Auditing

 

        The importance of the company as a potential generator of wealth is increasingly understood, and so is the impact that a company’s activities have on society and the environment.

Public expectations go further and include questions such as:

 

  

   

  

  

  

  

  

 

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.

 

TYPES OF AUDIT

• Audit of financial statements Examine financial statements, determine if they give a true and fair view or fairly present the financial statements. 
• Operational Audit A study of a specific unit of an organization for the purpose of measuring its performance.
• Compliance Audit A review of an organization’s procedures and financial records performed to determine whether the organization is following specific procedures, rules, or regulations set out by some higher authority.

 

TYPES OF AUDITOR

Internal auditors are employed by individual companies to investigate and appraise the effectiveness of company operations for management. 

Independent auditors are typically certified either by a professional organization or government agency. Certification of the Auditor

  

  

  

  

 

AUDIT PROCESS MODEL

Phase I

 - Client Acceptance

Phase II

 - Planning

Phase III

- Testing and Evidence

Phase IV

- Evaluation and Judgment

 

    Phase I Client Acceptance Objective:

The client acceptance phase of the audit plan involves deciding whether to accept a new client or continue with an existing one. 

    Procedures:

(1) Evaluate the client's background and reasons for the audit.

(2) Determine whether the auditor is able to meet the ethical requirements regarding the client.

(3) Determine need for other professionals.

(4) Communicate with predecessor auditor;

(5) Prepare client proposal.

(6) Select staff to perform the audit,

(7) Obtain an engagement letter.

 

    Phase II Planning the audit Objective: 

Determine the amount and type of evidence and review required to give the auditor assurance that there is no material misstatement of the financial statements. 

    Procedures:

(1) Perform audit procedures to understand the entity and its environment, including the entity’s internal control;

(2) Assess the risks of material misstatements of the financial statements.

(3) Determine materiality;

(4) Prepare the planning memorandum and audit program, containing the auditor’s response to the identified risks.

Phase III Testing and Evidence Objective:

Test for evidence supporting internal controls and the fairness of the financial statements. 

    Procedures:

(1) Tests of controls;

(2) Substantive tests of transactions;

(3) Analytical procedures;

(4) Tests of details of balances.

(5) Search for unrecorded liabilities.

 Phase IV, Evaluation and Reporting Objective:

 Complete the audit procedures and issue an opinion.

     Procedures:

(1) Evaluate governance evidence;

(2) Perform procedures to identify subsequent events;

(3) Review financial statements and other report material;

(4) Perform wrap-up procedures;

(5) Prepare Matters of Attention for Partners;

(6) Report to the board of directors;

(7) Prepare Audit report.

 

International Public Accountancy Firms “The Big Four”:

1. Deloitte & Touche;

2. PriceWaterhouseCoopers;

3. Ernst & Young;

4. KPMG

 

Audit Staff

1. Staff Accountants (or Junior Assistants then Senior)

2. Senior Accountants (or Supervisor)

3. Managers

4. Partners/Directors