Principles of Auditing Lecture 1 Introduction to Auditing

The negative impact of failed audits, such as loss of public confidence and investors’ trust, is very apparent.

Objectives, Strategies, Processes, Controls, Transactions, Reports.

McGraw-Hill Education 2014.

To provide an independent opinion on the fairness and accuracy of a company's financial statements.

Financing Process, Purchasing Process, Human Resource Management Process, Inventory Management Process, Revenue Process.

Reasonable assurance is achieved when audit risk is at an acceptably low level.

The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud.

Auditors have a personal responsibility to have appropriate competence, comply with ethical requirements, and maintain professional skepticism and professional judgement.

Owners of assets have the right to use the assets in any way they want.

Because an independent professional is perceived to provide a more unbiased opinion.

The rules, processes, and laws by which businesses are operated, regulated, and controlled.

It requires the integrity of financial and non-financial reporting to be upheld as one of the many responsibilities of the Board of Directors of public listed companies.

The auditor plays a crucial role in business and society.

The principal-agent relationship in auditing refers to the dynamic where the principal (e.g., shareholders) hires an agent (e.g., management) to perform tasks on their behalf, and auditors are employed to ensure that the agent's reports are accurate and truthful.

An auditor's opinion on the financial statements will be questioned unless the auditor is truly independent.

To create value for their stakeholders.

To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error.

An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.

A specialised form of assurance engagement.

It is the highest level of assurance that can be given by an auditor to the users of financial statements. Auditors do not provide absolute assurance.

A systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users.

To enhance the degree of confidence of intended users in the financial statements.

Accounting is the recording, classifying, and summarising of economic events in a logical manner for the purpose of providing financial information for decision making.

Materiality refers to the significance of financial information which could influence the decision-making of users of the financial statements.

The Principal-Agent Relationship.

Brokerage firms, corporate giants, stock exchanges, accounting firms, and mutual fund managers.

Auditing is the process of reviewing the financial statements prepared by the management of the company to determine whether they comply with the applicable financial reporting framework, are free of material misstatements, and comply with the requirements of the Companies Act, 2016.

A systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria, and communicating the results to interested users.

The auditor, within the context provided by auditing and ethical standards, applies relevant training, knowledge, and experience in making informed decisions during the audit.

They have a very important role in the functioning of the economy.

An engagement in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria.

Because failure to correct the misstatement may lead to the issuance of a 'clean' audit opinion on materially misstated financial statements.

Auditors focus on determining whether recorded information properly reflects the economic events that occurred during the accounting period.

Relevance and reliability.

Financial statement accounts with the most potential for misstatement.

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Audit evidence that contradicts other evidence, information that raises a question about the reliability of documents and responses to inquiries, conditions indicating possible fraud, and circumstances suggesting the need for additional audit procedures beyond those ordinarily required.

Independence of the auditor.

Auditors collect sufficient appropriate evidence to ensure that management assertions about the financial statements are correct.

Client acceptance/continuance and preliminary engagement activities.

Management assertions are expressed or implied claims by management about information reflected in the financial statements.

Determining whether recorded information properly reflects the economic events that occurred during the accounting period.

Opportunities to market a variety of high-margin non-audit services to their auditees.

It would be too costly for the auditor to examine every transaction.

Consider the preconditions for an audit, understand the entity and its environment, develop an audit strategy and an audit plan.

The threat of legal liability.

Self-regulation is managed by the profession itself, while government regulation involves oversight and enforcement by public authorities.

Financial statements audits, internal control audits, compliance audits, operational audits, and forensic audits.