Anda di halaman 1dari 17

TUTORIAL 2

Introduction to Audit and


Controls in Accounting
System
Diyana 201505

Auditing is more conceptual in nature

compared to other accounting courses.

Rather than focusing on the rules,

techniques and computations to prepare the


FS, auditing emphasizes on analytical and
logical skills to evaluate the relevance and
reliability of the systems and processes as a
responsible for financial information.
Diyana 201505

To be successful, the framework must be

learnt and then learn to use logic and


common sense in applying auditing concepts
to various circumstances and situations.

Understanding auditing can improve the

decision making ability of consultants,


business, managers by providing a
framework for evaluating the usefulness and
reliability of information.
Diyana 201505

Shareholders/owners are PARENT, while managers


are AGENT.

Agency relationship (between shareholders/owners


and managers) may produces a natural conflict of
interest due to the info asymmetry that exists
between them.

As a result, the agent agrees to be monitored and


auditing appears to be a cost-effective form of
monitoring.

Diyana 201505

Assurance services are to enhance the degree of


confidence that intended users can have about the
subject matter information.

Thus, assurance engagements could improve the


quality of information or its context for decision
makers.

In an audit engagement, the subject matter is the


financial statements of the company and the auditors
conclusion in the form of an opinion enhances the
credibility of the financial statements which are the
responsibility of the management or directors of the
company.

Diyana 201505

Materiality is an omission or misstatement

of accounting information that makes it


probable that the judgment of a reasonable
person relying on the information would have
been changed or influenced by the omission
or misstatement.

Audit risk is the risk that the auditor may

unknowingly issue an inappropriate opinion on


financial statements that are materially
misstated.
Diyana 201505

Materiality is reflected in the wording of the auditors


standard audit report through the phrase the financial
statements present give a true and fair view.

This is the manner in which the auditor communicates the


notion of materiality to the users.

The auditors standard report states that the audit provides


only reasonable assurance that financial statements do not
contain material misstatement.

The term reasonable assurance implies that there is


some risk that a material misstatement could be present in
the financial statements and the auditor will fail to detect it.
Diyana 201505

On most audits, it is not feasible or cost-effective to audit


all transactions.

For example: Small company: The auditor might be able to examine all transactions
occurred. However, it is unlikely that the owner of the business could
afford to pay for such an extensive audit.
Large company: The sheer volume of transactions prevents the
auditor from examining every transaction. There is a trade-off
between the exactness or precision of the audit and its cost.

It is not necessary to examine every item in a population to


draw conclusion about the true characteristics of the
population.
Diyana 201505

The major phases of audit are:

Preliminary engagement activities including client


acceptance/continuance and establishing
engagement terms
Obtain an understanding of the entity
Establish materiality and assess risks
Set overall audit strategy and develop audit plan
Perform tests of control and audit business
processes and related accounts
Complete the audit
Evaluate results and issue audit report
Diyana 201505

Unqualified report is one where the financial

reports follow stringent requirements such as:


Being properly drawn up in accordance with the
provision of the Act.
Being properly drawn up according to
applicable approved accounting standards.
Giving a true and fair view of the co.s state of
affairs and result of operations.
The auditor must state in his opinion that the
accounting records has been properly kept.

Unqualified reports assert that the financial

statements are prepared in accordance with


approved accounting standards.
Diyana 201505

Qualified reports are departs from


unqualified reports in terms of
limitation of scope and other
disagreements.

Diyana 201505

(a) Qualified report: Report that states

scope limitation or disagreement with


material consequences, but the overall
financial statements present a true and
fair view. The opinion paragraph is modified
by the words except for.

Diyana 201505

(b) Disclaimer: The auditor cannot give an

opinion on the financial statements. This


occurs when the possible effect of a scope
limitation is so material and pervasive that
the auditor has not been able to obtain
sufficient appropriate evidence to form an
opinion on the overall financial statements.

Diyana 201505

(c) Adverse opinion: Expressed when the

effect of a disagreement is so material and


pervasive to the financial statements that in
the auditors opinion, the financial
statements do not give a true and fair
view in accordance with approved
accounting standards.

Diyana 201505

Relevance refers to whether the evidence relates


to the specific audit objective being tested. If the
auditor relies on evidence that relates to a
different audit objective from the one being
tested, an incorrect conclusion may be reached
about a management assertion.

Reliability refers to the truthfulness of the

evidence. That is, the type of evidence usually


signals the true state of the assertion or audit
objective tested.
Diyana 201505

An auditor may resign from office at an

annual general meeting of a company if he


is not the sole auditor of the company.
Others, he has to hold office until the next
AGM of the company.

Diyana 201505

The factors of inherent limitations of


auditing are:

Use of test
Inherent limitations
Audit evidence
Use of judgment
Diyana 201505