AUDIT -An Overview

AUDITING (PSA 200)

PSA 200 defines auditing by stating the objective of a financial statement audit, that is, to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework.

1.
2.

3.

4.

5.

Auditing is a systematic process An audit involves obtaining and evaluating evidence about assertions regarding economic actions and events An audit is conducted objectively Auditors ascertain the degree of correspondence between assertions and established criteria Auditors communicate the audit results to various interested users

Types of Audit

Financial Statement Audit conducted to determine whether the financial statements of an entity are fairly presented in accordance with an identified financial reporting framework

Compliance audit involves a review of an organizations procedures to determine whether the organization has adhered to specific procedures, rules or regulations

Operational audit

is a study of a specific unit of an organization for the purpose of measuring its performance. The main objective of this type of audit is to assess entitys performance, identify areas for improvements and make recommendations to improve performance

Types of Auditors

External Auditors Internal Auditors Government Auditors

Comparison among the different types of audit

Assertions made by the auditee FA- that the FS are fairly presented CA- that the organization has complied with laws, rules and regulations OA- that the organizations activities are conducted effectively and efficiently

Established criteria
FA- financial reporting standards or other frameworks CA- laws, regulations and contracts OA- objectives set by the board of directors

Content of the auditors report

FA- an opinion about whether the FS are fairly presented in conformity with an identified financial reporting framework CA- reports on the degree of compliance with the applicable laws, regulations and contracts OA- recommendations or suggestions on how to improve operations

Auditors who generally perform

FA- external auditors CA- government auditors

OA- internal auditors

The Independent FS Audit

Responsibility for the FS

-Management is responsible for preparing and presenting the FS in accordance with the financial reporting framework
-Auditor is responsible to form and express an opinion on these FS based on his audit

Assurance provided by the auditor

Reasonable assurance not an absolute assurance that the FS taken as a whole are free from material misstatements In every audit, there are always inherent limitations that affect the auditors ability to detect material misstatements

General principles governing the audit of FS

1.

2.

3.

The auditor should comply with the Code of Professional Ethics for CPAs promulgated by the BOA. The auditor should conduct an audit in accordance with PSA. The auditor should plan and perform the audit with an attitude of professional skepticism.

Need for an independent FS audit

1.

2. 3. 4.

Conflict of interest between management and users of FS Expertise Remoteness Financial consequences