Auditing 288/388 summary notes:
Auditing, Internal Control and the following cycles: Revenue & Receipts, Purchases & Payments, Inventory & Production, Bank & Cash, Salaries & Wages, Investment & Financing.
Includes perfect cycles, risks, control objectives and past question paper memos.
- systematic process of the collecting & evaluating of evidences and information objectively of assertions on
economic operations and events made by management of an entity
not: guarantee existence of a company / no objective to defeat fraud
• Duties & responsibilities of auditor:
* ALWAYS INDEPENDENT
- to express an opinion
- to investigate financial statements
- ensure accounting records in accordance with company’s requirements
- minute books in appropriate form
• Audit objective:
- to express an opinion on the financial statements that they are free from material misstatement and a fair
representation in all material aspects
EXPLANATION OF THE OBJECTIVE
the auditor’s opinion enhances the credibility of the financial statements but does not warrant :
the future feasibility of the business / the capability and effectiveness of which management
manages the entity
• Inherent limitations of audit: why an auditor can only provide
reasonable assurance
ST FRANCI
- S – sampling – not 100% testing
- T – time and resources
- F – fraud hidden by management
- R – reliability
- A – audit nature (legal limitations)
- N – nature of financial reporting (use judgement to make estimates)
- C – cost vs benefit
- I – incorrect (un)intentionally
- financial year
- accounting records
- financial statements
- annual financial statements
every company must appoint an auditor when its PI score is more than 350
• PIS (Public Interest Score):
- method to access companies public interest
for a private company:
PIS COMPANY CC’s or owner managed
< 100 independent review no assurance required
100 – 349 - audit if AFS internally compiled - audit if AFS internally compiled
- independent review if AFS externally compiled - no assurance if AFS externally compiled
> 350 audit audit
• Auditing Postulates:
to claim as true, existent or necessary
1) Truth & Fairness
financial statements and data = verifiable
no collusion / irregularities
principles = consistently applied
2) Independence
no conflict of interest
professional status
auditor capacity
2
, INTERNAL CONTROL
Internal Control definition:
- process designed & effected by management to provide reasonable assurance about the achievement of an
entity’s objectives relating to:
reliability of financial reporting, effectiveness & efficiency of operations, compliance with laws and
regulations
• Inherent limitations of internal control:
CRRABH
- C – collusion / control becomes inadequate
- R – routine / repetitive transactions
- R – reasonable assurance
- A – abuse of responsibilities of internal control
- B – Cost vs benefit
- H – human error
• Internal auditor:
- understand WHY internal control is needed
- apply understanding
- know how to gain knowledge
- generate documents
- INTERNAL auditor – focus on operational goals
- EXTERNAL auditor – focus on financial outcomes
• Characteristics of Internal control system:
CHOPPER
o C – commitment to competence
o H – human resources and policies
o O – organisational structure
o P – philosophies
o P – participation by those charged with governance
o E – ethical values / integrity
o R – reliability of directors
• The control environment
What is it?
The control environment is created by management and provides a favourable “environment” in which internal
controls could function. It is the attitude of management towards internal control.
Evaluation of the environment is important for the auditor:
because an effective internal control system is not possible if a favourable control environment was not created. This
helps us to assess the risk of material misstatement of the financial statements.
3
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller lexishtein. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $6.28. You're not tied to anything after your purchase.
