Week 1: Introduction
Planning the audit starts at the beginning of the audit and keeps on during the whole process of the
audit. This because you have to cope with certain circumstances that are different than expected;
you have to recognize the problems where you have to react on.
De auditor audits the financial statement and other investigations. It is important the auditor knows
what to do and which standards to use with each different type of investigation, who the target is,
and for who he is doing all the work.
Audit plan: concludes information for the board of directors and the advisory board about what the
strategic risks are that the organization is coping with and what the accountant is doing about these.
- Strategic risks: what will it do with the organization and intern processes (sustainability,
fraud, CoVid)
Auditing: A systematic process of objectively obtaining and evaluation evidence regarding assertions
about economic actions and events to ascertain the degree of correspondence between these
assertions and established criteria, and communication the results to interested users; reviewing and
see if the statements are compared to standards. You don’t write the annual report yourself but you
review it according to standards of the public!
* Assertions (controledoelstellingen): completeness, accuracy
* Established criteria; the standards
* Communicating the results; issue audit reports to interesting users who knows and
understands what he is reading
The function of auditing is to lend credibility (reasonable assurance) to the (financial) statements.
Audits could also apply to operations or compliance.
Reasonable assurance: you can’t give a 100% guarantee. The last 5% is too expensive and intensive
to reach; it’s not what the public wants; balance between costs and results. True and fair view
Assurance framework:
Three parties: organization that is investigated, the investigator (auditor), and the user
Clear subject matter or assurance object; clear what is investigated
Sustainable criteria; the standard have to be clear to give the audit
Sufficient appropriate evidence; be able to get sufficient appropriate evidence. It is hard or
even impossible to get information from a company in Afghanistan at the moment
Written assurance report
There are different theories that describe the demand for the audit function; Agency Theory
(information asymmetry), Theory of inspired confidence (Limperg), Policeman Theory
(fraud), and Insurance Theory (premium of risk reducing for other stakeholders)
When an accountant has a suspicion of fraud he has to investigate it, no matter how big the
fraud is. However, when he doesn’t see the fraud it doesn’t mean that the auditor didn’t do a
good job.
Field of auditing: having only 4 big auditing firms is not competitive enough, because organizations
will barely have any choice who is going to do the audit, if another auditor is already advising them.
NBA: making the rules and regulations, also for education to have the knowledge up to date
,Audit expectation-performance Gap
(Limperg); communication between
the public and the accountant.
According to the accountants people
have unreasonable expectations
(fraud), However they don’t always
perform like they should have (should ask more)
Risk analysis; the most important thing of audit plan. The risks are the basis of the choices you make
and the expectations that you have. Planning the audit is making a choice between ICR and DR;
o Audit risk (AR); the risk you give a wrong opinion, you do everything just to lower the audit
risk with 95% AR=IHR∗ICR∗DR
o The acceptable AR of the government is 1% (expensive audit)
o Inherent risk (IHR); risks that you have as an organization just because you are the
organization who you are, the market that you are in, CoVid, developments of the public. The
auditor has to translate these risk to an ICR of DR to cope with the risk
o Internal control risk (ICR); about procedures, doing the righ thing on the right moment on
the right place. If the organization don’t succeed in lower this risk the accountant has to
compensate this with an DR.
o Detection risk (DR); about data analysis. Substantive procedures (more work) for the auditor;
looking at every invoice.
Primary assertions/objectives of the audit when an auditor speaks about risk
Accuracy: is it right what’s mentioned in the report; do buildings belong to the organization?
Operating expenses. Bank application , left hand side balance sheet
Completeness (volledigheid); is there more that should be recorded in the annual report that
is not been recorded yet. This is an important issue in the revenue. You need internal control
risks that should reduce the risk of completeness to do the audit. Completeness of revenue,
accounts payable, balance sheet liabilities
Existence and occurrence; do the buildings, inventory, tables etc really exist?
Cut-off: do revenues/costs belong to the period that is audited
Classification; presentation and disclosure of lending or lease contract
Valuation (and allocation); value of the company is a lot of discussion about. Inventory
management
Rights and obligations; contracts etc
Type of engagements; with the used
standards for the auditor (not the
report). Auditors should make clear what
engagement they have
- Other assurance engagements;
sustainability report
- Agreed-upon procedures; due
diligence investigation
without giving assurance
- Other engagements; advisory,
consultancy, etc. without giving
assurance
Auditing theory is only about the financial statement which are regulated!
