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Bcom Accounting - Introduction to Auditing
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For anyone studying their second year of BCom Accounting. Here are some notes to Auditing, including examples on how to answer them.
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Introductionto Auditing
, Chapter 1 - Introduction to Auditing
Q) What is Auditing?
It’s the systematic examination of the financial records of a company
Q) What are we trying to achieve/what’s the whole point of an audit? And why do we need them?
To give assurance. We need them to lower risks to an acceptable level
Q) When did it first develop? And how did they do this?
Early Egypt. A way they used to deal with this for example they’d have one person in charge of keeping an eye
on grains and if one went missing they’d report it by providing information/assurance to officials “Yes the
crops are not being stolen and the job is going well” or the opposite will be reported.
Q) In return of this trustful information what benefits?
Stakeholders will trust the given entity to see what profits were made or losses and shareholders will buy shares
for example
Q) How do they Audit?
Auditors look at the financial statements of a company, examining it in order to give a statement in order to
create a report to hand over extrernally or internally.
Q) How do Auditors provide assurance?
They’d need to have key elements in place:
- By following a systematic process that involves the standardized approach used for every audit they do so all
entities would have the same understandable approach when one would look at it (note that auditors can never
provide absolute /high level of assurance as there are certain limitations not everything can be 100% and why
not? Because we won’t be checking all the records so it won’t be as accurate . Rather we’d have reasonable
assurance. It is an informed opinion and there are many opinions. Either “100% sure”, “Not sure.” Or
“reasonably sure.” As an auditor you look through the highest risks first but there are times risks slip through
- They’d need to uphold ethical standards in the workplace
- Show their expertise
- Have Independence. One can not audit for their friend otherwise there would be a biased report which is why
Independent firms are available.
Q) What are the types of Auditors?
Internal & External:
- Internal: Developed later on/Inside of the company/ employed by a company/ Independent to a certain extent
but still employed in the company/ They continuously monitor and provide assurance to management on an
internal basis. “I think we’re going to be okay for the final auditing opinion” /Concerned if an invoice is out is
that reflected completely on the financial statement? but deeper, when the order placed? Is it completely
following through the entire system? They’d go deeper into manufacturing motor vehicles for example. Are we
following the correct standards and the correct laws in terms of how these motor vehicles are manufactured?
They do a lot more on business risks not just auditing risks.
- External: Completly independent/ outside the company/ provide external opinions on the financial
statements/report to external stakeholders/Concerned if an invoice is out is that reflected completely on the
financial statement?
Q) What are the objectives of Auditors?
- To follow through with regulations as many end up as frauds do you biased or bribery
- To ensure the accuracy of an audit. Higher risks felt with first and of course not all can be 100% as some
risks slips through the cracks when checking
- To enhance financial reliability through the report
- To prevent fraud and misconduct
Q) What is the process of Auditing?
- Gathering evidence such as risks
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