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Complete Auditing Summary Notes - Jackson & Stent
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Easy to understand complete summary of 7 chapters in Jackson & Stent with examples and tips. All you need to know.
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AUE1601 MCQ EXAM PACK 2023
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1AUDITING SUMMARY
PART 1
TOPICS COVERED
1. INTRODUCTION TO AUDITING
2. PROFESSIONAL CONDUCT
3. GENERAL PRINCIPLES OF AUDITING
4. OVERVIEW OF THE AUDIT PROCESS
5. IMPORTANT ELEMENTS OF THE AUDIT PROCESS
6. COMPUTER AUDITING
7. AUDIT REPORT
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TOPIC 1: Introduction to Auditing
What is an auditor?
◦ A person who gives assurance by comparing what is with what should
be (a standard) and expressing a conclusion
Auditors are assurance providers
◦ There are different forms or types of auditing and different levels of
assurance
◦ Providing assurance is to add value by improving the credibility of work
performed by other people through evaluating the work and giving a
conclusion. The auditor adds assurance, trust or enhanced credibility to
the worked performed by others
Examples of Auditors
◦ External auditors – legal restraints must be registered with IRBA
◦ Internal auditors
◦ Government auditors
◦ Forensic auditors
Why is there a need for auditors?
◦ To add credibility to financial information
The agency theory: split between management and ownership
◦ The owners are different from the managers and need assurance on the
trustworthiness of the management’s reports
Confidence in financial information
◦ The users of financial information need some assurance as to the
reliability and credibility of the information to help guide future decisions
Accountability
◦ At all levels in a business people who are responsible are held
accountable. The increased need for accountability lead to an increased
need for assurance services, i.e. internal audit, government audit,
forensic audit and environmental audit
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Assurance and non-assurance
◦ Assurance is when information is independently evaluated and a
conclusion is given that gives assurance on the nature of the information
◦ Assurance is the expression of a conclusion, non-assurance is when the
work is performed, i.e., a compilation engagement or advice is given, i.e.
tax advice
Levels of assurance
◦ Assurance granted differs depending on the type of engagement and
range from limited assurance in a review engagement to reasonable
assurance in an audit engagement
Public Interest Score
◦ Audits are only required for companies when it is in the public interest
i.e. all public companies must be audited
◦ The Public Interest Score identifies other companies with a sufficient
public interest requiring an audit
Public Interest Score
◦ A score that determines when companies must be audited
Calculation Application
Sum of:
◦ 1 point for each of the <100 = review engagement, limited
average employees assurance
◦ 1 point for every R1mil of 100 to 349 = Audit if AFS is
turnover internally compiled, Review if AFS
◦ 1 point for every R1 mil of is externally compiled
rd. 350< = Audit, reasonable assurance
3 party liability
◦ 1 point for every individual
who directly or indirectly has
a beneficial interest in the
company’s shares
What are auditing postulates?
◦ The basic foundation used for assurance engagements
Assurance engagements
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◦ “Express a conclusion designed to enhance the degree of confidence of
the intended user, other than the responsible party, about the outcome
of the evaluation or measurement of a subject matter against the criteria”
◦ Criteria for an assurance engagement include:
Three party relationship
Criteria
Evidence
Conclusion or report
◦ Audit of financial statements is the most common assurance
engagement
◦ Other assurance engagements include a report on the effectiveness of
the internal control, limited assurance on sustainability reports
Non-Assurance Engagement
Engagements that does not meet the definition of an assurance engagement
◦ No third party
◦ No suitable criteria to use for reliable measurement
◦ An opinion is not expressed
Examples include
◦ Prepare financial statements
◦ Secretarial services
◦ Tax advice
Reasonable Assurance
Why only reasonable assurance is given and not absolute assurance
◦ Financial reporting by nature rely on estimates, i.e. for year-end
adjustments to depreciate non-current assets, and to value current
assets such as accounts receivable and inventory
◦ The nature of audit procedures is also a limitation due to inherent
limitations of accounting and control systems, the use of sampling and
the persuasive nature of audit evidence and the challenge of
completeness of information
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