Professional Documents
Culture Documents
Auditing
Auditing
Individual Assignment
• List, explain and criticize in detail about rules governing audits or
Advanced Auditing and Assurance
legal and professional requirements of the
– appointment, Remuneration
– removal
– Resignation An overview of Auditing
– eligibility
– registration
– Training of auditors
–
–
Regulation, monitoring and supervision
Ethics
by Amelaku Belay
– Legal liability
– rights and duties of auditors.
• In Ethiopian scenario via citing the name, article and page numbers amelakub@yahoo.com
of the documents.
amelakube@gmail.com
• NB: Copying work of others is
punishable!!
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Evidence takes many different forms, including: Auditors strive to maintain a high level of
• Electronic and documentary data about transactions independence to keep the confidence of users relying
• Written and electronic communication with outsiders on their reports.
• Observations by the auditor
• Oral testimony of the auditee (client) The competence of the individual performing
•Reasonable level of assurance the audit is of little value if he or she is biased
•Limited level of assurance
in the accumulation and evaluation of evidence.
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Audit Report
Auditors are paid fees by the company on
which being audited. So how an auditor The final stage in the auditing process is
can become independent??? preparing the Audit Report, which is the
communication of the auditor’s findings to users.
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• An assurance service is an independent professional service that • 3. Review of historical financial statements : The CPA provides a
improves the quality of information for decision makers. lower level of assurance for reviews of financial statements
• 'Assurance' here means the auditors' satisfaction as to the reliability of compared to a high level for audits, therefore less evidence is
the assertion made by one party for use by another party.
needed.
• 4. Attestation services on information technology: management
• Assurance services can be done by CPAs or by a variety of other makes various assertions about the reliability and security of
professionals. electronic information.
• An attestation service is a type of assurance service in which the
CPA firm issues a report about the reliability of an assertion that is made • 5. Other attestation services : CPAs provide numerous other
by another party. attestation services , many of these services are natural extensions
of the audit of historical financial statements.
• Attestation services fall into five categories: • NB: In each case, the organization being audited must provide an
• 1. Audit of historical financial statements: In an audit of historical assertion before the CPA can provide the attestation.
financial statements, management asserts that the statements are fairly
stated in accordance with applicable international accounting standards.
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Why professionals conduct at higher level?? Special Need for Ethical Conduct in
Auditing
• Which one makes your feeling more disappointed? Crime made by Doctor,
Auditor. Why?
• What makes audit profession differ from other professionals? • In general:
• CPA firms have a different relationship with users of financial
statements than most other professionals have with their • The purpose of professional ethics in auditing is to:
customers. build public confidence
judge the quality of audit work
• Often, the auditor does not know or have contact with the
financial statement users but has frequent meetings and ongoing Means of grounding guidance for practitioners
relationships with client personnel.
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Provision of non-audit services in general Preparing accounting records and financial statements
• Audit firms must evaluate any threat arising to provide a • Except in emergency situations, a firm must
non-audit service, but a firm is not permitted to assume a
management responsibility for an audit client. not provide for any public interest audit client
• Such as in a responsibility of:
– Setting policies and strategic direction
– accounting and bookkeeping services, including
– Directing and taking responsibility for the actions of the entity's • payroll services, or
employees • prepare financial statements on which the firm will
– Authorizing transactions
express an opinion.
– Deciding which recommendations of the firm or other third
parties to implement
– Taking responsibility for the preparation and fair presentation of
the financial statements
– Taking responsibility for designing, implementing and
maintaining internal control
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Auditors Responsibility and Legal Liabilities Business Failure, Audit Failure and Audit Risk
• Professionals have always been required to provide a • Currently the number of lawsuits and sizes of
reasonable level of care while performing work for
those they serve, that is why they set a governing plaintiffs becomes increasing/remains high
standards. between auditors and its clients.
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Business Failure, Audit Failure and Audit Risk Business Failure, Audit Failure and Audit Risk
• A business failure: • Audit risk
• occurs when a business is unable to repay its lenders or • represents the possibility that the auditor concludes
meet the expectations of its investors because of economic
or business conditions, after conducting an adequate audit that the financial
• such as a recession, poor management decisions, or statements were fairly stated when, in fact, they were
unexpected competition in the industry. materially misstated.
• Audit risk is unavoidable, because auditors gather
• Audit failure evidence only on a test basis and because well-
• occurs when the auditor issues an incorrect audit opinion concealed frauds are extremely difficult to detect.
because it failed to comply with the requirements of • An auditor may fully comply with auditing
auditing standards.
• For example: a firm assigning unqualified assistants to standards and still fail to uncover a material
perform certain audit tasks where they failed to notice
material misstatements in the client’s records that a
misstatement due to fraud.
qualified auditor would have found.
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Business Failure, Audit Failure and Audit Risk Business Failure, Audit Failure and Audit Risk
• This conflict between statement users and auditors often arises
• When an audit has failed to uncover material because of an “expectation gap” between users and auditors.
misstatements and the wrong type of audit • many users believe that auditors
opinion is issued (in case of audit risk), it is guarantee the accuracy of financial statements, and
guarantees the financial viability of the business. i.e the auditor is a guarantor
appropriate to question whether the auditor or insurer of financial statements.
• However, the expectation gap often results in unwarranted
exercised due care in performing the audit. lawsuits.
• NB. However, auditors must recognize that, in part, the claims of
audit failure result from the hope of those who suffer a business
loss to recover from any source, regardless of who is at fault.
• In cases of audit failure, the law often allows
parties who suffered losses to recover some • This expectation gap arise because of statement users lack of
understanding about the role of auditors and the differences
or all of the losses caused by the audit failure. between business failure, audit failure, and audit risk.
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audit with due care, and is not expected to be • Terms Related to Negligence and Fraud
• Ordinary negligence:
perfect. – Absence of reasonable care that can be expected of a person in a set of
circumstances.
– He undertakes for good faith and integrity, but not – For auditors, it is in terms of what other competent auditors would have done in
the same situation.
for infallibility, and he is liable to his employer for • Gross negligence :
negligence, bad faith, or dishonesty, but not for losses – Lack of even slight care, equivalent to reckless behavior, that can be expected of a
person. Some states do not distinguish between ordinary and gross negligence.
consequent upon pure errors of judgment.
• Constructive fraud
Liability for the Acts of Others: – Existence of extreme or unusual negligence even though there was no intent to
deceive or do harm. Constructive fraud is also termed recklessness. Recklessness
in the case of an audit is present if the auditor knew an adequate audit was not
– If an employee performs improperly in doing an audit, done but still issued an opinion, even though there was no intention of deceiving
the partners can be held liable for the employee’s statement users.
• Fraud
performance under the laws of agency. – Occurs when a misstatement is made and there is both the knowledge of its
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Summary
• Audit Ethics – Threats To Independence
(Ethics) - Safeguarding Techniques -
Auditors Legal Liability – Possible Auditors
Defense To Legal Liability – Ways Auditors
Are Encouraged to Conduct Themselves
Professionally
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