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1 - Overview of Auditing

This document provides an overview of auditing. It defines auditing and describes the roles of auditors and management. The audit process involves planning, execution, and reporting. Relationships between audit risk, control risk, and detection risk impact the audit approach. Audits follow generally accepted auditing standards for general standards, fieldwork, and reporting. Financial statement assertions include existence, completeness, and valuation. Common audit types are external financial audits, internal audits, fraud audits, and IT audits.

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79 views13 pages

1 - Overview of Auditing

This document provides an overview of auditing. It defines auditing and describes the roles of auditors and management. The audit process involves planning, execution, and reporting. Relationships between audit risk, control risk, and detection risk impact the audit approach. Audits follow generally accepted auditing standards for general standards, fieldwork, and reporting. Financial statement assertions include existence, completeness, and valuation. Common audit types are external financial audits, internal audits, fraud audits, and IT audits.

Uploaded by

Zooey
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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AN OVERVIEW OF AUDITING

Lesson Objectives

After the lesson, the student is expected to be able to:


 Define auditing;
 Describe the roles of the auditor and the
management;
 List and explain the audit process;
 Identify some of the relationships considered in the
auditing process;
 Recall the generally accepted auditing standards;
 Identify and explain the different financial statement
assertions;
 Identify and describe the different types of audit.
WHAT IS AUDITING?

Auditing is a systematic process of objectively


obtaining and evaluating evidence regarding
assertions about economic actions and events
to ascertain the degree of correspondence
between those assertions and establishing
criteria and communicating the results to
interested users.
AUDIT IN A NUTSHELL
AUDIT is the expression of an independent
opinion on the fairness of presentation of the
financial statements as prepared by
management.

1. The management is responsible for the preparation of


the financial statements, not the auditors.

2. The auditors are responsible for their opinion, which is


based on the evaluation of the audit evidence they
gather.
AUDIT IN A NUTSHELL
An audit is intended to ensure that every
number and every disclosure within the
financial statements is valid and
supported.

Risk-based approach is usually followed.


Auditors identify where the greatest risks
exist for a material misstatement, and focus
their procedures to ensure one or more of
these material misstatements does not exist.
AUDITING PROCESS
Acceptance / Planning Execution Reporting
Continuance
Develop Audit
Programs &
Procedures
Client Risk Profile
- Knowledge of
business & industry
Test of Controls
-Determine reliance
-Independence Completion
-Engagement Letter Quality Control
-Staffing Substantive Tests Audit Report
-Test of details, key
items and analytical
Audit Plan procedures
-Assess audit risk
-Materiality
Evaluate, Reassess,
-Audit strategy
Quality Control
-Review and
supervise
RELATIONSHIPS

Audit Risk = IR x CR x DR

Test of Controls ∝ Substantive Tests

Materiality ∝ Substantive Tests


(Threshold)
GENERALLY ACCEPTED AUDITING STANDARDS

GENERAL STANDARDS OF STANDARDS OF


STANDARDS FIELDWORK REPORTING

Technical training
Planning GAAP
and proficiency

Internal control
Independence Inconsistency
consideration

Professional care Evidential matter Disclosure

Opinion
GENERALLY ACCEPTED AUDITING STANDARDS
General Standards Standards of Field Work Reporting Standards
1. The auditor must have 1. Audit work must be 1. The auditor must state in the
adequate technical training adequately planned. report whether financial
and proficiency. statements were prepared in
accordance with generally
accepted accounting principles.
2. The auditor must have 2. The auditor must gain a 2. The report must identify those
independence of mental sufficient understanding of the circumstances in which generally
attitude. internal control structure. accepted accounting principles
were not applied.
3. The auditor must exercise 3. The auditor must obtain 3. The report must identify any
due professional care in the sufficient, competent evidence. items that do not have adequate
performance of the audit and informative disclosures.
the preparation of the report.

4. The report shall contain an


expression of the auditor’s opinion
on the financial statements as a
whole.
FINANCIAL STATEMENT ASSERTIONS

Existence or
Occurrence

Rights & Presentation &


Obligations disclosure
FINANCIAL
STATEMENTS

Valuation &
Completeness
allocation
COMMON TYPES OF AUDIT
EXTERNAL / FINANCIAL AUDIT is an
independent attestation performed by an
auditor who expresses an opinion
regarding the presentation of financial
statements.

INTERNAL AUDIT is an independent


appraisal function established within an
organization to examine and evaluate its
activities as a service to the organization.
COMMON TYPES OF AUDIT
FRAUD AUDIT is conducted to
investigate anomalies and gather evidence
of fraud that may lead to criminal
conviction.

IT AUDIT provide audit services where


processes or data, or both, are embedded
in technologies. It is focused on the
computer-based aspects of an
organization’s information system.
REFERENCES

Cook, B. (2012, April 24). The Audit Process.


Retrieved November 9, 2015, from
YouTube.com:
https://youtu.be/1yo3GyvZi9Q

Hall, J. A. (2011). Information Technology


Auditing and Assurance. Singapore:
Cengage Learning Asia Pte Ltd.

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