Auditing

FM 413
Presented by
H.R.Sampath

What is Auditing?
An auditing is critical examination of books, vouchers and other records of business with a view of express of an opinion on the financial statements whether they are showing true and fair view.

The main purpose of auditing is to provide assurance that the financial statements, and assertions provided by company management, are complete and accurate.

Why?
Because of;
Errors and inaccuracies

Omissions of transactions
Biasness of management

Fraud

Basic advantages of auditing

1. Give opinion on true and fairness of financial statements to the users.

2. It provides information about weaknesses in internal controls and give suggestions for improvement
3. Audit contains information about the economy, efficiency, and effectiveness of raising funds and utilization of resources

Objective of Auditing
The objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with Sri

Lanka Accounting Standards and relevant legislation.

Ethical principles governing the auditors professional responsibilities

Independence

Integrity (Honesty)
Objectivity Professional competence and due care Confidentiality Professional behavior Technical standards

Types of External Audits

Interim audits
Year end audit Final audit

Why Auditors give Reasonable Assurance

Use of testing Inherent limitation of Accounting and internal control system Facts are persuasive not conclusive

Types of Audit Risks

Inherent Risk
Control Risk Detection Risk

Auditing Standards
There are 28 Audit Standards categorize under six topics as;
Responsibilities SLAuS 1 - Objective and General Principles Governing an Audit of Financial Statements SLAuS 2 - Terms of Audit Engagements SLAuS 3 - Quality Control for Audit Work SLAuS 4 - Documentation

SLAuS 5 - Fraud and Error

SLAuS 6 - Consideration of Laws and Regulations in an Audit of Financial Statements

2. Planning o SLAuS 7 Planning

o SLAuS 8 - Knowledge of the Business o SLAuS 9 - Audit Materiality

3. Internal Control
o SLAuS 10 - Risk Assessments and Internal Control

o SLAuS 11 - Auditing in a Computer Information Systems Environment

o SLAuS 12 - Audit Considerations Relating to Entities Using Service Organizations

4. Audit Evidence o SLAuS 13 - Audit Evidence o SLAuS 14 - Audit Evidence - Additional Considerations for Specific Items o SLAuS 15 - Initial Engagements - Opening Balances o SLAuS 16 - Analytical Procedures o SLAuS 17 - Audit Sampling o SLAuS 18 - Audit of Accounting Estimates o SLAuS 19 - Related Parties o SLAuS 20 - Subsequent Events o SLAuS 21 - Going Concern o SLAuS 22 - Management Representations

Auditing Standards Con.

5. Using Work Of Others o SLAuS 23 - Using the Work of Another Auditor o SLAuS 24 - Considering the Work of Internal Auditing

o SLAuS 25 - Using the Work of an Expert

Auditing Standards Con.

6. Audit Conclusions & Reporting o SLAuS 26 - The Auditor's Report on Financial Statements o Amendment to SLAuS 26, paragraph 27

o SLAuS 27 - Corresponding Figures

o SLAuS 28 - Other Information in Documents Containing Audited Financial Statements