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Questions and Answers
According to Prof. Paul N. Manasseh, auditing involves forming an ______ as to whether the books have been kept properly and if the statements portray a true and fair view.
According to Prof. Paul N. Manasseh, auditing involves forming an ______ as to whether the books have been kept properly and if the statements portray a true and fair view.
opinion
An audit includes an independent ______ and an expression of an opinion on the financial statements of an economic entity.
An audit includes an independent ______ and an expression of an opinion on the financial statements of an economic entity.
examination
An auditor must comply with relevant ______ obligations such as professional standards and legal requirements during an audit.
An auditor must comply with relevant ______ obligations such as professional standards and legal requirements during an audit.
statutory
The objective of an audit is to enable the auditor to express an opinion on whether the financial statements show a true and fair view of the company's state of affairs in accordance with an identified financial ______ framework.
The objective of an audit is to enable the auditor to express an opinion on whether the financial statements show a true and fair view of the company's state of affairs in accordance with an identified financial ______ framework.
Independence in auditing means having no ______ with parties that have an interest in the company being audited.
Independence in auditing means having no ______ with parties that have an interest in the company being audited.
A cash book, assets register, ledgers, and shareholders' register are examples of the ______ of accounts that are examined during an audit.
A cash book, assets register, ledgers, and shareholders' register are examples of the ______ of accounts that are examined during an audit.
When verifying transactions, auditors check ______ for authorization, date, proper recording, and whether the transactions are for the benefit of the business.
When verifying transactions, auditors check ______ for authorization, date, proper recording, and whether the transactions are for the benefit of the business.
An auditor's opinion on financial statements can be positive, resulting in an unqualified ______, or negative, indicating that the statements are not presented fairly.
An auditor's opinion on financial statements can be positive, resulting in an unqualified ______, or negative, indicating that the statements are not presented fairly.
Frequent auditor visits can lead to staff interruptions, potentially standardizing questions, and creating staff ______ on the auditor.
Frequent auditor visits can lead to staff interruptions, potentially standardizing questions, and creating staff ______ on the auditor.
An ______ audit is conducted midway through the financial year, often serving as a precursor to the final audit.
An ______ audit is conducted midway through the financial year, often serving as a precursor to the final audit.
Unlike interim audits, ______ audits are typically performed at the end of the financial year.
Unlike interim audits, ______ audits are typically performed at the end of the financial year.
A ______ audit evaluates a company's internal controls, accounting policies, and procedures, recommending improvements where necessary.
A ______ audit evaluates a company's internal controls, accounting policies, and procedures, recommending improvements where necessary.
A ______ audit focuses on assessing the skills and effectiveness of a company's leadership team in achieving strategic objectives.
A ______ audit focuses on assessing the skills and effectiveness of a company's leadership team in achieving strategic objectives.
Audits provide ______ of a company's financial statements, which can make it easier to secure financing.
Audits provide ______ of a company's financial statements, which can make it easier to secure financing.
While audits offer numerous benefits, a significant disadvantage is that audit ______ can be quite high.
While audits offer numerous benefits, a significant disadvantage is that audit ______ can be quite high.
Besides investors and lenders, ______ are also key users of audited financial statements, relying on them for job security and wage negotiations.
Besides investors and lenders, ______ are also key users of audited financial statements, relying on them for job security and wage negotiations.
A key difference between statutory and private audits lies in their appointment process; statutory audits are done according to the company’s act, whereas private audits are done ______.
A key difference between statutory and private audits lies in their appointment process; statutory audits are done according to the company’s act, whereas private audits are done ______.
In terms of liability, a statutory auditor is liable to third parties, while a private auditor may not be liable through a ______ opinion.
In terms of liability, a statutory auditor is liable to third parties, while a private auditor may not be liable through a ______ opinion.
While statutory audits are typically conducted at the end of each financial year, private audits can be performed even after ______ years.
While statutory audits are typically conducted at the end of each financial year, private audits can be performed even after ______ years.
The rights and duties of a statutory auditor are defined by law, but in a private audit, these can be ______ by the client.
The rights and duties of a statutory auditor are defined by law, but in a private audit, these can be ______ by the client.
