AUDITING THEORY
Inhoudsopgave
Lectures......................................................................................................................................................... 2
Lecture 1 Introduction Oversight Planning...........................................................................................................2
Lecture 2 Materiality & Risk in the Audit.............................................................................................................5
Lecture 3 IT in the Audit.......................................................................................................................................9
Lecture 4 Communication & Group and Internal Audit......................................................................................12
Lecture 6 Fraud + Service organizations.............................................................................................................14
Lecture 7 Problems in the Audit.........................................................................................................................17
Papers......................................................................................................................................................... 18
Auditors: Their mindset and their decisions - Jan Bouwens (2016)...................................................................18
Breakdowns in internal control in bank trading information systems: the case of fraud at Société Générale –
Baker (2017).......................................................................................................................................................20
Information and Communications Technology and Auditing: Current Implications and Future Directions –
Omoteso (2010)..................................................................................................................................................22
,Lectures
Lecture 1 Introduction Oversight Planning
Concepts of auditing:
- An audit is a systematic process of objectively obtaining and evaluating evidence regarding
assertions about economic actions and events to ascertain the degree of correspondence
between these assertions and established criteria and communicating the results to
interested users.
- The function of auditing is to lend credibility (reasonable assurance) to the (financial)
statements. Audits could also apply to operations or compliance.
Auditing is assessed against standards. Sometimes, these standards may be less clear, and in such
cases, you need to align them with the client. As an accountant, it is your responsibility to perform
the necessary tasks to form an opinion on whether the standard is being met.
Assurance equals certainty, which is something the accountant cannot guarantee with 100%
certainty. This is also known as "reasonable assurance." Auditing risk is the risk of providing an
incorrect assessment as an accountant, and it is typically around 5%.
- Three parties: The three parties involved are the entity being audited the responsible party,
the accountant, and the public (intended users).
- Subject matter: It is important to clearly define what the assurance object is.
- Suitable criteria: This includes adhering to accounting standards but also having a clear
understanding of when the standard is met or not and what the tolerance level is. This
determination should not be made only after the audit is completed.
- Sufficient appropriate evidence: Sufficient information must be made available to the
accountant to form a reliable judgment.
- Written assurance report: All communication should be documented in writing, and the
statements should be supported by a thorough examination of evidence to ensure reliability
and completeness (sufficient information and comprehensive analysis).
Various theories explain the demand for the audit function:
- Agency theory: The value of the accountant is in addressing information asymmetry.
- Limperg: The theory of induced trust forms the foundational theories for accountants.
- Fraud: What expectations should one have of an accountant regarding fraud?
o Expectations regarding accountants and fraud: People expect us to have noticed it.
Society has some unreasonable expectations (such as a 100% guaranteed audit).
- Insurance theory: Accountants are utilized to add certainty in decision-making processes.
o Assurance engagement: is used to provide certainty.
o Non-assurance engagement: doesn't provide certainty but only helps based on your
expertise (no judgment).
o
, Laws and legislations:
- WTA A.K.A. NBA A.K.A. NV COS A.K.A. Dutch GAAS A.K.A. ISA
Key element van het oordeel:
- In our opinion, the financial statements give a true and fair view of the financial position of
the company as at 31 december 2021, and of its result for the year then ended in accordance
with part 9 of book 2 of the Dutch Civil Code.
Hart van het controle proces: AR = IHR x ICR x DR (geen formule maar een overdrachtelijke zin)
- AR = auditing risk
- IHR = inherent risk
- ICR = internal control risk
- DR= detection risk
Audit planning
- Identifying the risk of problem
- Client acceptance: questions are
increasingly focused on ethics, for
example, regarding taxes. As an
accountant, it's important to approach
it ethically to determine what you
accept regarding your client's actions.
You must adhere to laws and regulations, but it also needs to be ethically sound.
o Determine both acceptance of a client and acceptance by a client. Decide on
acquiring a new client or
continuing of relationship with
an existing one and the type
and amount of staff is required.
Intended user = users of the financial
statements
Practionioner = auditor
Responsible party = entity under audit
Walking through the audit:
1. Understand the enitity and it’s environment.
a. External factors (branche, laws and regulations, environment, trends?)
b. Nature of the entity
c. Accounting policies (which accounting standards are applicable?)
d. Objectives and strategies (is it a fast growing company/ stable?)
e. Measurement of entity’s financial performance
Inherent risk analysis: assessing risk without considering how they have been or could
be mitigated. Inherent risks need to be translated into the annual financial statement.
Business risks are addressed if they impact the financial statement.
2. Asses the risks of material misstatements (AR = IHR x ICR x DR)
o Inherent + business risk (financial) reporting risk account assertions control
risk detection risk audit risk.