,
Planning the audit starts at the beginning of the audit and keeps on during the whole process of the
audit. This because you have to cope with certain circumstances that are different than expected;
you have to recognize the problems where you have to react on.
De auditor audits the financial statement and other investigations. It is important the auditor knows
what to do and which standards to use with each different type of investigation, who the target is,
and for who he is doing all the work.
Audit plan: concludes information for the board of directors and the advisory board about what the
strategic risks are that the organization is coping with and what the accountant is doing about these.
- Strategic risks: what will it do with the organization and intern processes (sustainability,
fraud, CoVid)
Auditing: A systematic process of objectively obtaining and evaluation evidence regarding assertions
about economic actions and events to ascertain the degree of correspondence between these
assertions and established criteria, and communication the results to interested users; reviewing and
see if the statements are compared to standards. You don’t write the annual report yourself but you
review it according to standards of the public!
* Assertions (controledoelstellingen): completeness, accuracy
* Established criteria; the standards
* Communicating the results; issue audit reports to interesting users who knows and
understands what he is reading
The function of auditing is to lend credibility (reasonable assurance) to the (financial) statements.
Audits could also apply to operations or compliance.
Reasonable assurance: you can’t give a 100% guarantee. The last 5% is too expensive and intensive
to reach; it’s not what the public wants; balance between costs and results. True and fair view
Assurance framework:
Three parties: organization that is investigated, the investigator (auditor), and the user
Clear subject matter or assurance object; clear what is investigated
Sustainable criteria; the standard have to be clear to give the audit
Sufficient appropriate evidence; be able to get sufficient appropriate evidence. It is hard or
even impossible to get information from a company in Afghanistan at the moment
Written assurance report
There are different theories that describe the demand for the audit function; Agency Theory
(information asymmetry), Theory of inspired confidence (Limperg), Policeman Theory
(fraud), and Insurance Theory (premium of risk reducing for other stakeholders)
When an accountant has a suspicion of fraud he has to investigate it, no matter how big the
fraud is. However, when he doesn’t see the fraud it doesn’t mean that the auditor didn’t do a
good job.
Field of auditing: having only 4 big auditing firms is not competitive enough, because organizations
will barely have any choice who is going to do the audit, if another auditor is already advising them.
NBA: making the rules and regulations, also for education to have the knowledge up to date
,Audit expectation-performance Gap
(Limperg); communication between
the public and the accountant.
According to the accountants people
have unreasonable expectations
(fraud), However they don’t always
perform like they should have (should ask more)
Risk analysis; the most important thing of audit plan. The risks are the basis of the choices you make
and the expectations that you have. Planning the audit is making a choice between ICR and DR;
o Audit risk (AR); the risk you give a wrong opinion, you do everything just to lower the audit
risk with 95% AR=IHR∗ICR∗DR
o The acceptable AR of the government is 1% (expensive audit)
o Inherent risk (IHR); risks that you have as an organization just because you are the
organization who you are, the market that you are in, CoVid, developments of the public. The
auditor has to translate these risk to an ICR of DR to cope with the risk
o Internal control risk (ICR); about procedures, doing the righ thing on the right moment on
the right place. If the organization don’t succeed in lower this risk the accountant has to
compensate this with an DR.
o Detection risk (DR); about data analysis. Substantive procedures (more work) for the auditor;
looking at every invoice.
Primary assertions/objectives of the audit when an auditor speaks about risk
Accuracy: is it right what’s mentioned in the report; do buildings belong to the organization?
Operating expenses. Bank application , left hand side balance sheet
Completeness (volledigheid); is there more that should be recorded in the annual report that
is not been recorded yet. This is an important issue in the revenue. You need internal control
risks that should reduce the risk of completeness to do the audit. Completeness of revenue,
accounts payable, balance sheet liabilities
Existence and occurrence; do the buildings, inventory, tables etc really exist?
Cut-off: do revenues/costs belong to the period that is audited
Classification; presentation and disclosure of lending or lease contract
Valuation (and allocation); value of the company is a lot of discussion about. Inventory
management
Rights and obligations; contracts etc
Type of engagements; with the used
standards for the auditor (not the
report). Auditors should make clear what
engagement they have
- Other assurance engagements;
sustainability report
- Agreed-upon procedures; due
diligence investigation
without giving assurance
- Other engagements; advisory,
consultancy, etc. without giving
assurance
Auditing theory is only about the financial statement which are regulated!
,
