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What Is An Audit

An audit is an independent examination of a company's financial statements to determine if they accurately represent the company's financial position. Audits are either optional or statutory. Statutory audits are legally required and have specific qualifications for auditors, while optional audits do not have these legal requirements.

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0% found this document useful (0 votes)
72 views2 pages

What Is An Audit

An audit is an independent examination of a company's financial statements to determine if they accurately represent the company's financial position. Audits are either optional or statutory. Statutory audits are legally required and have specific qualifications for auditors, while optional audits do not have these legal requirements.

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Ali
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What is an Audit?

Audit is an independent examination of financial statements of an entity


that enables an auditor to expressan opinion whether the financial
statements are prepared (in all material respects) in accordance with an
identified and acceptable financial reporting framework (e.g. international or
local accounting standards and national legislations)
This view of audit is presented by ISA 200 Objective and General
Principles Governing an Audit of Financial Statements.

The phrases used; to express the auditors opinion means that the
financial statements give a true and fair view or have been presented fairly
in all material respects.
True and fair presentation means that the financial statement are prepared
and presented in accordance with the requirements of the applicable
International Financial Reporting Standards (IFRS) and local
pronouncements/legislations.
What we can understand as the essential features of an audit from the
above definition and explanation are as under:

An auditor involves in examination of financial statements, the auditor is


not responsible for the
preparation of the financial statements.

The end result of an audit is an opinion to assist the user of the financial
statements. Auditing
therefore relies heavily on professional judgment, not merely on the facts.

The auditors opinion makes reference to true and fair or fair


presentations but true and fair
is again a matter of judgment. It is not precisely defined for the auditor.

In order to make the user of the auditors report able to feel confident in
relying on such report, the
auditor should be independent of the entity. Independent essentially means
that the auditor has no
significant personal interest in the entity. This allows an objective,
professional view to be taken.
You will note that this is a wide concept of an audit which can be applied to
any entity, not just to limited companies. However, in this course, we are
concerned primarily with audits of limited companies (often known as
statutory or external audits). Any other audit applications will be clearly
indicated for you in the text.

Audits are of two types namely optional or private audits and statutory or
compulsory audits. Basis for this classification is legal requirements with regard
to conduction of audit.
Examples for private audits are audit of sole trading concerns, audit of
partnership firm, etc., company audit can be taken as example for compulsory
audits.

Differences between Private and Statutory Audit


Legal Requirements: Legal requirement is seen in case of statutory audits but
not in case of optional audits.
Qualification: In case of statutory, auditor should have the qualification specified
by the act concerned. For example: Company auditor`s qualification is specified
by companies act. But in case of optional audits the question of qualification does
not arise because the act with regard to optional audit is silent.
Rights, Duties, etc., of Auditor: In case of optional audit rights, duties,
liabilities, etc., of auditor will be of Contractual nature. The contract which gets
formed between auditor and client refers to all those things. There is no
involvement of act. In case of statutory audits all such things will be of statutory
nature concerned act determines all these things.
Conduction of Audit work: In case of optional audits, audit work takes place as
per the agreement but in case of statutory audits, audit work will be conducted as
per provisions of act concerned.
Alteration in Rights and Duties: In case of optional audits rights, duties etc of
auditor can be altered by mutual understanding between auditor and client.
Report: In case of Optional audit report can be given at the choice of auditor. But
in case of statutory audit report must be given as per requirements of concerned
act.

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