Characteristics of Audit
Systematic approach
Following a structured, documented plan
Analyzing accounting records using a variety of generally accepted techniques
Independent, objective and expert examination and evaluation of evidence
Fairness and no prejudice or bias to override objectivity
Goal: communicating the results (informed and credible opinion in a written report) to
interested users.
Financial statements give a true & fair view of the financial position
present fairly, in all material aspects
Lending credibility to financial statements
Assertions
= representations by management that are embodied in the financial statements
ISA 200 requirements relating to audit of financial statements
Comply with relevant ethical requirements
o Independence
o Professional skepticism
(questioning mind, alertness to fraud, critical assessment)
o Professional Judgement
(application of relevant training, knowledge and experience in making
informed decisions)
Obtain reasonable assurance obtain sufficient appropriate audit evidence
o Reducing audit risk to acceptable low level
o Draw reasonable conclusions for audit opinion
Materiality
= misstatements are considered to be material when they could reasonably be expected to
influence the economic decisions of users taken on the basis of the financial statements.
Limitations of the audit limitations that affect auditor’s ability to detect material
misstatements:
Most audit evidence is persuasive (rather than conclusive)
Use of testing
Inherent limitations of accounting & internal control systems
Work is permeated by judgement
Risk in financial statements
Risk that the overall financial statements are misstated
o Related to control environment
o Consideration of fraud
Risk in misstatement related to classes of transactions, account balances, disclosures
,Theories on demand & supply of audit services
Policeman theory – auditor responsible for discovering fraud like a policeman
o Debate on auditor’s responsibility for detection & disclosure of fraud
Lending credibility theory – primary function of auditing is adding credibility to
financial statements
Agency theory – auditing in the interest of the public & in the interest of
management
o Consideration of moral hazard
o Information asymmetry: management has considerable advantage over the
information about the company compared to the public (bankers etc.)
Data level assurance
= auditing assurance of the data that the auditor uses to form their opinion
Use of authentication technologies to reduce risks, validate info supply and enable
new service opportunities
Appropriate reliability of the data used
Assess reliability by considering
o Source of data (independent sources)
o Conditions under which it was gathered (reliable system, adequate controls)
o Knowledge of the auditor about the data
Objectives of the auditor:
Obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatements
Thereby enabling the auditor to express an opinion on whether the financial
statements are prepared in accordance with applicable reporting framework
Report on financial statements and communicate as required by the ISAs in
accordance with the auditor’s findings
Audit process model – 4 phases:
Phase 1: Client acceptance & audit engagement
Phase 2: Assess the risk of material misstatement
Phase 3: Respond to identified risks
Phase 4: Evaluate evidence & report findings
1. Client acceptance & audit engagement
Unacceptable high business risk reconsidering continuation of agreement
Accept or continue client relationship
Accept or continue the audit engagement
2. Assess the risk of material misstatement
Understanding the entity and its environment, internal controls & financial
statements
Determine materiality, identify and assess risks of material misstatements
, 3. Respond to identified risks
Plan the test procedures
o On effectiveness of internal controls
o On detection of misstatements
Execute the test procedures
o Perform tests of controls
o Re-establish planning
Perform substantive analytical procedures
4. Evaluate evidence & report findings
Evaluate audit evidence & misstatements: qualifications and uncertainties
Form an opinion on the financial statements
Report the opinion, key audit matters & significant findings of material
misstatements
Chapter 2
3 types of audits
Audits of financial statements
o Determine if they give a true and fair view, or presented fairly in all material
respects
Operational audits
o Study of a specific unit of an organization for the purpose of measuring its
performance
Compliance audits
o Review of an organization’s procedures to determine whether the
organization is following specific procedures, rules or regulations set out by
some higher authority
2 types of auditors
Independent external auditors
o Responsible for auditing published financial statements of an entity
Internal auditors
o Employed by individual companies to investigate and appraise the
effectiveness of company operations for management
governmental auditors take both functions
Organizational hierarchy in a typical international audit firm
Partners (or directors)
Managers
Seniors or in-charge auditors / Supervisors
Staff accountants
Standard to which an international auditor compares financial statements generally
standards in the reporting country.
Voordelen van het kopen van samenvattingen bij Stuvia op een rij:
Verzekerd van kwaliteit door reviews
Stuvia-klanten hebben meer dan 700.000 samenvattingen beoordeeld. Zo weet je zeker dat je de beste documenten koopt!
Snel en makkelijk kopen
Je betaalt supersnel en eenmalig met iDeal, creditcard of Stuvia-tegoed voor de samenvatting. Zonder lidmaatschap.
Focus op de essentie
Samenvattingen worden geschreven voor en door anderen. Daarom zijn de samenvattingen altijd betrouwbaar en actueel. Zo kom je snel tot de kern!
Veelgestelde vragen
Wat krijg ik als ik dit document koop?
Je krijgt een PDF, die direct beschikbaar is na je aankoop. Het gekochte document is altijd, overal en oneindig toegankelijk via je profiel.
Tevredenheidsgarantie: hoe werkt dat?
Onze tevredenheidsgarantie zorgt ervoor dat je altijd een studiedocument vindt dat goed bij je past. Je vult een formulier in en onze klantenservice regelt de rest.
Van wie koop ik deze samenvatting?
Stuvia is een marktplaats, je koop dit document dus niet van ons, maar van verkoper rosalievester. Stuvia faciliteert de betaling aan de verkoper.
Zit ik meteen vast aan een abonnement?
Nee, je koopt alleen deze samenvatting voor €3,99. Je zit daarna nergens aan vast.