Inhoudsopgave
Lectures......................................................................................................................................................... 2
Lecture 1 Introduction Oversight Planning...........................................................................................................2
Lecture 2 Materiality & Risk in the Audit.............................................................................................................5
Lecture 3 IT in the Audit.......................................................................................................................................9
Lecture 4 Communication & Group and Internal Audit......................................................................................12
Lecture 6 Fraud + Service organizations.............................................................................................................14
Lecture 7 Problems in the Audit.........................................................................................................................17
Papers......................................................................................................................................................... 18
Auditors: Their mindset and their decisions - Jan Bouwens (2016)...................................................................18
Breakdowns in internal control in bank trading information systems: the case of fraud at Société Générale –
Baker (2017).......................................................................................................................................................20
Information and Communications Technology and Auditing: Current Implications and Future Directions –
Omoteso (2010)..................................................................................................................................................22
,Lectures
Lecture 1 Introduction Oversight Planning
Concepts of auditing:
- An audit is a systematic process of objectively obtaining and evaluating evidence regarding
assertions about economic actions and events to ascertain the degree of correspondence
between these assertions and established criteria and communicating the results to
interested users.
- The function of auditing is to lend credibility (reasonable assurance) to the (financial)
statements. Audits could also apply to operations or compliance.
Auditing is assessed against standards. Sometimes, these standards may be less clear, and in such
cases, you need to align them with the client. As an accountant, it is your responsibility to perform
the necessary tasks to form an opinion on whether the standard is being met.
Assurance equals certainty, which is something the accountant cannot guarantee with 100%
certainty. This is also known as "reasonable assurance." Auditing risk is the risk of providing an
incorrect assessment as an accountant, and it is typically around 5%.
- Three parties: The three parties involved are the entity being audited the responsible party,
the accountant, and the public (intended users).
- Subject matter: It is important to clearly define what the assurance object is.
- Suitable criteria: This includes adhering to accounting standards but also having a clear
understanding of when the standard is met or not and what the tolerance level is. This
determination should not be made only after the audit is completed.
- Sufficient appropriate evidence: Sufficient information must be made available to the
accountant to form a reliable judgment.
- Written assurance report: All communication should be documented in writing, and the
statements should be supported by a thorough examination of evidence to ensure reliability
and completeness (sufficient information and comprehensive analysis).
Various theories explain the demand for the audit function:
- Agency theory: The value of the accountant is in addressing information asymmetry.
- Limperg: The theory of induced trust forms the foundational theories for accountants.
- Fraud: What expectations should one have of an accountant regarding fraud?
o Expectations regarding accountants and fraud: People expect us to have noticed it.
Society has some unreasonable expectations (such as a 100% guaranteed audit).
- Insurance theory: Accountants are utilized to add certainty in decision-making processes.
o Assurance engagement: is used to provide certainty.
o Non-assurance engagement: doesn't provide certainty but only helps based on your
expertise (no judgment).
o
, Laws and legislations:
- WTA A.K.A. NBA A.K.A. NV COS A.K.A. Dutch GAAS A.K.A. ISA
Key element van het oordeel:
- In our opinion, the financial statements give a true and fair view of the financial position of
the company as at 31 december 2021, and of its result for the year then ended in accordance
with part 9 of book 2 of the Dutch Civil Code.
Hart van het controle proces: AR = IHR x ICR x DR (geen formule maar een overdrachtelijke zin)
- AR = auditing risk
- IHR = inherent risk
- ICR = internal control risk
- DR= detection risk
Audit planning
- Identifying the risk of problem
- Client acceptance: questions are
increasingly focused on ethics, for
example, regarding taxes. As an
accountant, it's important to approach
it ethically to determine what you
accept regarding your client's actions.
You must adhere to laws and regulations, but it also needs to be ethically sound.
o Determine both acceptance of a client and acceptance by a client. Decide on
acquiring a new client or
continuing of relationship with
an existing one and the type
and amount of staff is required.
Intended user = users of the financial
statements
Practionioner = auditor
Responsible party = entity under audit
Walking through the audit:
1. Understand the enitity and it’s environment.
a. External factors (branche, laws and regulations, environment, trends?)
b. Nature of the entity
c. Accounting policies (which accounting standards are applicable?)
d. Objectives and strategies (is it a fast growing company/ stable?)
e. Measurement of entity’s financial performance
Inherent risk analysis: assessing risk without considering how they have been or could
be mitigated. Inherent risks need to be translated into the annual financial statement.
Business risks are addressed if they impact the financial statement.
2. Asses the risks of material misstatements (AR = IHR x ICR x DR)
o Inherent + business risk (financial) reporting risk account assertions control
risk detection risk audit risk.
