INTERNATIONAL

AUDITING
OVERVIEW
1. Learning Objectives
1. Related some of early history, you should able to;
2. Discuss some of audit expectation
3. Of the general public.
4. Name the standard set by International Audit and Assurance
Standard Board.
5. Give an overview of the IFAC International Standard on
Auditing (ISA).
6. Understand the basic definition of auditing in an international
context.
7. Distinguish between audit risk and business risk.
8. Differentiate the different types of audit.
9. Distinguish between the type of auditors and their training,
licensing and authority
10. Name and categories the key management assertions
11. Give the components of audit process model.
12. Describe how international accountancy firms are organized
and responsibilities of auditors at the various levels of the
organization.
 2. Audit through Word History

Records of auditing activity dating back to early

Mesopotamian times (around 3,000 BC). Ancient
China, Greece and Rome. The latin of the word
“auditor” was “hearer or listener” because in Rome
auditors heard taxpayers.

 Scribes of Ancient Times

 Profit Maximization
 Economic Condition for Audit Report

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  Scribes of Ancient Times
From the down of dynastic era in Egypt the scribes
(accountants) were amoung the most esteemed in society
and the scribal occupation was one of the most prestigious
occupations

 Profit Maximization
- The attitude of profit maximisation from end middle ages – merchant
houses in Italy.
- 1494 - Double entry bookkeeping was first described in Italy, Pacioli.
- 1780 - Industrial Revolution Great Britain lead to the emergence of
large industrial companies.
- 1853 - The society of Accountants in Edinburgh was founded.
- 1880 – Several other Institutes emerged in Great Britanian into the
Institute of Chartered Accountants in England and Wales.

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 3. The Auditor, Corporations and
Financial Information

Auditor providesa an independent

and expert opinion on fairness of
the report, called audit opinion to
gives investor and creditor
confidence in the financial
statement

 The importance of Auditing

 The Expectation of Auditors
 Audit Expertise
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 Future Audit
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  The importance of Auditing

By the audit process, the auditor enchances the usefulness and

value of the financial statements, and also increases the
credibility of other non-audited information released by
management.

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  The Expectation of Auditors

The function of auditing is to lend credibility to the

financial statements, public expectations go
further and include questions such as:
 Is the company a going concern?
 Is it free of fraud?
 Is it managed properly?
 Is there integrity in its database?
 Do creditors have proper and adequate information to make
decisions?
 Are there adequate controls?
 What effect do the company’s products have on the
environment?
 Can an ‘unfortunate mistake’ bring this company to its knees?

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 4. Internal Accounting and Auditing
Standards
 International Financial Reporting Standards
(IFRS) are the standards that are applied for
financial accounting.
 IFRS were formerly called International
Accounting Standards (IAS).
 The International Accounting Standards Board
(IASB) has accounting standard setting
responsibilities for IFRS.
 The EU has agreed to apply most of the IFRS
from 2005 onwards.

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 International Auditing and Assurance
Standards Board (IAASB) Issues:
 International Standards on Auditing (ISAs)
 International Standards on Assurance
Engagements (ISAEs)
 International Standards on Quality Control
(ISQCs)
 International Standards on Related Services
(ISRSs)
 International Standards on Review
Engagements (ISREs)
 Standar Audit.pptx

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 5. Audit Defined

Audit 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.

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 General Principles Governing an Audit
of Financial Statements
 An auditor should comply with the Code of Ethics for
Professional Accountants issued by IFAC.
 An auditor should conduct an audit in accordance
with International Standards on Auditing.
 Scope of an audit – the audit proceures deemed
necessary to achieve the objective of the audit.
 Certain inherent limitations in an audit affect the
auditor’s ability to detect material misstatements.
- Test and sampling
- Internal control
- Audit evidance
- Audit process permeated by judgment

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 Types of Audit
● Audit of Financial Statements
- A third-party examination of a company's financial records and
reporting activates.
- Its objective is to review the financial statements;
- And to state whether these statements provide true view of
transactions performed by an organization.
- The audit opinion is intended to provide reasonable assurance, but not
absolute assurance, that the financial statements are presented fairly,
in all material respects, and/or give a true and fair view in accordance
with the financial reporting framework.

