2nd Year
Auditing
Notes
,Introduction and background to auditing
The business environment
Board of Directors
CEO
Customers transaction
External auditors
Reporting
Company audit
Financial statements
Shareholders / stakeholders
Concepts:
▪ Accounting: A systematic, analytical process according to which financial data is gathered,
sorted, processed, summarised and evaluated producing financial information for users.
▪ Auditing: A systematic process according to which the auditor examines information to
determine that the basic assertions conform to the prescribed criteria. Based on the
evidence collected an opinion is expressed.
▪ Assurance: An engagement in which the practitioner expresses a conclusion designated to
enhance designated to enhance the degree of confidence of the intended users other than
the responsible party about the outcome of the evaluation or measurement of a subject
matter against criteria.
▪ Interdependence:
➢ Accounting financial info is produced
➢ Auditing financial info is examined
➢ Auditing strengthens the credibility and reliability of financial info produced by
accounting
▪ Agency theory:
➢ Deductive theory
➢ Shareholders are principles who appoint agents to manage the company.
,Auditing process
Purpose of Audit: For the users to get confirmation that the annual financial statements are free
from material misstatement. The auditor is the middleman between the shareholder and the
director.
Audit postulates
▪ Truth and fairness: The auditor is concerned that the financial statements under
examination conforms to law and best practice.
- Management presents data that can be verified.
- The auditor assumes data is free from collusion.
- Company consistently applies IFRS and GAAP.
▪ Independence:
- The auditor must be independent through status and it's truly objective in their
expression of opinion.
- No conflict of interest between the auditor and management.
- Independent auditor has complied with fundamental principles of the CPC.
- The auditor is not an employee of the firm.
Auditing process
▪ Who is the client?
Pre-engagement ▪ Skills and competencies required
▪ Engagement terms
▪ Obtain an understanding of the company
▪ Consider audit risk
▪ Determine materiality
Planning
▪ Formulate strategy and plan
▪ Coordinate control
▪ Consider other matters that may affect the audit process
▪ Test of controls
▪ Evaluate results over test of controls
Fieldwork
▪ Adapt planned substantive procedures
▪ Evaluate results on substantive procedures
▪ General review of financial information and evaluation of audit
evidence
Completion
▪ Conclusion and formulation of audit opinion
▪ Reporting
, Assertions:
Transactions and events that have been recorded or disclosed have
Occurrence
occurred and such transactions and events pertain to the entity.
All transactions and events that should have been recorded have been
Completeness recorded and all related disclosures that should have been included in the
Classes of transactions
FS have been included.
Amounts and other data relating to recorded transactions and events have
Accuracy been recorded appropriately and related disclosures have been
appropriately measured and described.
Transactions and events have been recorded in the correct accounting
Cutoff
period.
Classification Transactions and events have been recorded in the proper account.
Transactions and events are appropriately aggregated or disaggregated and
clearly described and related disclosures or relevant and understandable in
Presentation
the context of the requirements of the applicable financial reporting
framework
Existence Assets, liabilities and equity interests exist.
Rights and The entity holds or controls the right to assets, and liabilities are the
obligations obligations of the entity.
All assets, liabilities and equity interests that should have been recorded
Completeness have been recorded and all related disclosures that should have been
Account balances
included in the financial statements have been included.
Assets, liabilities and equity interests have been included in the financial
Accuracy,
statements at appropriate amounts and any resulting valuation or
valuation and
allocation adjustments have been appropriately recorded and related
allocation
disclosures have been appropriately measured and described.
Assets, liabilities and equity interests have been recorded in the proper
Classification
accounts.
Assets, liabilities and equity interests are appropriately aggregated or
disaggregated and clearly described and related disclosures or relevant and
Presentation
understandable in the context of the requirements of the applicable
financial reporting framework
Auditing
Notes
,Introduction and background to auditing
The business environment
Board of Directors
CEO
Customers transaction
External auditors
Reporting
Company audit
Financial statements
Shareholders / stakeholders
Concepts:
▪ Accounting: A systematic, analytical process according to which financial data is gathered,
sorted, processed, summarised and evaluated producing financial information for users.
▪ Auditing: A systematic process according to which the auditor examines information to
determine that the basic assertions conform to the prescribed criteria. Based on the
evidence collected an opinion is expressed.
▪ Assurance: An engagement in which the practitioner expresses a conclusion designated to
enhance designated to enhance the degree of confidence of the intended users other than
the responsible party about the outcome of the evaluation or measurement of a subject
matter against criteria.
▪ Interdependence:
➢ Accounting financial info is produced
➢ Auditing financial info is examined
➢ Auditing strengthens the credibility and reliability of financial info produced by
accounting
▪ Agency theory:
➢ Deductive theory
➢ Shareholders are principles who appoint agents to manage the company.
,Auditing process
Purpose of Audit: For the users to get confirmation that the annual financial statements are free
from material misstatement. The auditor is the middleman between the shareholder and the
director.
Audit postulates
▪ Truth and fairness: The auditor is concerned that the financial statements under
examination conforms to law and best practice.
- Management presents data that can be verified.
- The auditor assumes data is free from collusion.
- Company consistently applies IFRS and GAAP.
▪ Independence:
- The auditor must be independent through status and it's truly objective in their
expression of opinion.
- No conflict of interest between the auditor and management.
- Independent auditor has complied with fundamental principles of the CPC.
- The auditor is not an employee of the firm.
Auditing process
▪ Who is the client?
Pre-engagement ▪ Skills and competencies required
▪ Engagement terms
▪ Obtain an understanding of the company
▪ Consider audit risk
▪ Determine materiality
Planning
▪ Formulate strategy and plan
▪ Coordinate control
▪ Consider other matters that may affect the audit process
▪ Test of controls
▪ Evaluate results over test of controls
Fieldwork
▪ Adapt planned substantive procedures
▪ Evaluate results on substantive procedures
▪ General review of financial information and evaluation of audit
evidence
Completion
▪ Conclusion and formulation of audit opinion
▪ Reporting
, Assertions:
Transactions and events that have been recorded or disclosed have
Occurrence
occurred and such transactions and events pertain to the entity.
All transactions and events that should have been recorded have been
Completeness recorded and all related disclosures that should have been included in the
Classes of transactions
FS have been included.
Amounts and other data relating to recorded transactions and events have
Accuracy been recorded appropriately and related disclosures have been
appropriately measured and described.
Transactions and events have been recorded in the correct accounting
Cutoff
period.
Classification Transactions and events have been recorded in the proper account.
Transactions and events are appropriately aggregated or disaggregated and
clearly described and related disclosures or relevant and understandable in
Presentation
the context of the requirements of the applicable financial reporting
framework
Existence Assets, liabilities and equity interests exist.
Rights and The entity holds or controls the right to assets, and liabilities are the
obligations obligations of the entity.
All assets, liabilities and equity interests that should have been recorded
Completeness have been recorded and all related disclosures that should have been
Account balances
included in the financial statements have been included.
Assets, liabilities and equity interests have been included in the financial
Accuracy,
statements at appropriate amounts and any resulting valuation or
valuation and
allocation adjustments have been appropriately recorded and related
allocation
disclosures have been appropriately measured and described.
Assets, liabilities and equity interests have been recorded in the proper
Classification
accounts.
Assets, liabilities and equity interests are appropriately aggregated or
disaggregated and clearly described and related disclosures or relevant and
Presentation
understandable in the context of the requirements of the applicable
financial reporting framework
