Definition of Auditing
The term Audit has been through a number of Stages. Previously Auditing was just concerned with examination of Financial Statement analysis but now with the change in time, the scope of Auditing has change drastically. It includes various other value added services such as Management services, Internal Auditing, Actuarial Services, carrying out outsource Financial Services, Energy Audit, and Environmental Audit etc. Our services at Courseworktutors includes all types of Auditing Assignment help and Auditing Homework Help,
Spicer and Pegler defined Auditing as , “An audit may be said to be such an examination of the books, accounts and vouchers of a business as well enable the auditor to satisfy that the Balance Sheet is properly drawn up, so as to give a true and fair view of the state of affairs of the business and whether the Profit or Loss for the financial period according to the best of his information and the explanations given to him and as shown by the books, and if not, in what respect he is not satisfied.”
According to R.K Mautz , “Auditing is concerned with the verification of accounting data, with determining the accuracy and reliability accounting statement and reports.”
Who are Auditors?
Auditors are the person who would be conducting Audit of Financial Statement. Generally, to become an Auditor, a person has to be authorized by regulatory Authority and must possess specified qualification from the regularized authority. For Instance:
To become an Auditor in Australia, a person needs to take qualification from The Institute of Chartered Accountants in Australia. To become an Auditor in US, one needs to obtain qualification from American Institute of Certified Public Accountant.
Types of Auditors
- External Auditor: External Auditors is the one who would be reviewing the entire Financial Statements of an entity. External Auditor performs third party examination of Financial Statement with a view to express opinion regarding the company fairness of Company Financial Statement. An external Auditor must be independent and appears to be Independent. The job of External Auditor is not confined to one area as they would be evaluating each line item of Financial Statements such as Purchase records, Sales records, and Payroll records as well all document relating to investment, stock etc. They would also be conducting Financial Statement analysis to express an opinion on company current Financial Status.
- Internal Auditor: Internal Auditors are the one who look on the Control perspective of an organization. They evaluate the operational efficiencies and report it directly to the Management. They may or may not be the employee of an organization.
- Forensic Auditor: Forensic Auditors are employed by the Corporation, Public Companies and other big entities with the sole objective of conducting investigation, detecting fraud existing in the organization. They are appointed by Management when they have doubt regarding the existence of Fraud in organization.
- Government Auditor: Auditor employed by the government are called Government Auditors. They are appointed either by State or the Central Government.
Standards on Auditing
Standards of Auditing are the codifications or the guidelines which needs to be kept in mind by an Auditor while doing Audit of any entity. Auditing standards represent the best practices in the field of Auditing. They are therefore also known as Performance benchmarks for the Auditor. Auditing Standards carries specific guidelines for the professional auditor regarding how they should apply various auditing procedures to obtain a reasonable assurance on the Financial Statements.
The meaning of Auditing is same for all countries but the name of standards of Auditing is different in different countries.
Concepts of Auditing
- Audit Strategy: Audit strategy is defined as the process of designing optimised audit approaches that will help the auditor to obtain reasonable and sufficient Audit evidence at the lowest possible cost within the limited information available.
- Audit Planning: Audit plan is prepared by auditor to determine and define the scope of Audit and regarding how audit should be carried out. Audit plan is necessary to conduct and complete audit in an efficient and timely manner.
- Audit Programme : Audit programme is a detailed plan of work that is prepared by auditor for carrying out the audit
- Risk Assessment: Risk Assessment is the process of identifying the risk that the entity faces in its internal control system.
- Internal Control: Internal control refers to the plan, policies of an organization to see whether the business is conducted in an effective and efficient manner or nor and whether all the Laws and regulations are properly complied or not. Internal Control also checks whether Financial Statements are prepared as per Financial reporting Framework.
Audit report is prepared by External Auditor after conducting Audit of an entity. An Audit report contains the opinion of Auditor regarding the authenticity of the Financial Statements.
Types of Audit opinion that can be framed in Audit Report
An Auditor can give generally three types of Audit opinion. They are
- Qualified Opinion: When the auditor is able to give an opinion that the Financial Statement reflects the true view of any entity, that opinion is known as qualified opinion.
- Adverse opinion: When the Financial Statements are not prepared as per reporting framework and it is materially misstated and the Financial Statement does not reflect the true view of an entity, the opinion given by the auditor is known as adverse opinion.
- Disclaimer Opinion: When the auditor vouches for the significant information and documents from the entity and the entity is unable to present that document. The auditor is unable to come to any conclusion with regard to the opinion of Financial Statement, it is known as Disclaimer opinion.
Types of Audit
Management Audit: Management audit is the audit of the Management i.e. evaluation of the managers ability to manage. It is defined as the systematic examination of independent appraisal activity to review the management efficiency.
Operational Audit: Operational audit is the review of the operations of an organization to check whether it is working effectively or not.
Financial Audit: Financial auditing is concerned with the opinion that whether the historical information recorded in Financial Statements are correct or not.
Internal Audit: Internal auditing is concerned with determining whether internal controls are there is place or not and whether they are adequate to safeguard the asset of an entity.
Environment Audit: Environmental audit refers to the examination of environmental policies, procedures and strategy of an organization. Certain industries are required to prepare environment audit statement and the role of auditor is to check the statement and examine whether the Statement prepared reflects the true view or not.
Cost Audit: Cost Audit is the application of Audit procedures and principles in the field of Cost Accounting.
Frequently Asked Questions
What are the types of Audit Procedures?
Audit procedures are of two types:
Compliance procedures: It deals with evaluation of control whether they are reliable or not.
Substantive procedure: It deals with evaluation of transaction and Account balances. In Case internal controls are reliable, less substantive procedures are applied and in case internal controls are not reliable more substantive procedures are applied. Depending upon the compliance procedure, the auditor will decide nature, timing and extent of Audit procedure.
What are the Components of Internal Control System?
The major components of Internal Control system are
- Control Environment
- Risk Assessment procedures
- Information Technology Control
What are the points to be considered while formulating Audit Strategy?
The auditor should consider following points before developing Audit Strategy:
- Engagement objectives
- Results of the business review
- Nature, extent and timing of substantive tests, or changes to the previous year strategy.
- Preliminary judgements to materiality
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