Lesson 1
Lesson 1
to Auditing
As to types of Auditor
• External Audit
• Internal Audit
• Government Audit
Comparison of the Different Types of Audit
Particulars Financial Statement Operational Audit Compliance Audit
Audit
Assertions Financial Statements are Operations are conducted Activities complied with
fairly presented efficiently and effectively applicable laws, rules,
regulations, contract or
management policy
Suitable criteria GAAP or any other Objective set by the Applicable contracts,
identified financial Board of Directors rules, regulations, laws or
reporting framework management policy
Report An opinion whether the Report on efficiency and Degree of compliance
financial statements are effectiveness. This will with applicable laws,
fairly presented in also include rules, regulations, or
conformity with an recommendations to management policy
identified financial improve operations.
reporting framework
Generally performed by External auditors Internal auditors Government Auditors
PSA 120 dictates that the objective of
an audit of financial statements is to:
Objective
of Financial
Statement Enable the auditor to express an
Audit opinion whether the financial
statements are prepared, whether the
financial statements are prepared, in all
material respects, in accordance with
generally accepted accounting
principles or other identified financial
reporting framework.
PSA 200 (Revised and Redrafted) further
supported the above objective by stating
that “in conducting an audit of financial
Objective statements, the overall objectives of the
auditor are :
of Financial • To obtain reasonable assurance about whether the
financial statements as a whole are free from material
Statement misstatements, whether due to fraud or error, thereby
enabling the auditor to express an opinion on whether
the financial statements are prepared , in all material
Audit respects, in accordance with an applicable financial
reporting framework; and
• To report on the financial statements and
communicate as required by the PSAs in accordance
with the auditor’s findings.”
EXPRESSION OF AN OPINION
Suitable GAAP
Criteria
Other applicable financial
reporting framework
Concepts discussed in assurance
engagements apply to audit
engagements. Terms are revised to
specifically relate to audit
Sufficient engagements (e.g. assurance
Appropriate
Evidence engagement risk is the changed to
audit risk)
Contains the conclusion or
opinion conveying the
Written assurance obtained about the
financial statements
Assurance
Report or Auditor considers other
reporting responsibilities,
Conclusion including communicating with
those charged with governance
Unmodified /Unqualified – Present
fairly, in all material respect
1 2 3
Verify the Have the financial Share information
information statements be risk with the
audited management
Demand for FS Audit – Additional Conditions
Conflict of Interest – between the responsible party and the intended users of
the financial statements
of FS Audit
The following are some of the assumptions,
postulates or concepts included in the conceptual
structure:
➢All financial data are verifiable through
existence of supporting documents and records
Theoretical ➢ Auditor should always maintain independence
with respect to the financial statements under
Framework audit
of FS Audit ➢No long term conflict between the auditor and
the clients management
➢Audit benefits the public
➢Effective internal control systems reduces the
possibility of errors and fraud.
Audit Process :
A General
Approach
Entity prepares and presents the
financial statements
Assertions Completeness
about Cutoff
classes of
Transactions Accuracy
Classification
Completeness
Assertions
about Existence
ACCOUNT Rights and Obligations
BALANCES
Valuation and Allocation
Occurrence and Rights and
Obligation
Assertions
about Completeness
PRESENTATION
and Accuracy and Valuation
DISCLOSURES
Classification and
Understandability
Entity prepares and presents the
financial statements
Post-audit responsibilities
Preliminary engagement activities
Sequence in > This phase will require a decision from the
auditor whether or not to accept a new client or
Performing continue relationship with an existing pone. This
process would require evaluation not only od the
FS Audits auditor’s qualification, but also the integrity and
auditability of the client’s financial statements.
Planning an audit of financial statements
Sequence in > Audit planning involves the development of an
overall audit strategy, audit plan and audit
Performing program. The auditor usually obtained more
detailed knowledge about the client’s business and
FS Audits industry on order to understand the transactions
and events affecting the financial statements.
Sequence in Study and evaluation of internal control
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Assessment
Test