auditing Flashcards
what audit
- examination of the financial statements of an organization by someone independent of that
organization for objectivity SOFP SOPL SOCF notes accounting policies - The purpose of audit is to give opinion on whether the financial statements give a “True and Fair View”of the
company’s financial position, profit and loss and compliance with International Accounting Standards
external auditor
It is an individual who belongs to an independent audit firm who is a qualified accountant and who is trained to review and verify the accuracy of the
financial statements.
They are appointed for company’s audit by being voted for by shareholders at AGM.
auditor will write a report and will give opinion on whether the financial
statements give a true and fair view.
intenral audit
is an employee of a company and involved in day to day management
of business.They evaluate anti-fraud measures in company, evaluate information security
and risk and evaluate other control systems.It is not legally binding but can add value to
company.
duty of auditor
-sufficient audit evidence to form an opinion
-Assessment of TR TP
-Physical inspection of different assets to verify their values physical inventory count
-Producing auditor’s report
-Auditors must be independent
-Giving opinion that whether financial statements give a “True and Fair”view
auditor report
It is prepared by external auditors of the company for shareholders give an opinion financial statements give a true and fair view .
1) Unqualified: It means that auditors are happy with the financial statements and director’s report. Also,
financial statements do give a true and fair view . free from material frauds and errors.
2) Qualified: It means that director’s found something inaccurate or doubtful in financial statements or
director’s report.In addition, auditor might be unable to sufficient audit evidence to report truthfully
on that something.Also, they do not give a true and fair view of company’s financial position and
profits.
Implications Of A Qualified Auditor’s Report:
-shareholders might sell their shares or potential investors might not buy shares
in the company. difficulty in raising finance by company.
-Selling of shares by existing shareholders or not buying of shares by new investors might cause market
share price/value to decline in the stock market.
- Banks or other lenders will be unwilling to provide loan or invest in company’s debentures thus
difficulty in raising funds.
- Auditor is not satisfied with company’s financial statements.
- Financial statements do not present a true and fair view of the company.
adv audit
- It will help government whether company made a correct tax declaration or not
-It is a requirement by law ltd
-It will give shareholders more confidence that financial statements are accurate and present true and
fair view
-Banks and lenders will be more willing to give loan easy finance
-Also, share price will increase in stock market due to higher demand for shares.
dis audit
-It lacks analysis of qualitative factors such as why sales have declined.
- auditors cannot detect all
errors or frauds.
- Audit is often bound by time limit compromise in quality of audit.
Who Can Sign The Auditor’s Report?
- qualified chartered accountant involved in audit sign name
Also, the name of the independent audit firm involved in audit should also be
written.
On the contrary director, any person related to director cant
whats stewardship
In limited company, stewardship implies that directors are managing company which belongs to shareholders
and report to them and are also accountable to shareholders.
responsibiltiy director
Keep Proper Books Of Account
Preparation Of Financial Statements.
Selecting Accounting Policies to Be Used In Accounting books and Financial Statements.
Atleast two directors sign the “Published Financial Statements”
Protect Assets of Business.
