Group 9

RELEVANCE OF MATHEMATICS IN EXTERNAL AUDITING
INTRODUCTION
In this report, the topics covered will include the relevance of mathematics in external
auditing, an overview of auditing, and different kinds of audit tests.
Numbers are something that people have seen, used, and learned in school and in their
daily lives, and math may be applied in a variety of fields of study including finance, accounting,
auditing, engineering, banking, and many others. However in this paper, it will focus in the field
of auditing.
An external auditor is an independent and systematic process of a company and a

consultant to issue an opinion that financial statements are free of material errors or fairly
presented. The ones who sign off books verify and investigate the financial statements of reports
typically once a year to evaluate the unqualified or qualified opinions, legitimate (accurate),
transparent, and reliable information that complies with all accounting standards or PFRS based
on the analysis of the expert external auditor. This is to obtain sufficient appropriate evidence in
order to reach and justify a conclusion on the fairness, avoid fraud issues and discrepancies for
both reports, and necessary to know if the company's progress can improve any of the legal
processes and procedures of the financial statements. So that the primary users who have
invested their capital must be updated in information about the true financial position and results
of operations of the entity than the absentee owner does.
The goal of an external audit is to perform a proper, unbiased analysis and ensure that
the financial statements accurately present the company's financial situation and are correctly
prepared in compliance with accounting rules. It is not only improves the management financials
credibility, increasing clients confidence but an independent analysis also provides greater
transparency to shareholders, emphasizing areas of relevance. (Hadfield)
The company's shareholders appoint external auditors and, unlike internal auditors, must
be allowed to function independently in order to ensure an objective approach to the audit
process.
The relationship between mathematics and external auditing is that Employing

Mathematics in an external audit is necessary for the auditor to examine all transactions, various
numbers, basic calculations, and balance the financial instruments that occurred during the
period.
The majority of the mathematical activities performed in auditing and accounting work
are simple arithmetic. The most frequent skills required of accountants and auditors are addition,
subtraction, multiplication, and division. External auditing does not need to be good in math, but
they are required to know basic calculations. Although complicated arithmetic abilities are not
necessary, auditors must be able to examine, compare, and comprehend facts and figures. This
involves an understanding of statistics and accounting.
BODY
Mathematics teaches logic, problem-solving, and critical thinking. It also helps external
auditing understand when someone is manipulating data representation and facts that are an
untruth. Also, it enables determining which mortgage offer is best, the time value of budgeted
money, and the basic skills needed to understand finances.
Mathematical knowledge is important to be a responsible auditor because it is not more

challenging for them if they capably how math circulates. And primarily, using artificial
intelligence is more likely in MS Excel to be useful and helpful for auditing purposes and
chartered accountants (CA). It will improve efficiency as it helps to lower the time spent on
testifying, helps companies to figure out how to audit algorithms, and helps chartered
accountants (CA) to have accurate measuring data, automate, analyze, and report the financial
planning for easy and faster decisions correctly.
One of the things that an external auditor job is to detect fraud and report it in order to
detect the fraud it needed the use of mathematics. Analytical approaches are useful in
determining the presence of anomalies. Transactions or events, as well as numbers, ratios, and
patterns that may suggest issues with audit consequences. While performing the analytical
approach throughout the course of auditing, unusual things that may signal the potential of fraud
that’s why the technique in fraud detection must be included into audit procedures so that the
auditor can highlight a transaction for a probable fraud or discover such consistent system
problems that can lead to a fraud during the audit.
A unique feature of numbers known as Benford's law is one of their most valuable
detective tools. One of a use of Benford’s law is to detect the error and fraud. According to
Benford's law (also known as the first digit law), Benford's law is a probability distribution for
the likelihood of the first digit in a series of numbers (Frunza, 2015).
Benford law help in the detection of probable financial data fraud or misreporting. As a
result it helps the auditor to see the possible leads for a more deep inspection of the transactions
to uncover any potential fraud.
There are different kinds of audit tests that entail varied processes. Hence, the auditors
should be well-versed in the specific mathematical skills needed for that purpose. In this chapter
of the study, the researchers will give some examples of auditors' tests to examine the accuracy
of financial statements and the mathematical skills needed to perform the given audit test.
Audit Test Purpose Process

The purpose of this audit test is Checking or verifying if the value
to avoid having overstated of assets and revenue recorded in
balances in assets and the financial statement exists in
Vouching revenue/income in the financial supporting documents.
statement and to make sure that
the source documents can
support those values.
The purpose of this audit test is Testing for Completeness to make
Tracing to avoid having understated sure that all the expenses and
balances in expenses and liabilities that are in supporting
liabilities recorded in financial document is in the financial
statements. statements.
The auditor needs mathematical skills to do vouching and tracing tests is paying
attention to details. An auditor must have this skill, so they will not miss or overlook any details
if there are errors recorded in financial statements. Common mistakes that accountant overlook is
called transposition and transplacement. Transposition error occurs when there is an interchange
in numbers. For example, an entity buys equipment worth 29,650, but it was recorded as 29,560.
Transplacement error usually occurs when the amount has many zero numbers and when it has a
decimal point. Sometimes an error in counting zero or misplacement of decimal point happens
and leads to transplacement error. For example, an entity has 3,000 accounts payable but
mistakenly recorded 30,000. The auditor will not overlook this kind of error if he has attention to
details skill.
Audit Test Purpose Process

The purpose of this audit Re-perform all the processes in making
test is to provide more the financial statement by the auditor and
Re-performance
assurance to primary users compare the two results.
of financial statement.
The auditor needs mathematical skills to perform all the processes, including numeracy
and arithmetic skills. An auditor must have these skills so that they would re-perform the
accounting process without mistake. For example, in tallying the total amount of assets in the
financial position statement, the application of numeracy and arithmetic skills is needed for
calculations.
The auditor must also have critical thinking skills, so the auditor will not make mistakes
in transferring and calculating the data given. For example, some complicated entries require
some critical thinking to understand.
BIBLIOGRAPHY Hadfield, J. (n.d.). Retrieved from https://www.menzies.co.uk/:
https://www.menzies.co.uk/helping-you/audit-compliance/what-is-an-audit/internal-audit-vs-
external-audit/
(2020, june 30). Retrieved from https://1investing.in/: https://1investing.in/how-much-math-is-

required-for-a-degree-in-auditing/#:~:text=Most%20of%20the%20mathematical%20tasks,and
%20auditors%20need%20to%20know.
Stephanie Glen. "Benford’s Law (The First Digit Law): Simple Definition,
Examples" From StatisticsHowTo.com: Elementary Statistics for the rest of
us! https://www.statisticshowto.com/benfords-law/
https://www.mathscareers.org.uk/number-one-crime-fighter/
https://cag.gov.in/uploads/research_paper/RES-2-Benford-05ebe241db89494-
32544853.pdf

Group 9

Uploaded by

Copyright:

Available Formats

Group 9

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Group 9

Uploaded by

Copyright:

Available Formats

RELEVANCE OF MATHEMATICS IN EXTERNAL AUDITING

An external auditor is an independent and systematic process of a company and a

The relationship between mathematics and external auditing is that Employing

Mathematical knowledge is important to be a responsible auditor because it is not more

Audit Test Purpose Process

Audit Test Purpose Process

(2020, june 30). Retrieved from https://1investing.in/: https://1investing.in/how-much-math-is-

You might also like