In terms of scope, if a statutory auditor performs a pure audit, the private auditor completes both audit and ______ work.
In terms of scope, if a statutory auditor performs a pure audit, the private auditor completes both audit and ______ work.
The main objective of a statutory audit is to prove the true and fair view, while a private audit aims to find out current profit or loss for ______ purposes.
The main objective of a statutory audit is to prove the true and fair view, while a private audit aims to find out current profit or loss for ______ purposes.
In continuous audits, errors and frauds are discovered earlier, facilitating the presentation of the ______ in time.
In continuous audits, errors and frauds are discovered earlier, facilitating the presentation of the ______ in time.
A disadvantage of continuous audits is that they can be very expensive, and figures already audited may be again ______.
A disadvantage of continuous audits is that they can be very expensive, and figures already audited may be again ______.
In auditing, a ______ view is sought for profit and loss account items, while a fair view is the aim for balance sheet items.
In auditing, a ______ view is sought for profit and loss account items, while a fair view is the aim for balance sheet items.
The financial reporting framework encompasses standards like ______ or IASs, national accounting standards, and any other comprehensive framework.
The financial reporting framework encompasses standards like ______ or IASs, national accounting standards, and any other comprehensive framework.
Unlike accounting, ______ is conducted at the end of the year, focusing on examining already prepared books of accounts.
Unlike accounting, ______ is conducted at the end of the year, focusing on examining already prepared books of accounts.
Auditing requires ______ from all interested parties within the company, ensuring an unbiased examination of financial records.
Auditing requires ______ from all interested parties within the company, ensuring an unbiased examination of financial records.
The ______ objective of auditing is to ascertain and confirm the true and fair state of the company’s affairs.
The ______ objective of auditing is to ascertain and confirm the true and fair state of the company’s affairs.
Auditors may provide a ______ to management, also known as a 'letter of internal weakness,' offering advice for improvement.
Auditors may provide a ______ to management, also known as a 'letter of internal weakness,' offering advice for improvement.
______ audits are legally required, while private audits are conducted at the discretion of the company owners.
______ audits are legally required, while private audits are conducted at the discretion of the company owners.
Auditing standards require auditors to exercise professional ______, which means they should maintain a questioning mind and critically assess the information they are provided with.
Auditing standards require auditors to exercise professional ______, which means they should maintain a questioning mind and critically assess the information they are provided with.
Internal auditing is an independent ______ of activities within an organization, ensuring efficient management.
Internal auditing is an independent ______ of activities within an organization, ensuring efficient management.
One of the activities of an internal auditor is to provide ______ to management to improve business practices.
One of the activities of an internal auditor is to provide ______ to management to improve business practices.
The increased size and ______ of businesses have necessitated a stronger focus on internal audits.
The increased size and ______ of businesses have necessitated a stronger focus on internal audits.
Unlike external audits, internal audits are not typically regulated by specific ______ or acts.
Unlike external audits, internal audits are not typically regulated by specific ______ or acts.
Internal auditing is a ______ exercise, providing ongoing oversight and adjustments to controls.
Internal auditing is a ______ exercise, providing ongoing oversight and adjustments to controls.
The primary aim of internal auditing is strengthening the internal ______ system within a company.
The primary aim of internal auditing is strengthening the internal ______ system within a company.
The ______ of an internal audit is determined by management, allowing for a focus on specific areas of concern.
The ______ of an internal audit is determined by management, allowing for a focus on specific areas of concern.
While external audits aim to provide a true and fair view, internal audits focus on giving insight into the ______ performance of the company.
While external audits aim to provide a true and fair view, internal audits focus on giving insight into the ______ performance of the company.
Both internal and external audits are concerned with the ______ and prevention of errors and frauds within an organization.
Both internal and external audits are concerned with the ______ and prevention of errors and frauds within an organization.
An advantage of internal audit is that it reinforces the application of a strong internal ______ system within a company.
An advantage of internal audit is that it reinforces the application of a strong internal ______ system within a company.
Internal audit acts as a ______ measure for errors and frauds, helping to identify and correct issues before they escalate.
