Audit of Financial Statements: Scope and Competence

Characteristics of Audit

• Audit of financial statements is based on historical financial information
• Audit scope does not include duties outside the auditor's competence, such as determining the physical condition of assets or suitability of civil structures

Distinction between Audit and Investigation

• Audit is not an official investigation into alleged wrongdoing
• Audit is distinct from investigation, which is a critical examination of accounts with a special purpose, such as checking for fraud
• Investigation may involve specific legal powers of search or recording statements of witnesses on oath

Auditor's Role and Responsibilities

• Auditor ensures financial statements are drawn up with reference to entries in the books of account
• Auditor verifies that financial statements are supported by sufficient and appropriate evidence
• Auditor ensures information conveyed by the statements is clear and unambiguous
• Auditor confirms financial statement amounts are properly classified, described, and disclosed in conformity with accounting standards

Nature of Auditing

• Auditing provides assurance to users of financial statements
• Auditing lends credibility to financial statements
• Audited financial statements provide confidence to users that financial information can be relied upon

Interdisciplinary Nature of Auditing

• Auditing draws from diverse subjects, including accountancy, law, behavioural science, statistics, economics, and financial management
• Auditing makes use of these subjects to provide a comprehensive understanding of financial matters

Qualities of an Auditor

• Auditor should possess personal qualities such as tact, caution, firmness, good temper, integrity, discretion, industry, judgement, patience, clear-headedness, and reliability
• Auditor should have a high degree of integrity, backed by adequate independence
• Auditor should have an exhaustive knowledge of accounting principles and techniques