Audit Practice II - Week 1 Overview

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Questions and Answers

What is the primary purpose of auditing according to the definition provided?

To ensure that all organizations comply with external regulations

To accumulate evidence without a specific purpose

To determine the correspondence between information and established criteria (correct)

To independently verify all financial statements

Which Latin word does 'audit' derive from, and what does it mean?

Audire, meaning 'to verify'

Audire, meaning 'to see'

Audire, meaning 'to report'

Audire, meaning 'to hear' (correct)

According to Flint (1988), why does the audit function exist?

To ensure all businesses are profitable

To create wealth for auditors

To serve as a means of social control (correct)

To facilitate the collection of taxes

Which of the following is NOT listed as a function of auditing?

Facilitates market competition Signup and view all the answers

What distinguishes external auditors from internal auditors?

External auditors are independent from the organization Signup and view all the answers

What does the audit function help in assessing within an organization?

Organizational controls Signup and view all the answers

Why might individuals or groups seek information from an audit?

Because they cannot obtain needed information themselves Signup and view all the answers

Which of the following is a goal of conducting audits?

Protecting organizational assets Signup and view all the answers

When was the independent office of Auditor General established?

1851 Signup and view all the answers

Who is the current Auditor General of Jamaica?

Pamela Monroe Ellis Signup and view all the answers

What is one of the Auditor General's primary responsibilities?

Assessing financial management systems Signup and view all the answers

According to the duties, what should the Auditor General ascertain about the accounts?

They are being faithfully and properly kept. Signup and view all the answers

What expectation is held regarding the expenditure of public money?

It must conform to the governing authority. Signup and view all the answers

Which of the following is NOT part of the Auditor General's duties?

Advising on legal matters Signup and view all the answers

Which document governs the responsibilities of the Auditor General?

The Jamaican Constitution Signup and view all the answers

How many Auditor Generals have served before the current one?

12 Signup and view all the answers

What is the main responsibility of external auditors?

To express an opinion on whether financial statements are fair Signup and view all the answers

Which of the following best describes the role of internal auditors?

They evaluate the company's financial and operational activities. Signup and view all the answers

What does accountability involve?

Accepting responsibilities and disclosing results transparently Signup and view all the answers

What is considered as audit evidence?

Records and verifiable information related to audit criteria Signup and view all the answers

What is the main focus of corporate governance?

Ensuring fairness, accountability, and transparency in relationships with stakeholders Signup and view all the answers

What is the primary purpose of the international Professional Practices Framework (IPPF)?

To organize authoritative guidance for internal audit professionals Signup and view all the answers

How can the internal audit function adapt to changes in the business environment?

By transforming its role into a consultancy role when needed Signup and view all the answers

What is one of the steps internal audit can take to enhance its function?

Align with the organization’s key business objectives Signup and view all the answers

What document do external auditors typically provide if they identify significant issues in the accounts?

Audit management letter Signup and view all the answers

Which factor is NOT mentioned as a reason why the internal audit function must evolve?

Stagnant regulations Signup and view all the answers

What is one goal of the internal audit function when assessing risks?

To offer broader coverage and proactively address emerging risks Signup and view all the answers

In addition to enhancing efficiency, what other driving factor is necessary for internal audit transformation?

Implementing cost efficiencies across all business units Signup and view all the answers

What key role do external auditors play in relation to financial information?

They promote confidence and trust in the financial information Signup and view all the answers

What is the primary focus of internal auditing within an organization?

Adding value and improving operations Signup and view all the answers

Who do internal auditors report to in order to maintain their objectivity?

The audit committee or board Signup and view all the answers

What is one goal of the internal audit process?

To identify and mitigate weaknesses in internal controls Signup and view all the answers

How does the scope of internal auditors' work get determined?

By management Signup and view all the answers

What types of metrics do internal auditors consider in their holistic approach?

Both financial and non-financial metrics Signup and view all the answers

What is one way internal auditors help organizations achieve their strategic goals?

By ensuring accurate financial transaction recording Signup and view all the answers

In what manner is internal auditing generally performed?

On a continuous basis Signup and view all the answers

What is the primary purpose of an external audit?

To provide assurance on financial statements to stakeholders Signup and view all the answers

Which accounting standards do external auditors verify adherence to in the U.S.?

Generally Accepted Accounting Principles (GAAP) Signup and view all the answers

What distinguishes external auditors from internal auditors in terms of their work timing?

External auditors primarily perform their work at the end of the year Signup and view all the answers

What do external audit reports typically include?

An audit management letter discussing deficiencies and suggestions Signup and view all the answers

Who do external auditors serve in their capacity as auditors?

An independent body assessing the company’s practices Signup and view all the answers

Why are external auditors not allowed to implement changes suggested during an audit?

To avoid conflicts of interest and impair independence Signup and view all the answers

In the U.K., what is the assurance given by external auditors regarding financial statements commonly referred to as?

