Summary
Summary Auditing concepts (Grd 12)
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Auditing: notes relating to types of auditors, audit reports, the 3 types of audit reports, audit samples, duties of the audit committee, GAAP and IFRS
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AuditingIndependent auditors
• Auditors appointed by the audit committee at the AGM.
• Express an unbiased opinion on the financial statements of a company.
• They are authentic and have international standards of professionalism to
maintain, they have a code of conduct.
• They must be rotated every 5 years for independence.
Internal auditor
A person employed by the company to check and advise management on financial
control systems.
Audit reports
Addressed to the shareholders of a company because they are the owners of the
company and have appointed the auditors.
Audit sample
• External auditors don’t audit all of the transactions of a company, they only
audit a small amount of transactions (audit sample).
• Directors/management have to ensure that financial statements are prepared
and presented at the AGM.
Why do auditors refer to specific pages in the report?
• Auditors are responsible for specific parts/pages of the annual report.
• They aren’t responsible for the other information in the annual reports.
• Financial statements on those specific pages were subject to
audit/examination.
• Additional information, such as governance matters, is not included.
Qualified audit report
An audit report that has found discrepancies or irregularities in the audit sample.
What may concern shareholders about this report?
• There is possible fraud/mismanagement occurring in the business.
• There is a lack of internal processes (poor recording).
• It could affect the share price/reputation of the company.
• Unaccounted expenditure impacted on their returns/profits.
• Dividends could have been negatively affected by this problem.
Unqualified audit report
• An audit report that has not found discrepancies or irregularities in the audit
sample.
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