Internal audit acts as a ______ measure for errors and frauds, helping to identify and correct issues before they escalate.
One potential disadvantage of internal audit is that management may ______ on it, potentially overlooking other important risk management processes.
One potential disadvantage of internal audit is that management may ______ on it, potentially overlooking other important risk management processes.
A disadvantage of internal audit is that management may deny its ______, potentially compromising the objectivity of the audit process.
A disadvantage of internal audit is that management may deny its ______, potentially compromising the objectivity of the audit process.
An engagement letter is required after ______ with the prospective client and an evaluation of the services required.
An engagement letter is required after ______ with the prospective client and an evaluation of the services required.
Before conducting detailed testing, auditors must ______ and evaluate the client's systems to identify key controls and potential weaknesses.
Before conducting detailed testing, auditors must ______ and evaluate the client's systems to identify key controls and potential weaknesses.
Auditors communicate findings and recommendations to management in a draft report and a letter of ______ before issuing the final audit report.
Auditors communicate findings and recommendations to management in a draft report and a letter of ______ before issuing the final audit report.
Flashcards
Auditing
Auditing
An examination of financial statements to ensure they present a true and fair view of a company's financial position and performance.
Balance Sheet
Balance Sheet
A statement detailing a company's assets, liabilities, and equity at a specific point in time.
Profit and Loss Account
Profit and Loss Account
A statement summarizing a company’s revenues, costs, and expenses over a period of time.
Cash Flow Statement
Cash Flow Statement
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IFRS
IFRS
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Auditing vs. Accounting
Auditing vs. Accounting
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Primary Objective of Auditing
Primary Objective of Auditing
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Statutory Audit
Statutory Audit
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Audit scope
Audit scope
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Auditor appointment
Auditor appointment
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Auditor rights and duties
Auditor rights and duties
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Auditor Independence
Auditor Independence
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Audit objective
Audit objective
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Audit Similarities
Audit Similarities
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Continuous Audit
Continuous Audit
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Continuous Audit Advantages
Continuous Audit Advantages
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Audit (CPA Definition)
Audit (CPA Definition)
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Independent Examination
Independent Examination
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Books of Accounts
Books of Accounts
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Vouchers
Vouchers
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Opinion (in Auditing)
Opinion (in Auditing)
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Unqualified Opinion
Unqualified Opinion
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Qualified Opinion
Qualified Opinion
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Interim Audit
Interim Audit
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Final Audit
Final Audit
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Procedural Audit
Procedural Audit
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Management Audit
Management Audit
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Advantage of Auditing
Advantage of Auditing
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Disadvantage of Auditing
Disadvantage of Auditing
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Users of Audited Financial Statements
Users of Audited Financial Statements
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Investors
Investors
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Internal Audit
Internal Audit
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Activities of Internal Auditor
Activities of Internal Auditor
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Factors Increasing Internal Audit
Factors Increasing Internal Audit
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Internal Auditing (Characteristics)
Internal Auditing (Characteristics)
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External Auditing (Characteristics)
External Auditing (Characteristics)
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Auditor's Status
Auditor's Status
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Internal Audit Scope
Internal Audit Scope
