Boek samenvatting
Inhoudsopgave
Week 1 ...................................................................................................................................................... 2
Chapter 1: International auditing overview ......................................................................................................... 2
Chapter 2: The institutional setting: how is the audit profession organized ....................................................... 5
Week 2 ...................................................................................................................................................... 7
Chapter 3: Ethics for professional accountants ................................................................................................... 7
Chapter 4: The fundamental concepts of auditing and assurance .................................................................... 14
Chapter 5: Fraud and other consideration of law and regulation in an audit ................................................... 16
Week 3 .................................................................................................................................................... 20
Chapter 6: Client and engagement acceptance / continuance ......................................................................... 20
Chapter 7: Planning through understanding and risk analysis .......................................................................... 25
Week 4 .................................................................................................................................................... 30
Chapter 8: Internal control and control risk....................................................................................................... 30
Chapter 9: Building and execution of the test plan and auditors response to assessed risk ............................. 38
Week 5 .................................................................................................................................................... 44
Chapter 10: Building and execution of the test plan – analytical review .......................................................... 44
Chapter 11: Evaluation and completion ............................................................................................................ 49
Week 6 .................................................................................................................................................... 54
Chapter 12: Reporting ....................................................................................................................................... 54
,Week 1
Chapter 1: International auditing overview
FS = financial statements
An audit is a systematic approach, it follows a structured, documented plan. It must be planned and
structured in such a way that those carrying out the audit can fully examine and analyse all important
evidence. An audit is conducted objectively. An audit is an independent, objective and expert
examination and evaluation of evidence. Auditors are fair and do not allow prejudice or bias to override
their objectivity.
The auditor obtains and evaluates evidence. The auditor assesses the reliability, relevance and
sufficiency of the information contained in the underlying accounting records and other source data
by:
- studying and evaluating accounting systems and internal controls on which she wishes to rely
and testing those internal controls to determine the nature, extent and timing of other
auditing procedures; and
- carrying out such other tests, inquiries and other verification procedures of accounting
transactions and account balances, as she considers appropriate in the particular
circumstances.
Assertions:
- Existence: the assets are real, not fictitious
- Rights and obligations: they do not belong to anyone else
If the item audited is the financial statements, the auditors must state that in their opinion the
statements ‘give a true and fair view’ or ‘present fairly, in all material respects’ the financial position
of the company. The purpose of the independent expert opinion is to lend credibility to the financial
statements.
Requirements of a financial statement audit:
- Independence of the auditor
- Professional scepticism to find circumstances that causes the FS to be materially misstated
- Professional judgement in planning and performing an audit
- Obtain sufficient appropriate audit evidence
Purpose and characteristics of an audit:
- Lend credibility to the FS
- Enhance usefulness and value of FS
- Prepared in accordance with an applicable financial reporting framework (IFRS)
The concept of materiality is applied by the auditor in planning and performing the audit, and in
evaluating the effect of identified misstatements on the financial statements. Misstatements, including
omissions, are considered to be material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of the financial statements.
Limitations of the audit:
- Use of testing
- Inherent limitations of any accounting and internal control system
- Most audit evidence is persuasive rather than conclusive
- Judgement
2
,Risks:
- One level of risk is that the overall financial statements may be misstated
- Second risk is misstatement in relation to classes of transactions, balances and disclosures
In the agency theory an auditor who is perceived to meet expectations is appointed not only in the
interest of third parties, but also in the interest of management. A
company is viewed as the result of more or less formal ‘contracts’, in
which several groups make some kind of contribution to the company,
given a certain ‘price’. Company management tries to get these
contributions under optimum conditions for management: low
interest rates from bankers, high share prices for stockholders, and
low wages for employees. In these relationships, management is seen
as the ‘agent’, trying to obtain contributions from ‘principals’ such as
banks. Agency Theory also includes consideration of ‘moral hazard’. A
moral hazard occurs when entering into contract with another
company or an agent being deliberately skewed or altered in order to
attempt to make a profit.
Several types of complexities arise in these agent-principal relationships, such as information
asymmetry. The agent (management) has a considerable advantage over the principals regarding
information about the company.
Factors influencing the auditors consideration of the reliability of data:
- Whether the data pas obtained from independent sources outside or within the entity
- Whether sources were independent
- Whether the data was developed under a reliable system
- Whether the data was subjected to audit testing in the current or prior year
- Whether the expectations were developed using data from a variety of sources
The public desire will be for external and internal assessors on the board of directors. External
assessors will appraise the integrity of information and business conduct, and internal assessors will
appraise the efficiency and effectiveness of systems and their adequacy.
The phases of the audit are:
1. Client acceptance and audit engagement
2. Assess the risk of material misstatement
- Components of internal control
o The control environment
o Risk assessment
o Control procedures
o Information system
o Monitoring
3. Respond to identified risks
- Understanding of controls
o What kind of tests (nature)
o What should be done (timing)
o What the number of tests should be (Extent)
4. Evaluate evidence and report findings
Substantive procedures compromise
1. Test of details
2. Substantive analytical procedures
3
, - Details of transactions, account balances and analytical review
Duties of auditors:
- Give an opinion on fairness of financial statements
- Company’s ability to continue as going concern
- Company’s internal control system
- Occurrence of fraud
- Occurrence of illegal acts
The Cadbury Report originally suggested reporting on all
controls, but had subsequently modified its stance to
include only financial controls.
Internal Control: Guidance for Directors on the Combined
Code, called the ‘Turnbull Report’ after Nigel Turnbull,
Chairman of the Committee which wrote the Report,
provides guidance to assist London Stock Exchange listed
companies to implement the requirements in the
Combined Code relating to internal control.
