internal control weakness- A negative form of assurance. Absolute level of assurance is not possible in case of audit because of the following factors:
professional judgments have to be made 7. The fact that assurance providers rely on the responsible party and its staff to provide correct information, which in some cases may be impossible to verify by the other means. 8. The fact that some items in the subject matter may be estimates and are therefore uncertain. It is impossible to conclude absolutely that judgmental estimates are correct. 9. The fact that nature of the assurance report might itself be limiting, as every judgment and conclusion the assurance provider has drawn cannot be included in it.
reported on. 2. Reduces the risk of mgt bias, error or even fraud in the information being reported on. 3. Draws the attention of the user to any deficiencies in the information being reported on. 4. Ensure circulation of high quality, reliable information in the market. 5. Give added faith to the investors in the market 6. Improve the reputation of organizations trading in the market.
another set of professional eyes. 2. It provides additional assurance to third parties such as taxation authorities concerning the reliability of the F/Ss. 3. A growing business will one day require an audit. 4. Audit may have subsidiary benefits, such as the auditors recommending improvements in company systems.
Expectation Gap
Users of audited financial statements expect auditors
to 1. Perform the audit with technical competence, integrity, independence and objectivity. 2. Search for and detect material misstatements, whether intentional or unintentional. 3. Prevent the issuance of misleading financial statements.
based and the accounting policies used in compiling the profit forecast. The companys bankers require this financial information to be reviewed and reported on by independent accountants. The company was required by its bankers to have an audit of its F/Ss for the year ended 30 June 20x1.