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Principles of Auditing Chapter 1 (Summary / Exam Notes)
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Covers the entire chapter ONE for fundamentals/principles of auditing.
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Summary Seminar Auditing (grade: 8,3)
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Samenvatting Principles of Auditing, Hayes, Wallage & Gortemaker
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AUE3761 ASSIGNMENT 1 2020
Verkoper
Volgenfeliciagoh
Voorbeeld van de inhoud
Principles of AuditingCHAPTER 1
General and Wider Perspective:
Core roles of auditors include supporting the stability of capital markets and assisting in ensuring
accountability for the government sector.
General definition:
An audit is a systematic process of objectively obtaining and evaluating evidence regarding
assertions about economic actions and events to ascertain the degree of correspondence
between these assertions and established criteria, and communicating the results to interested
users.
Lecture definition:
Auditing is the process of reviewing the financial statements, that is prepared by the management
of the company, to determine whether the financial statements:
Comply with the applicable financial reporting frameworks (IFRS/MFRS)
Are free of material misstatements
Comply with the requirements of Company Act, 2016
Reliability, credibility and relevance
Auditing is concerned with the verification of accounting, with determining the accuracy and
reliability of accounting standards.
Systematic
Planned & structured – analyse and examine
Conducted objectively – unbiased evaluation
Obtains and Evaluates evidence – assessing the reliability and sufficiency of the info in the
accting records
Evaluating the assertions of management – ensuring all assets stated in BS are real, not
fictitious / has ownership on assets
Importance of auditing
- Lend credibility to the financial statements.
- Audtor enhances the usefulness and the value of the financial statements
Objective:
Objective of a financial report audit is for the auditor to express an opinion about whether the
financial report is prepared in free of material misstatements(whether due to fraud or error), all
material respects, in accordance with an applicable financial reporting framework.
Responsibility:
The auditor has responsibility to plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatements, whether caused by
unintentional error or intentional fraud, to issue an opinion. Because of the nature of audit
evidence and the characteristics of fraud, the auditor is able to obtain reasonable but not
absolute that the material misstatements are detected.
, Requirements Of Financial Statement Audit
The auditor shall:
Plan and perform an audit with professional scepticism recognising that circumstances
may exist that cause the financial statements to be materially misstated.
Exercise professional judgement in planning and performing an audit of financial
statements.
Obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level
and thereby enable the auditor to draw reasonable conclusions on which to base the
auditor’s opinion to obtain reasonable assurance.
Reasonable Assurance - Highest level of assurance given the auditor to the users of
financial statements
Focus on determining whether recorded information properly reflect the economic events
that occurred during the accounting period (Must understand the IAS provide the criteria
to evaluating whether the accounting period
Types of Audits
Operational Compliance
Measures the effectiveness and efficiency of the Evaluates whether the firm is following the rules
operation. – improve operations and regulations set by higher authorities.
Effectiveness – whether achieves goal or not The performance of a compliance audit is
Efficiency – how it uses its resources to achieve it dependent upon the existence of verifiable data
and of recognised criteria, such as established
laws and regulations, or an organisation’s policies
and procedures.
Eg. Organisational structure, marketing, production Compliance audits are usually associated with
methods, computer operations government auditors
Eg. The tax authority, the government internal
auditing arm, or audit of a bank by banking
regulators.
Assertions: Claims made by business owners and managers that the information included in
company financial statements
It is used by auditors to as the framework to guide the auditors in the collection of audit
evidence
Potential misstatements (Audit Assertions)
EROCVACCUM
Existence – BS exists
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