AUDITING

INTRODUCTION TO AUDITING
SAMSON

Manager will die but the company will

survive
 LEANING OBJECTIVE

• AT THE ENDS OF THIS PRESENTANTION , THE TEAM SHOULD BE AWARE OF

• CONCEPT OF AUDITING
• OBJECTIVE OF AUTING
• CONCEPT OF ASSURANCE ENGAGEMENT
• TYPES OF AUDITING
• FUNDAMENTAL PRINCIPLE OF PROFESSIONAL CODE OF ETHICS
• QUALITIES OF AN AUDITOR
 CONCEPT OF AUDITING

• The presence of investors raise difficult

questions
 Think a head , can investors operate the business without management?

• investors they make maximum sacrifice to employ management to operate the business on behalf
of them, the question, is the management protecting the interest of their shareholder?
• Because Management is the people who work in team to operate the business on behalf of the
shareholders.
 should investors(shareholders ) having assurance on management?

• there is the conflicts of interest between the shareholders and management, because the
management is the people who sometimes they have their own interest , they need good life ,
such as good car , big house , better families .
• Shareholders they need assurance on whether the management favor their interest or not
 KEY HINTS THAT RAISE AUDIT DISCUSSION
• SHAREHOLDER
•

• MANAGEMENT AUDITOR
• EXPLANATION
• Shareholders appoint management to operate the business on behalf , at the end of accounting period
they prepare financial statements and report to shareholders , shareholders appoint an independent
professional accountant (auditor) (outside the organization) who will be their to provide maximum
assurance which is reasonable but not absolutely assurance on whether the management operate the
business effectively and it favor interest of shareholders or not by providing auditing report
PROCEE
D
• WHAT IS AUDITING ?
• is an independent examination of financial information with the view of expressing an opinion
on that information
• The independent here is
• Independent of mind and environments.
• A person who perform auditing is called auditor
• Auditor is an independent person who protect the interest of shareholders, auditor are their to
provide maximum assurance which is reasonable but not absolutely assurance.
 TERMS THAT HOLD GENERAL PICTURE OF
AUDITING
• Generally auditing reflect this 3 terms
• 1. efficient
• 2. effective
• 3.economy
• Try to think and read more how those term above relating to auditing
• “ therefore in real situation you will find that for an organization to archive its objective needs
the management who can effective play their role based on those terms
 WHO IS PROTECTING AUDITORS?

• Auditors is appointed by shareholders at the annual general meeting according to company acts
and they are protected by company acts .
 the concept of true and fair view
• AUDITOR ARE THEIR TO PROVIDE OPINION OF WHETHER FINANCIAL
INFORMATION REFLECTS TRUE AND FAIR VIEW OR NOT
• What does true and fair view means?
• Company acts does not define this .
• But truth means something factually corrects , and fair means there is no misleading , not only
that but open and understandable.
Go through
intro
• WHAT ARE OBJECTIVE OF AUDITING?
• PRIMARY OBJECTIVE
• to express an opinion to whether the financial statements reflects true and fair view
• Secondary objective
• To reduce error and remove fraud , its not possible to remove errors completely but its possible
to reduce errors. ( errors is the mistake committed accidentally while fraud is committed
intentionally
 WHY AUDITING IS IMPORTANT?
• auditing is important because
• Its acts as an effectives checks on directors , shareholders they wants to be confident with
management to whether there is no conflicts of interests or not .
• Audited accounts is the source of evidence to the court of law , incase there is the
misunderstanding between the intended user and responsible parts
• Audited accounts it facilitate tax calculation because its more acceptable and it give confidently
to the tax authority.
• Audited accounts facilitate the company to obtain loans from financial banks
 WHAT ARE THE RIGHTS AND DUTIES OF AN
AUDITOR
• Rights of an auditor
• Rights to require any information from the managements and discuss with them though auditing
paper if he think that it will contribute to final conclusion
• Rights to require any documents
• Rights to inspects
• Rights to attends the general meeting of the company
• Rights to give opinion and participate in discussion
 ASSURANCE ENGAGEMENTS
• ASSURANCE IS NEEDED IN EVERY FIELD ,
• Assurance is an assertion that the financial statements prepared are corrects and free from any
material misstatements .
• Key hints “ the shareholder need the confidence’’ who will give them this confidence
• Assurance engagements is where the professional accountants is in the public practice to express
the conclusion that is designed to enhance the confidentiality of intended user(shareholders)
other than responsible parts ( managements)
 KEY MATTER THAT RAISE ASSURANCE ENGAGEMENTS

• 1. Three parts relationship as follows

• Intended user – ( shareholders)
• Practitioner – (auditor)
• Responsible parts ( managements)
• 2 the suitable subjects matters which is financial statements
• 3. suitable criteria which is standard that guide preparation eg IFRS
• 4. Appropriate evidence that support the final conclusion of opinion
• 5. assurance reports
• Therefore no discussion without those listed above , sometimes are called elements of assurance
engagements
 TYPES OF ASSURANCE ENGAGEMENTS
• There is two types
• 1 reasonable assurance – here an auditors express every thing he observe , therefore it’s a
positive form of expression of an auditor conclusion.
• Why its positive
• An auditors reach the conclusion by providing an opinion that the financial statements reflects
the true and fair view.
• Example we have audited the financial statements of cornerstone , we have planned and
performed our audits so as to obtain all information and explanation which are considered
necessary in order to provide us with sufficient evidence to give reasonable assurance.
• Based on the information available we are confidently that , the financial statements is prepared
in all aspects of material and comply with general accepted accounting standard and all rules and
regulation , the financial statements show true and fair view.
 ABSOLUTE ASSURANCE