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External Audit Report Users
External Audit Report Users
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Similarities: Internal vs. External Audit
Similarities: Internal vs. External Audit
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External Auditor's Reliance on Internal Audit
External Auditor's Reliance on Internal Audit
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Advantages of Internal Audit
Advantages of Internal Audit
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Disadvantages of Internal Audit
Disadvantages of Internal Audit
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Initial Stages of an Audit (1-6)
Initial Stages of an Audit (1-6)
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Later Stages of an Audit (7-10)
Later Stages of an Audit (7-10)
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Substantive Tests
Substantive Tests
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Compliance Tests
Compliance Tests
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Study Notes
- The module covers Auditing and Assurance
- Facilitator: Prof Isaie Kadhafi Misago
Main Topics
- Introduction to Auditing
- Legal and Professional Framework of Audit
- Conduct of an Audit
- Review of the Strengths and Weaknesses of Internal Control System
- Auditing Evidence
- Audit Sampling
- Audit of Balance Sheet and P&L Account Items
- Errors, Fraud, and Irregularities
- Auditing in a Computerized Environment
- Audit Report
- Receivership and Liquidation
- Audit of Specialized Institutions
Definition of Auditing
- Auditing constitutes an independent examination of a business's books of accounts and vouchers
- This informs an opinion on whether items have been correctly maintained and align with company regulations
- It also assess whether statements provide an accurate view of the company's financial state at a specific time
- Definition by Prof. Paul N. Manasseh
- An audit is an independent examination and an expression of an opinion on the financial statements of an economic entity by an appointed auditor
- This is in pursuance of that appointment and in compliance with relevant statutory obligation, Certified Public Accountant (CPA)
Analysis of Manasseh's Definition
- Independent Examination involves an expertise account and adherence to legal requirements
- It requires no association with parties having a vested interest
- A requirement from the Accounting professional bodies
Books of Accounts
- A cash book
- Assets register
- Ledgers
- Shareholders' register
Vouchers
- A voucher is a document for transaction support
- Vouchers are checked for authorization, date, accurate entry, and business relevance
Opinion
- A positive or unqualified opinion
- A negative or qualified opinion
Statements
- Balance sheet
- Profit and loss account
- Funds flow statement
True and Fair
- True for Profit and loss account items
- Fair for balance sheet items
Analysis of CPA's definition
- Financial Statements; Balance sheet, profit and loss account, notes, cash-flow statement, statement of changes in equity
- Financial Reporting Framework; International Financial Reporting Standards (IFRS), International Accounting Standards (IASs), national accounting standards, or any authoritative financial reporting framework
Distinction Between Auditing and Accounting
- Auditing examines books to provide a true view of a company's affairs
- Accounting prepares books to aid management in decision-making
- Auditing happens once a year
- Accounting is continuous
- Auditing is conditional, based on prepared books
- Accounting is not conditional
- Auditing requires independence from interested parties
- Accounting can be influenced by management
- Auditing requires professional vigilance
- Accounting involves management reviews
- Auditing is a statutory requirement for companies
- Accounting is essential for any business size
Objectives of Auditing
- Audits are classified into primary and secondary objectives
Primary Objectives
- Verifying the true and fair state of a company's affairs
- Ensure company has proper books of accounts
- Generating a report
Secondary Objectives
- Providing management advice via "Management letter"
- Detection of errors and frauds
Types of Audit
- Classified based on the nature of work and the approach
Types of Audit Based on Work Nature
- Statutory and private audits
Statutory Audit vs Private Audit
- Statutory audits are legally required
- Private audits are conducted at the owners' discretion
- Statutory audit scope is defined by company's act
- Private audit scopes are determined by auditor and owners
- The appointment happens according to the company's act for statutory audits
- Appointments happen privately in private audits Auditors are liable to third parties
- Auditors may not be liable, and a disclaimer opinion may be issued
- Statutory audits occur at year-end
- Private audits can be done after three the end of three years
- Statutory auditor rights are defined by law
- Private audits rights can be limited by the client
- Statutory auditors are independent
- Private auditor independence varies
- Statutory auditors perform pure audit work.