4
Inhoudsopgave
Week 1 ...................................................................................................................................................... 2
Chapter 1: International auditing overview ......................................................................................................... 2
Chapter 2: The institutional setting: how is the audit profession organized ....................................................... 5
Week 2 ...................................................................................................................................................... 7
Chapter 3: Ethics for professional accountants ................................................................................................... 7
Chapter 4: The fundamental concepts of auditing and assurance .................................................................... 14
Chapter 5: Fraud and other consideration of law and regulation in an audit ................................................... 16
Week 3 .................................................................................................................................................... 20
Chapter 6: Client and engagement acceptance / continuance ......................................................................... 20
Chapter 7: Planning through understanding and risk analysis .......................................................................... 25
Week 4 .................................................................................................................................................... 30
Chapter 8: Internal control and control risk....................................................................................................... 30
Chapter 9: Building and execution of the test plan and auditors response to assessed risk ............................. 38
Week 5 .................................................................................................................................................... 44
Chapter 10: Building and execution of the test plan – analytical review .......................................................... 44
Chapter 11: Evaluation and completion ............................................................................................................ 49
Week 6 .................................................................................................................................................... 54
Chapter 12: Reporting ....................................................................................................................................... 54
,Week 1
Chapter 1: International auditing overview
FS = financial statements
An audit is a systematic approach, it follows a structured, documented plan. It must be planned and
structured in such a way that those carrying out the audit can fully examine and analyse all important
evidence. An audit is conducted objectively. An audit is an independent, objective and expert
examination and evaluation of evidence. Auditors are fair and do not allow prejudice or bias to override
their objectivity.
The auditor obtains and evaluates evidence. The auditor assesses the reliability, relevance and
sufficiency of the information contained in the underlying accounting records and other source data
by:
- studying and evaluating accounting systems and internal controls on which she wishes to rely
and testing those internal controls to determine the nature, extent and timing of other
auditing procedures; and
- carrying out such other tests, inquiries and other verification procedures of accounting
transactions and account balances, as she considers appropriate in the particular
circumstances.
Assertions:
- Existence: the assets are real, not fictitious
- Rights and obligations: they do not belong to anyone else
If the item audited is the financial statements, the auditors must state that in their opinion the
statements ‘give a true and fair view’ or ‘present fairly, in all material respects’ the financial position
of the company. The purpose of the independent expert opinion is to lend credibility to the financial
statements.
Requirements of a financial statement audit:
- Independence of the auditor
- Professional scepticism to find circumstances that causes the FS to be materially misstated
- Professional judgement in planning and performing an audit
- Obtain sufficient appropriate audit evidence
Purpose and characteristics of an audit:
- Lend credibility to the FS
- Enhance usefulness and value of FS
- Prepared in accordance with an applicable financial reporting framework (IFRS)
The concept of materiality is applied by the auditor in planning and performing the audit, and in
evaluating the effect of identified misstatements on the financial statements. Misstatements, including
omissions, are considered to be material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of the financial statements.
Limitations of the audit:
- Use of testing
- Inherent limitations of any accounting and internal control system
- Most audit evidence is persuasive rather than conclusive
- Judgement
2
,Risks:
- One level of risk is that the overall financial statements may be misstated
- Second risk is misstatement in relation to classes of transactions, balances and disclosures
In the agency theory an auditor who is perceived to meet expectations is appointed not only in the
interest of third parties, but also in the interest of management. A
company is viewed as the result of more or less formal ‘contracts’, in
which several groups make some kind of contribution to the company,
given a certain ‘price’. Company management tries to get these
contributions under optimum conditions for management: low
interest rates from bankers, high share prices for stockholders, and
low wages for employees. In these relationships, management is seen
as the ‘agent’, trying to obtain contributions from ‘principals’ such as
banks. Agency Theory also includes consideration of ‘moral hazard’. A
moral hazard occurs when entering into contract with another
company or an agent being deliberately skewed or altered in order to
attempt to make a profit.
Several types of complexities arise in these agent-principal relationships, such as information
asymmetry. The agent (management) has a considerable advantage over the principals regarding
information about the company.
Factors influencing the auditors consideration of the reliability of data:
- Whether the data pas obtained from independent sources outside or within the entity
- Whether sources were independent
- Whether the data was developed under a reliable system
- Whether the data was subjected to audit testing in the current or prior year
- Whether the expectations were developed using data from a variety of sources
The public desire will be for external and internal assessors on the board of directors. External
assessors will appraise the integrity of information and business conduct, and internal assessors will
appraise the efficiency and effectiveness of systems and their adequacy.
The phases of the audit are:
1. Client acceptance and audit engagement
2. Assess the risk of material misstatement
- Components of internal control
o The control environment
o Risk assessment
o Control procedures
o Information system
o Monitoring
3. Respond to identified risks
- Understanding of controls
o What kind of tests (nature)
o What should be done (timing)
o What the number of tests should be (Extent)
4. Evaluate evidence and report findings
Substantive procedures compromise
1. Test of details
2. Substantive analytical procedures
3
, - Details of transactions, account balances and analytical review
Duties of auditors:
- Give an opinion on fairness of financial statements
- Company’s ability to continue as going concern
- Company’s internal control system
- Occurrence of fraud
- Occurrence of illegal acts
The Cadbury Report originally suggested reporting on all
controls, but had subsequently modified its stance to
include only financial controls.
Internal Control: Guidance for Directors on the Combined
Code, called the ‘Turnbull Report’ after Nigel Turnbull,
Chairman of the Committee which wrote the Report,
provides guidance to assist London Stock Exchange listed
companies to implement the requirements in the
Combined Code relating to internal control.
4
