BOOK-KEEPING

BASIC TERMS
Auditing under financial perspective refers to a systematic and independent examination of
books, accounts, documents and vouchers of an organization to ascertain to what extent the
financial statements present a true and fair view of the concern. It also attempts to ensure that
the books of accounts are properly maintained by the concern required by laws and standards. 

Qn. 1 List Financial Statements you work per your level

Accounting refers to systematic process of identifying, recording, measuring, classifying and

interpreting and communicating financial information to reveal profit or loss during the period
as well as firm’s assets, liabilities and owner’s equity (capital). Note: for any transaction
recorded
Assets = Liabilities + Capital.

Book Keeping – Contribution from students

Qn. 2 what is Book Keeping?

OBJECTIVES OF AUDITING
1. To increase reliability of Financial Statements
Owners and other users of financial statements may need to place reliance on the financial
statements. External audit is a means of providing a reasonable basis for the users to place
reliance on financial statements.
Examples of stakeholders (other than owners/shareholders) that rely on audited financial
statements include the following;
 Tax authorities rely on audited financial statements to determine the accuracy of tax
returns filed by the companies and payment of statutory tax.
 Banks and other financial institutions require audited accounts of prospective borrowers
for assessing the credit risk by analyzing their liquidity and financial position.
 Creditors require audited accounts to make assurance enough that they are going to be
paid before they supply goods to the firm.
 Investors require audited accounts to make assurance enough that they are going to invest
in safe hands.
 Management uses the audit exercise to re-evaluate the company's risk management
processes and internal control system by considering the feedback given by external
auditors during the course of the audit in this regard.

2. Detecting errors and frauds

Auditing provide free hands to books of accounts to provide a reasonable assurance that
books of accounts have been properly drawn out and put attention into errors committed
intentionally or unintentionally. Errors can examined by examining vouchers, cash book,
invoice and wages payment sheets.
 Qn. 3 a) What is an error?
b) What are types/classification of errors?

Objectives of Auditing are further classified into primary and secondary objectives

Primary Objective of Auditing; to show true and fair view of financial statements.

Secondary Objectives; a) Detection of errors and frauds

b) Prevention of errors and frauds

TYPES OF AUDITS
Based on scope we can classify audit into;
1. Internal audit Refers to the type that, although operating independently from other
departments and reports directly to the management or audit committee, resides within an
organization (i.e. they are company employees). It is responsible for performing audits
(both financial and non-financial) within a wide range of areas within a business, as
directed by the annual audit plan. Internal audit look at key risks facing the business and
what is being done to manage those risks effectively, to help the organization achieve its
objectives. For example, they may look at risks to the company’s reputation such as making
unstandardized products or staff coalition to steal company fund.

2. External audit Refers to an independent body which resides outside of the organization
being audited. They are focused on the financial accounts or risks associated with finance
and are appointed by the company shareholders (private firms). The main responsibility of
external audit is to perform the annual statutory audit of the financial accounts, providing
an opinion on whether they are a true and fair reflection of the company’s financial
position. As part of this, external auditors often examine and evaluate internal controls put
in place to manage the risks which could affect the financial accounts, to determine if they
are working properly.

Based on Time we can classify audit into;

1. Continuous Audit is the one that is undertaken by at regular interval throughout
accounting/financial year. Example quarterly. It is suitable to large organizations with high
volume of transactions and when internal control is very weak though it is highly
expensive.

Qn. 4 What is an Internal Control?

2. Final/Annual Audit is the one that is undertaken after close of financial/accounting. It is

suitable to small/medium enterprises with small volume of transactions.

3. Interim Audit is the one that is undertaken between two annual audits to find interim
profit and interim position of company assets and liabilities. It conducted when following
cases occur;
 a) Public Listed companies are required registered in DSE required to provide
quarterly results.
b) Sale of business and changing basis of ownership, for example sole partnership into
company
c) Changes in the firm; example admission of new partner, retirement of new partner.

Based on organizational Structure we can classify audit into;

1. Statutory Audit is the one that is undertaken under requirement of laws. Appointment,
removal and remuneration of Auditor are prescribed by law. Some but not limited firms
subjected into statutory audit in Tanzania are Companies, bank and financial institutions,
insurance companies and Pension fund.

2. Non Statutory Audit is the one that is undertaken voluntarily by the firm or its
stakeholders without requirement of laws. For example, one undertaken by TBL to TFF
during the year 2017 to verify use of sponsored fund.

AUDIT WORKING PAPERS:

Refers to documents which record all audit evidence obtained during financial statement
auditing, internal management auditing, information system auditing and investigations. For
case of Auditing of Private school fund. Auditing working papers may includes;
 Books of accounts/ledgers maintained by school.
 Manuals and accounting policies in the firm, for example; revenue policy that may state
that there should be issue of receipt for any fund received from student.
 Bank statements
 List of students per each class/grade

AUDIT REPORT
Audit report refers to report prepared by independent auditor to address opinion and
certification in the reliability of financial statements prepared and reasonable assurance that
financial statement show true and fair view. It summarize the outcome of the audit work
performed by the auditor. Contents of Audit report are introduction, management
responsibility, Auditor’s responsibility, basis of opinion and opinion. The following are types
of Audit report;
1. Unmodified report refers to the type of report that its opinion drawn out after collection of
sufficient evidence that financial statements show true and fair view and have been
prepared according to prescribed accounting standards.

2. Modified report refers to the type of report that its opinion drawn out become qualified,
adverse or modified.
Disclaimer opinion when there is material misstatement and pervasive (large effect in
books)
Qualified opinion when there is material misstatement and inability to collect sufficient
evidence but not pervasive.
Adverse opinion when there is inability to collect sufficient evidence and pervasive.
SAMPLE AUDIT REPORT

INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF

ABC SECONDARY SCHOOL

To the Board of Trustees

We have audited the accompanying Financial Statements of the ABC secondary School,
which comprises the Balance Sheet as at 31 December 2016, and Profit and Loss for the
year ended 31st December 2016, and a summary of Significant Accounting Policies and
Explanatory Notes.

Management’s Responsibility
Management is responsible for preparation and fair presentation of the financial statements
in accordance with audit requirements of Ministry of Prime Ministers’ Office Rural
Administration and Local Governance and Public Sector Accounting Standards.
Management is also responsible for maintenance of internal control system necessary to
ensure that the prepared financial statements are free from material misstatement, whether
due to fraud or error.

Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing. Those
standards require that we comply with ethical requirements, plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free from material
misstatement

Basis of Opinion
An audit involved performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation and fair presentation of the
financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. The following were not clearly disclosed in accordance to auditing
procedures:
i) Accountant has provided neither the break down nor supporting documents for Staff
Debtors and Creditors of TZS 6,600,000 and TZS 5,800,000 respectively.
ii) School motorvehicles TZS 36,000,000 did not have supporting documents and the
specification of time imposed.
Opinion
In our opinion, in the basis of matters described in paragraph (i) and (ii) we qualify our
opinion as we have limited to collect sufficient information material aspects though not
pervasive, in accordance with the Ministry of Prime Ministers’ Office Rural Administration
and Local Governance and Public Sector Accounting Standards shows true and fair view of
the state of the School operation as at 31 st December 2016 according to the best of our
information and explanations provided to us.

Majimengi Malimungu Date: 27th January, 2018

Certified Public Accountant
DAR ES SALAAM