- Private auditors may do audit and accounting work
- Statutory audit scope is unrestricted
- Private audit scope is be restricted
- Statutory audits prove a fair view
- Private audits determine profits for taxation
Similarities Between Statutory and Private Audit
- Both are conducted by qualified auditors
- Both aim at providing advice to management
- Both used to detect errors and frauds
- Auditors guided by audit standards
- Audits are used for decision making, and evaluate companies
Types of Audit Based on Approach
- Continuous
- Interim
- Final
- Continuous Audit
- This occurs throughout a financial period at predetermined intervals
- Continuous audits are ideal for large organizations with tight reporting deadlines
Advantages of Continuous Audit
- Early discovery of errors and frauds
- Facilitates timely report submission
- Provides clear understanding of business
Disadvantages of Continuous Audit
- Very expensive
- Figures already may be again manipulated
- Frequent visits by the auditor result into interruptions to the staff
- Questions asked by the auditor may become standard
- Staff may depend on the auditor
Interim Audits
- Interim audits are conducted halfway through the financial year, before the final audit
- These audits are for dynamic businesses and also cheaper than continuous audits
- Interim audits enhance the maintenance of current records
Final Audits
- Typically done year-end
- Procedural Audit involves evaluation of internal controls, accounting policies, by an auditor; recommendations for improvement in procedures made
- Management Audit analyzes a company's management competencies to evaluate effectiveness relative to strategic objectives, it isn't appraise individual executive performance, but to instead evaluates team competence
Advantages of Auditing
- Assurance and reliability of company books
- Serves as detective and preventive measure
- Minimizes disputes
- Simplifies borrowing with unqualified audit report
- Assists investors
Disadvantages of Auditing
- Auditing fees can be expensive
- Disrupts client operations
- Risk of company revealing secret information to competitors
Users of Audited Financial Statements
- Present and prospective investors
- Employees
- Lenders
- Suppliers and trade creditors
- Customers
- Government
- The public
- Lawyers, competitors, stock brokers, statisticians, journalists, trade-unions, and credit-rating agencies.
Internal Audit definition
- It is an independent appraisal of activities within an organization aimed at ensuring management runs company properly, therefore bettering the business. Also it acts as a watchdog over the company's entire internal control systems
Activities of the Internal Auditor:
- Independent appraisal of activities
- Advice to management
- Review of operation for soundness, adequacy, the application of accounts and financial controls and the promotion of such effective controls at reasonable costs
Factors that necessitate an increase in internal audit needs
- Increase in business size and complexity, dynamic technology, Legislation and regulation requirements, and competition
Differences Between External and Internal Audit
- Internal Auditing is conducted on behalf of the management
- External Auditing is conducted on behalf of the shareholders
- Internal Auditing is not regulated by statutes or act
- External Auditing is conducted according to the requirements of the company's act
- Internal Auditing is a continuous exercise
- External Auditing is conducted periodically
- Internal Auditing is conducted by a competent accountant, who is an employee of the company
- External Auditing is conducted by a external professional and a qualified accountant
- Internal auditing aims to at strengthening the internal control system
- External auditing is aimed at providing the true fair view of the state of affairs
- The scope of internal audit is determined by management
- The scope of external audit is determined by the Company Act
- An internal audit report is used strictly by management
- An external audit report is used by owners or by third parties
- Internal audits are not a legal requirement
- External audits are a legal requirement
- Internal is used to analyze company's routine
- External is conducted to assess the company's performance
Similarities of External audit and Internal audit
- Strength of Internal Control Systems
- Carry out independent reviews
- Detection and the prevention of errors and frauds
- Use similar materials and records
- Ensure the safeguard of the company's assets
- Ensure proper books of accounts are kept
External auditor's reliance on the work of internal auditor
- The qualifications and experience of the internal auditor and his/her Staff
- Internal auditor's independence
- Scope of his/her work
- Previous experience
- Availability of resources
- Strength of Internal Control system
Advantages Of Internal Audit
- It reinforces application of strong internal control system
- Acts as a preventive measure for errors and frauds
- Helps management in implementation of company policies
- It assists the company in achieving its objectives
- It facilitates the external auditor
- Guarantees company resources
- Internal Knows the problems
Disadvantages of Internal Audit
- Management relies on it
- Management may deny its independence
- It may overshadow accounting department
- Management ignore its recommendations
- Management may misuses it.
- The external auditor may over-rely on the internal auditor.
- Its installation is expensive.
Stages of an Audit
- Negotiation with the client
- Communication with the previous auditor
- Engagement letter
- Initial investigation
- Record the system
- Evaluate the system
- Conduct various tests (Compliance tests, substantive tests, verification etc ).
- Write the draft report. Discuss the draft report with Management (Letter of representation)
- Issue of the final report and Management letter.
Group Assignment
- Discuss the legal and profession framework of audit
- Write a detailed note on the audit report covering the following:
- introduction
- qualities of a good audit report
- content of the audit report
- types of audit reports
- types of opinions
Individual Assignment
- The IT application in auditing, address whether it is must/optional (submit 4 page discussion)
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