AUDITING : AN OVERVIEW. Auditing defined It is a critical and systematic examination or review of accounting reports, documents, records, procedures and.

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Presentation transcript:

AUDITING : AN OVERVIEW

Auditing defined It is a critical and systematic examination or review of accounting reports, documents, records, procedures and controls, for the purpose of determining whether they conform with prescribed criteria, or to enable the expression of an opinion on the propriety of financial statements.

General Types of Audit Financial Statements Audit an independent / external audit involves the basic financial statements designed to obtain reasonable assurance expresses an opinion on the FS as a whole

General Types of Audit Operational Audit also known as Management or Performance audits. design to determine the effectiveness and efficiency of management operations. expected output are the recommendations for improvements

General Types of Audit Compliance Audit performed to determine whether specific procedures or rules are being followed. the auditee generally determines the standard to be followed. the output is directed to a specific user rather than a broad spectrum of users

General Types of Audit Fraud Audits - the investigation of anomalies - gathering of evidence of fraud - the legal goal is conviction

General Types of Audit Information Technology Audits - assessing the proper implementation, operation and control of computer resources - establishes congruence on the major management assertions

Types of Auditors Certified Public Accounting Firms Internal Auditors Specialized Auditors – CIA, CFA,CISA Government Auditors - Commission On Audit - Bureau of Internal Revenue

Benefits of Independent Audit adds credibility and reliability to the FS - basis for tax returns - basis for financial assistance - basis for additional investments improves business operations commission of fraud is minimized

The Audit Process A. Pre- engagement Activities B. Planning Activities C. Internal Control Evaluation D. Substantive Testing E. Reporting Activities

Phase 1 – Pre-engagement and Audit Planning Starts with the engagement letter signed by both parties. Followed by the understanding of the clients : - industry environment - business and management - accounting system - internal control Assessment of the audit risk

Phase II – Internal Control Evaluation and Substantive Testing Tests the controls over the basic transaction cycles : - revenue and collection - expenditure - financing and investing Tests of transactions, tests of details, and analytical procedures

Management Assertions that are to be substantiated by the auditor C - Completeness E - Existence and Occurrence A - Accuracy V - Valuation O - Obligations and Rights P - Presentation and Disclosure

Phase III – Issuing the Audit Report the type of audit report depends on evidence accumulated and the audit findings The report includes the following : - description of the auditors responsibility - the nature of the examination - the audit finding and opinion

Types of Audit Opinion A. Unqualified Opinion B. Qualified Opinion C. Adverse Opinion D. Disclaimer of Opinion E. Piecemeal Opinion