• Its is a negative expression form of opinion and its not accepted. The auditor express every thing
is corrects.
• Auditor can not give absolute assurance but can give maximum assurance which is reasonable
assurance .
• Example of this reports auditors ends as follows while providing opinion
• “Based on our examination of the evidence supporting the assumptions, nothing has come to our
attention that causes us to believe that these assumptions do not provide a reasonable basis for
the projection.’ “
 TYPES OF AUDITING
• Generally there is two types of auditing
• 1. internal auditing is performed by the internal auditors and its performed on behalf of management to insure that there is
adequate and effective internal control system , each unit of organization follow the policies and procedure .note that under
this types of audit no opinion is given from auditor. “ don’t ask me read in second types of audit to know this contrast”
• Therefore internal auditing provide ongoing assessment of all activities .
• The main objective is to assess
• Whether
• the management met its responsibility?,
• organization compliance with law and regulation?
• , also prescribed internal control system is effective , if not report its weakness.
• Therefore the organization must implement “INTERNAL AUDIT FUNCTIONS’’ refers to the function of an entity that
perform assurance and consulting activities designed to evaluate and improve effectiveness of an entity risk
managements , internal control system and entity governance.
 EXTERNAL AUDIT(STATUTORY AUDIT)
• This kind of audit is performed by the external auditor who are independent of an organization and provide
independent opinion on the organization financial statements .
• do you think why opinion should not be given by the internal auditor?
• We need to determine accuracy and reliability of financial statements in order to archive this objective we
need an independent person who will review and make assessment of the financial records and draw overall
conclusion on whether
• The financial statements show a true and fair view.
• The financial statements have been prepared using acceptable accounting policies, which have been
consistently applied.
• The financial statements comply with all the relevant regulations and statutory requirements.
• Adequate disclosure of all material matters relevant to the proper presentation of financial information has
been made
• “ therefore if the financial accounts is audited internally the overall objective will be compromised “
 NON STATUTORY AUDIT
• Never mind “ audit can be statutory or non-statutory”
• The statutory audit is an external audit as we have discussed that the objective of this audit is to provide opinion and it
should be performed by the independent person ( not employee of an organization ) to ensure that the objective is
fulfilled .
• Now
• Non statutory audit can be
• 1. review engagements – where the engagements does not involve in a study and evaluation of internal accounting
controls, detailed tests of accounting records, or corroborative evidence through inspection, observation and confirmation.
• They are generally based on:

gaining an understanding of the client’s activities, including knowledge of the accounting practices of the industry or area in
which the client operates and inquiry and analytical review.
The objective of a review of financial statements is to “enable an auditor to state whether, on the basis of procedures which
do not provide all the evidence that would be required in an audit,” anything has come to the auditor’s attention that cause
the auditor to believe that the financial statements are not prepared, in all material respects, in accordance with an identified
financial reporting framework
 NON
STATUTORY
• 2. ABSOLUTE ASSURANCE(LIMITED) THIS KIND OF ASSURANCE IS THE REVIEW ENGAGEMENTS
• The auditor does not state that the review is correct. The auditor states that there is nothing to indicate that the subject
matter is incorrect.( already discussed but I want you to know that its non statutory audit)
• 3. AGREED UPON PROCEDURE
• Something that I want you to know is that “ there is no assurance is given on this engagement but only factual findings
‘’
• how?
• Agreed upon procedures is an engagement
• (i) in which an auditor is engaged to carry out procedures of an audit nature;
• (ii) to which the auditor and the entity and any appropriate third parties have agreed and
• (iii) to report on factual findings.
• In an ‘agreed upon procedures’ engagement, the auditor is engaged in performing certain procedures
concerning individual items of financial data e.g. accounts receivable.
•
•
 COMPILATIONS
• finally let discuss compilation as the one of the non statutory audit.
• Understand that “ compilation this is more accounting services in which the professional
accountant assist in preparing the financial statements without expressing any assurance that the
statements are accurate and complete.
• Where
• Compilation involve collection ,classification and summarizing of financial information.
• It does not give assurance , it give only compiled information.
• Compiled information should contain reference in a front page or on each page “ compiled
without audit ‘’ or refers to the compiled report.
 CODES OF ETHICS
• Are there to regulates the behaviors of an auditors
• Integrity – to be straights forwards and to disclose the information honesty , open and
understandable
• Objectivity – to avoid conflicts of interest
• Confidentiality means do not disclose information of an entity to any , unless there is legal
requirements.
• Professional competent – use all skills and knowledge acquired in the field to face complex issue
• Professional behaviors to comply with all general accepted accounting policies and standard.
 TRY TO DISCUSS THREAT OF AN AUDITORS AND SAFEGUARD
• SOMETIMES AUDITORS FACE DIFFICULT ENVIRONMENTS
• familiarity threat is where auditors face the family relation ship while performing duties
• Self review threat – where an auditors audits their own work
• Self interest threat – where an auditors having parts of ownership in the company
• Advocate threat is where an auditor acts as advocate to the clients.
 QUALITIES OF AN AUDITOR
• This is my last session to discuss with you we have discussed that auditors are their to provide assurance
and sometimes they perform beyond their duties ( spin off effect) such as advising management , do you
think what are the qualities of an auditors ?
• The following are the some of the qualities of an auditors
• 1. competent- auditor must be competent to carry out audit and he is required to do the following
Comply with accounting principle and auditing standard.
Aware of business law and taxation.
Aware of their duties
Aware of their rights.
Note that possessing knowledge of audit and accounting is not sufficient to carry out audit. But auditor
must posses knowledge , skills and experience to carry out complex audit.
2. Independent- professionally the independent that are being discussed here is independent of mind and
environment.
THANK YOU