True and fair view Signup and view all the answers

What is a potential function of auditing services besides financial statement audits?

Verification of compliance with specific laws or regulations Signup and view all the answers

Study Notes

Audit Practice and Procedures II - Week One

Audit Function; History, Importance, and Dynamics is the topic of week one
The Auditor General's Department was first established in 1829, but the independent office wasn't established until 1851.
The current Auditor General is Pamela Monroe Ellis (FCCA, FCA, CISA, 2008-Present).
There were twelve Auditor Generals prior to Pamela Monroe Ellis
The Auditor General's duties and responsibilities are outlined in the Jamaican Constitution and the Financial Administration and Audit Act.
The Auditor General assesses the effectiveness of financial management systems and compliance with financial policies and guidelines.
Section 25(1) specifies the Auditor General's functions in relation to accounts, supervision of expenditure, and other functions.
The FAA Act stipulates the Minister of Finance presents a Fiscal Policy Paper (FPP) with macroeconomics, fiscal responsibility, and fiscal management strategy to Parliament.
The Auditor General examines FPP components and reports to the Houses of Parliament within two weeks of the February presentation.
The report covers whether public bodies in the previous fiscal year formed part of the specified public sector, the validity of justifications for fiscal outcome deviations, and compliance with prudent financial principles and commercial nature of public bodies.
Section 20-24 of the FAA Act allows the Auditor General to recommend surcharges for failures.
Surcharges can be applied in cases of non-collection of dues owing, improper payments, or loss/destruction of governmental property.
Auditing is the accumulation and evaluation of evidence to determine correspondence between information and established criteria, done by a competent individual.
The word "audit" originates from the Latin word "audire" meaning "to hear."
Audit is a social phenomenon, wholly utilitarian, evolved due to need for information on the conduct of others.
Audit exists because stakeholders cannot obtain the required information or reassurance.
Audit serves as a social control mechanism to monitor conduct and performance, and ensure accountability.
Without audit, there is no control, and therefore no seat of power.
The audit function is ever-changing due to evolving technology and stakeholder requirements.
Internal audit is a continuous assessment of the organization's financial and non-financial metrics for risk management.
Internal auditors function within a company to ensure the accuracy of financial operations, detect fraud, and improve procedures.
The scope of external work is controlled by management, but independence is maintained.
External auditors' reports are specified by auditing standards.
Companies that meet external auditor reporting requirements present a "true and fair view" in accordance with GAAP or IFRS.
External Auditors examine financial statements' material correctness.

Internal vs. External Audit Functions (Comparative Table)

Purpose: Internal Audit - reviews financial statements, operations, processes, internal controls/risk management/corporate governance/fraud detection; External Audit - reviews financial statements/compliance
Relationship to Company: Internal Audit - employees; External Audit - independent
Focus: Internal Audit - continuous improvement & strategic goals; External Audit - fair reporting of financials/compliance with the relevant laws
Audience: Internal Audit - senior management; External Audit - external stakeholders
Perspective: Internal Audit - historical and the future; External Audit - historical
Timing: Internal Audit - continuous; External Audit - end of year/quarter
Profession: Internal Audit - none required; External Audit - CPA firm/CPA overseen
External Auditors provide assurance on the accuracy of submitted financial reports to stakeholders.

Internal Audit Effectiveness Framework

The International Professional Practices Framework (IPPF) gives a conceptual framework by the Institute of Internal Auditors (IIA).
The IPPF provides guidance, organized as mandatory/recommended.

Understanding the Audit Function's Dynamics

Internal audit is evolving into a consultative role, especially when the external auditors find significant issues.
The internal audit function needs to align with organizational objectives.
Improve audit efficiency, streamline processes, and enhance cost savings.
Proactively cover risks and emerging issues.
Develop cost efficiencies
Identify and employ correct internal and external skills.
Three key steps for Internal Audit to transform to value-driven strategic performance: link internal audit to business agenda, build case for change, create plan that focuses on value, measurement, and accountability, enable internal audit transformation.

Terminology

External Auditor: Person inspecting financial records of an organization to provide an opinion on the fair presentation.
Internal Auditor: Company employee who provides an independent, objective assessment of financial and operating business activities (including corporate governance).
Auditor Independence: Refers to the independence of external auditors.
Accountability: Obligation for an individual or organization to account for activities, accept responsibility, and disclose results transparently.
Audit Evidence: Verifiable information, statements, and records related to audit criteria (GAAP/IFRS).
Corporate Governance: Framework of rules and practices used by a board of directors to ensure accountability, fairness, and transparency in stakeholder interactions.

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Description

Dive into the fundamentals of auditing with a focus on the history and dynamics of the Auditor General's function. This week's content covers the establishment and roles of the Auditor General, outlining key responsibilities according to Jamaican law. Enhance your understanding of financial management systems and compliance audits.