1. Auditing & Investigations I
Introduction

2. Scope of Auditing & Assurance
Audit and Assurance
Scope of Auditing & Assurance

3. Historical background of auditing
‘Audit’ come from latin word ‘ Audire’ which means ‘to hear’.
Audit developed from an ancient times of stewards would give an account of how they have been managing their masters’ resources.
The word ‘audit’ nowadays implies some sort of checking or validation of a person’s work by someone who is an independent reviewer.

4. Definitions
Auditing - “an independent examination of, and expression of opinion on, the financial statements of an entity by a duly appointed auditor in pursuance of a relevant statutory or professional obligation”
Assurance – is an expression on the basis of procedures which do not provide all the evidence that would be required in an audit, that anything has come to the reviewer’s attention that causes him to believe that the financial statements are not prepared, in all material respects, in accordance with an identified financial reporting framework.

5. Auditing Theory
Prof Tom Lee (1973) - Underlying practices of auditing rest upon on:
Truth and Fairness – auditor is concerned that the financial statements conform to laws and best practices.
Independence – Auditor is independent and objective in expressing opinion.
Evidence – auditor based opinion on evidential data and judgement.
Responsibility – auditor does not prepare financial statement or guarantee accuracy. Not responsible for detection or prevention of fraud.

6. Audit Theory Mautz and Sharaf – The Philosophy of auditing
Financial statements and financial data are verifiable.
There is no necessary conflict of interest between the auditors and the management of the enterprise under audit.
The financial statements and other information submitted for verification are free from collusive and other unusual irregularities.
The existence of a satisfactory system of internal control eliminates the probability of irregularities.

7. Audit Theory (cont’d)
Consistent application of generally accepted accounting principles (GAAP) results in the fair presentation of financial position and the results of operations.
In the absence of clear evidence to the contrary, what has held true in the past for the enterprise under examination will hold true in the future.
When examining financial data for the purpose of expressing an independent opinion thereon, the auditors act exclusively in the capacity of auditor.
The professional status of the independent auditor imposes commensurate professional obligations.

8. Categories of Audits
Statutory Audits – these are largely carried out or performed by independent auditors as compliance by an entity with legal requirements of a particular country or jurisdiction of operation.
Non-Statutory Audits – these are carried out at the request of the company or stakeholders or shareholders.

9. Development of audit and other assurance engagement
Major developments
Stock market bubble of the late 1990
Corporate and financial scandals and frauds – Enron, WorldCom, Parmalat, Cables and Wireless and Xerox (major fallout was on lack of confidence on how the companies were run and audited).
Sarbanes – Oxley Act 2002 enacted to built confidence in audit and assurance engagements

10. Audit and Stewardship
Directors are entrusted with responsibility to run the business on behalf of shareholder.
An Agency relationship is thus created.
Directors act as stewards of the shareholders’ investment.
Directors have to be accountable on a range of issues which includes financial statements, profit warnings, going concern, internal controls, risk, communication, corporate governance etc.
Audit provides an assurance on the accountability of directors to shareholders.

11. Auditing Standard ISA 100 – Assurance Engagements
‘explains that the objective of an assurance engagement in general is for a professional accountant to evaluate a subject matter that is the responsibility of another party against identified suitable criteria, and to express a conclusion that provides the intended user with a level of assurance about that subject matter’.

12. Parties to Assurance services
A three party relationship involving:
• a Professional accountant (Who?.....)
• a responsible party (Who? )
• an intended user (Who? )

13. Why do we need assurance
Increase confidence in financial information,
Help reduce risks,
Manage misunderstandings
Improve credibility of entity

14. Types of Assurance Services
Review Engagements – these are exercises designed to give a high level of assurance and involves a high degree of testing.
Internal Audit reviews – these are appraisals or monitoring activities established or provided as services to the entity on the effectiveness and adequacy of internal controls.

15. Limitation of Audit and Materiality
Audit has limitation as result of the use of Judgement, not all items are tested, evidence may not be definitive, estimates may be used etc.
Audit tend to focus on material items only.
Materiality – is an expression of the relative significance or importance of a particular matter in context of the financial statement as a whole. (a matter is material if its omission or misstatement would influence the economic decision of users of such information).

16. Type of Assurance
External Audits – provide a high, but not absolute level of assurance that information audited is free of material misstatement.
Review Engagements – provide limited level of assurance.
Agreed-upon Procedures – auditors provides factual findings of the engagement agreed.
Compilation Engagement – auditor collects, classify and summarise financial information.

17. Levels of Assurance Engagement Type of Assurance provided Examples
External Audit
Reasonable
- Statutory external audit
Review
Negative
Review of Interim financial statements
Agreed upon Procedures
None
Examination of Financial Position, Segmental sales and profits
Compilation
Preparation of Financial Statements
Preparation of tax returns

18. Assurance Overview

19. Audit and Assurance on Non-Financial Information
Assurance is evolving to extend to non- financial information.
Key social accountability issues – human rights, diversity, consumer rights, gender, communities, ethics, labour etc.
Key environmental accountability issues – pollution, waste, healthy and safety, biodiversity, energy, fuels, GHG etc.
Standards – AA1000, ISAE3000 & 3410

20. Thank for your attention
End
Thank for your attention