OTHMAN YEOP ABDULLAH GRADUATE SCHOOL OF BUSINESS

BDAK8033
ACCOUNTING PRACTICE AND REGULATION

AUDITING
 The Audit Committee
The audit committee is a sub-committee of the
board of a company, which has oversight
responsibilities to monitor the integrity of the
financial reporting system and the internal
control system of the company
 The Audit Committee
• https://www.youtube.com/watch?
v=343kcHZRMH8
Shared responsibilities in the financial reporting process
Theoretical framework of audit
Audit Cycle
Audit Quality Framework
 Audit Report

• Providing an independent and expert opinion on the fairness of financial

statements through an audit is the most frequent attestation service
• An audit provides users of financial statements reasonable assurance that the
statements are in conformity with GAAP.

• The standard report meets the standard by:

(1) stating that the audit was performed in conformity with generally
accepted auditing standards and
(2) expressing an opinion that the client’s financial statements are
presented fairly in conformity with generally accepted accounting
principles.
 Audit reporting

1. Report title
• Components of finding
2. Audit report address
report:
3. Introductory paragraph
4. Scope paragraph – Criteria
5. Opinion paragraph – Conditions
6. Name of CPA firm
– Causes
7. Audit report date
– Effects
– Recommendations and/or
Action Plans
 Types of Opinions

1. An unqualified opinion—standard report. This report expresses a “clean opinion” and may
be issued only when the two conditions listed in the preceding section have been met, and
when no conditions requiring explanatory language exist.
2. An unqualified opinion—with explanatory language. In certain circumstances explanatory
language is added to the auditors’ report with no effect on the auditors’ opinion.
3. A qualified opinion. A qualified opinion states that the financial statements are presented
fairly in conformity with generally accepted accounting principles “except for” the effects
of some matter.
4. An adverse opinion. An adverse opinion states that the financial statements are not
presented fairly in conformity with generally accepted accounting principles.
5. A disclaimer of opinion. A disclaimer of opinion means that due to a significant scope
limitation, the auditors were unable to form an opinion or did not form an opinion on the
financial statements.
 Materiality

A misstatement in the financial statements

can be considered material if knowledge of
the misstatement would affect a decision
of a reasonable user of the statements.
 Internal’s Audit role

 The Internal Auditor is not meant to be an adversary but rather a partner.

According to the Institute of Internal Auditors, Internal Auditing provides:
 Assurance that the organization is operating as management intends
(Governance, Risk, Control).
 Insight for improving controls, processes, procedures, performance, and
risk management; and for reducing expenses and managing & controlling
revenues (Catalysts, Analyses, Assessments.)
 Objective assessments of operations (Integrity, Accountability,
Independence.)
***Source: Institute of Internal Auditors, “Value of Internal Auditing
Presentation to Stakeholders”
Internal Audit Roles And Functions
 Common challenges with audit reporting

• Scoping is often not formally communicated to Auditees

• Reports are too voluminous and complex and in some cases too short
• Time taken to publish reports – completion of fieldwork to reporting
• Reports that are not supported by evidence
• Drafting / sometimes English – too much jargon
• Over emphasis of issues
• Personalizing reports
• Negative language
• Poor flow – non critical issues emphasized and critical issues left out etc
 Common Risk Considerations

 Priority of Agency Head or Management and reasons;

 Cause-Suspicion of fraud, improper conduct, blatant disregard for
procedures, suspected misuse or improper use of assets;
 Financial Exposure-Size of auditee or amount of agency assets at risk,
liquidity of assets (easy theft), transaction volume;
 Significance of area to agency operations;
 Changes to laws, rules and regulations;
 Adequacy, effectiveness & quality of internal controls;
 Major changes in technology, operations, programs, systems or controls;
 New programs or initiatives;
 Complexity of operations;
 Rapid growth of the Division;
 Risk Considerations Cont.
Competence, experience or time in position of management for the area or recent
key management personnel changes;
 Competence, experience or time in position of staff, recent key personnel changes
or high staff turnover;
 Significance and number of previous internal and/or external audit findings;
Time since last audit;
 Political or press exposure or general public impact considerations;
 Extent or changes to the computerization of the area;
 Ethical climate such as pressure by management on area to meet objectives;
 Low employee morale or problematic personnel;
 Changes in capabilities or experience of audit staff;
 Audit plans of external auditors;
 Opportunities to achieve operating benefits.

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Audit and risk assessment