● Operational Audit
- Operational Audit is a systematic review of effectiveness, efficiency
and economy of operation
- A future-oriented, systematic, and independent evaluation of
organizational activities.
- Financial data may be used, but the primary sources of evidence are
the operational policies and achievements related to organizational
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- Internal controls and efficiencies may be evaluated during this type of
review.
 ● Compliance Audits

- A compliance audit is a comprehensive review of an

organization's adherence to regulatory guidelines.
- Independent accounting, security or IT consultants
evaluate the strength and thoroughness of compliance
- For example, you may determine whether the business is
complying with U.S. Environmental Protection Agency
(EPA) standards on the dumping of toxic waste.
- Or you may look at whether a credit card company is
following federal law with regards to charging its
cardholders allowable fees and interest

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 Types of Auditor

An auditor is a person who reports on the accounts of an

undertaking or enterprise. Auditors can be classified under four
headings. They are:
- External Auditors: An external auditor perform independent
third-partyreviews all the financial records of a company or
corporation. He evaluates allAccounting payroll and
purchasing records, as well as any documents related
toinvestment, stock on loans.
- Internal Auditors: An employee of a company changed with
providing Independent and objective evaluation of the
company financial and operational business activities.
Including its corporate governance, partnership government
agencies

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 Management Assertions and Audit Objectives

Assertions Categorised
1. Assertions about classes of transactions and event for the
period under audit :
■ Occurrence : transaction and event have been recorded have
occurred and pertain to the entity
■ Completeness : All transactions and event that should have
been recorded have been recorded.
■ Accuracy : Amounts and other data relating to recorded
transactions and event have been recorded appropriately
■ Cut-off : Transactions and events have been recorded in the
correct accounting period.
■ Classification : Transactions and event have been recorded in
the proper accounts

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 2. Assertions about account balances at the period end

■ Existence : Assets, Liabilities and equity interest exist

■ Rights and obligations : The entity holds or controls the rights
to assets, and liabilities are the obligations of the entity
■ Completeness : All assets, liabilities and equity interest that
should have been recorded
■ Valuation and allocation : Assets, liabilities, and equity
interests are included in the financial statements at
appropriate amounts and any resulting valuation or allocation
adjustment are appropriately recorded

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 3. Assertions about presentation and disclosure
■ Occurrence and right and obligations : Disclosed event,
transactons, and other matters have occurred and
pertain to the entity
■ Completeness : All disclosures that should have been
included in the financial statements have been included
■ Classification and understandability : Financial
information is appropriately presented and described ,
and disclosures are clearly expressed.
■ Accuracy and valuation : Financial and other information
are disclosed fairly and at appropriate amounts.

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The Audit Process Model

In the international environtment

today, the professional auditor audits
financial statement, internal control,
compliance with policies, compliance
with laws and regulations, and codes
of best practice.
 Standard Audit Process Model
in Four Phase
A four-phase standard audit process model is used, based
on the scientific empirical cycle. The phase of the audit are :
➜ Client Acceptance (pre-planning)
➜ Planning and design of an audit approach
➜ Test for evidence
➜ Completion of the audit and issuance of an audit report

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Phase I : Client Acceptance
Procedure:
➜Evaluate the client’s background and reason for
audit
➜Determine weather the auditor
➜Determine need for other professional
➜Communicate with predecessor auditor
➜Prepare client proposal
➜Select staff to perform the audit
➜Obtain an engagement
 Phase II : Planning
Procedure :
• Perform audit procedure to understand the
entity and its environment
• Assess the risks of material misstatements
of financial statements
• Determine materiality
• Prepare the planning memorandum and
audit programme, containing the auditor

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Phase III : Testing and
Evidence
Procedure :
• Test of controls
• Substantive tests of transactions
• Analytical procedures
• Tests of details of balance
• Search for unrecorded liabilities
 Phase IV : Evaluation and
Reporting
Procedure :
• Evaluate governance evidence
• Perform procedure to identify subsequent events
• Review financial statement and other report
material
• Perform wrap-up procedures
• Prepare matter for attention of partners
• Report to the board of directors
• Prepare audit report

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