Auditing

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AUDITING

 

Auditing is the on-site verification activity, such as inspection or examination, of a process or quality system, to ensure compliance to requirements. An audit can apply to an entire organization or might be specific to a function, process, or production step. 

 


Meaning of Auditing:


 

Auditing is an examination of the books of accounts and vouchers of the business by an independent person who should be qualified for the job, in order to ascertain their accuracy.


Objectives of Auditing:


 

The basic objective with which auditing is done are:

 

1. Verification of accounts and statements.

2. Detection of errors or frauds.

3. Prevention of errors or frauds.

 


Types of audits

 

  1. Product audit – An examination of a particular product or service (hardware, processed material, Software) to evaluate whether it conforms to requirements (that is, specifications, performance standards, and customer requirements).

 

  1. Process audit – A verification that processes are working within established limits. It evaluates an operation or method against predetermined instructions or standards to measure conformance to these standards and the effectiveness of the instructions. Such an audit may:

 

 

    • Check conformance to defined requirements such as time, accuracy, temperature, pressure, composition, responsiveness, amperage, and component mixture.
    • Examine the Resources (equipment, materials, people) applied to transform the inputs into outputs, the Environment, the methods (procedures, instructions) followed, and the measures collected to determine process performance.
    • Check the adequacy and effectiveness of the process controls established by procedures, work instructions, flowcharts, and training and process specifications.

 

  1. System audit – An audit conducted on a management system. It can be described as a documented activity performed to verify, by examination and evaluation of objective evidence, that applicable Elements of the system are appropriate and effective and have been developed, documented, and implemented in accordance and in Conjunction with specified requirements.
    • A quality management system audit evaluates an existing quality program to determine its conformance to company policies, contract commitments, and regulatory requirements.
    • Similarly, an environmental system audit examines an environmental management system, a food safety system audit examines a food safety management system, and safety system audits examine the safety management system.


Internal & external audits: – first, second and third party audits

  • A first-party audit is performed within an organization to measure its strengths and weaknesses against its own procedures or methods and/or against external standards adopted by (voluntary) or imposed on (mandatory) the organization. A first-party audit is an internal audit conducted by auditors who are employed by the organization being audited but who have no vested interest in the audit results of the area being audited.
  • A second-party audit is an external audit performed on a supplier by a customer or by a contracted organization on behalf of a customer. A contract is in place, and the goods or Services are being, or will be, delivered. Second-party audits are subject to the rules of contract law, as they are providing contractual direction from the customer to the supplier. Second-party audits tend to be more formal than first-party audits because audit results could influence the customer’s purchasing decisions.
  • A third-party audit is performed by an audit organization independent of the customer-supplier relationship and is free of any conflict of interest. Independence of the audit organization is a key component of a third-party audit. Third-party audits may result in certification, registration, recognition, an award, license approval, a citation, a fine, or a penalty issued by the third-party organization or an interested party.

 


Phases of an audit

 

  1. Audit preparation – Audit preparation consists of everything that is done in advance by interested parties, such as the auditor, the lead auditor, the client, and the audit program manager, to ensure that the audit complies with the client’s objective. The preparation stage of an audit begins with the decision to conduct the audit. Preparation ends when the audit itself begins.
  2. Audit performance – The performance phase of an audit is often called the fieldwork. It is the data-gathering portion of the audit and covers the time period from arrival at the audit location up to the exit meeting. It consists of activities including on-site audit management, meeting with the auditee, understanding the process and system controls and verifying that these controls work, communicating among team members, and communicating with the auditee.
  3. Audit reporting – The purpose of the audit report is to communicate the results of the investigation. The report should provide correct and clear data that will be effective as a management aid in addressing important organizational issues. The audit process may end when the report is issued by the lead auditor or after follow-up actions are completed.
  4. Audit follow-up and closure – According to ISO 19011, clause 6.6, “The audit is completed when all the planned audit activities have been carried out, or otherwise agreed with the audit client.” Clause 6.7 of ISO 19011 continues by stating that verification of follow-up actions may be part of a subsequent audit.

 


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Auditing is a process of gathering and evaluating evidence to determine whether an organization’s financial statements are accurate and fairly presented. Auditing standards are the rules that auditors follow to ensure that their work is conducted in a professional and objective manner. Auditing procedures are the steps that auditors take to gather evidence about an organization’s financial statements. Auditing reports are the documents that auditors prepare to communicate their findings to the organization’s management and its shareholders.

Auditing risks are the potential for errors or misstatements in an organization’s financial statements. Auditing evidence is the information that auditors use to support their findings. Auditing sampling is the process of selecting a representative sample of an organization’s transactions to test. Auditing independence is the auditor’s ability to act impartially and without bias. Auditing ethics are the principles that guide auditors’ professional conduct. Auditing documentation is the records that auditors keep of their work. Auditing planning is the process of developing an approach to the audit. Auditing supervision is the process of overseeing the work of other auditors. Auditing review is the process of checking the work of other auditors. Auditing closure is the process of completing the audit and issuing the audit report. Auditing quality control is the process of ensuring that the audit is conducted in accordance with professional standards.

Auditing assurance is the process of providing an opinion on the fairness of an organization’s financial statements. Auditing risk assessment is the process of identifying and assessing the risks of material misstatement in an organization’s financial statements. Auditing control assessment is the process of evaluating the effectiveness of an organization’s internal controls. Auditing substantive testing is the process of gathering evidence to support the assertions made in the financial statements. Auditing analytical procedures are the procedures that auditors use to identify unusual or unexpected relationships in the financial statements. Auditing compliance testing is the process of gathering evidence to determine whether an organization has complied with applicable laws and regulations.

Financial statement auditing is the process of auditing an organization’s financial statements. Operational auditing is the process of auditing an organization’s operations. Compliance auditing is the process of auditing an organization’s compliance with applicable laws and regulations. Internal auditing is the process of auditing an organization’s internal controls. External auditing is the process of auditing an organization’s financial statements for third-party users. Government auditing is the process of auditing government agencies. Public sector auditing is the process of auditing organizations that are owned or controlled by the government. Private sector auditing is the process of auditing organizations that are not owned or controlled by the government. Nonprofit auditing is the process of auditing nonprofit organizations. Forensic auditing is the process of auditing financial statements for evidence of fraud or other illegal activity. Information technology auditing is the process of auditing an organization’s information technology systems. Environmental auditing is the process of auditing an organization’s environmental impact. Social auditing is the process of auditing an organization’s social responsibility practices. Sustainability auditing is the process of auditing an organization’s sustainability practices. Integrated auditing is the process of auditing an organization’s financial statements, operations, and compliance with applicable laws and regulations. Continuous auditing is the process of auditing an organization’s financial statements on an ongoing basis. Real time auditing is the process of auditing an organization’s financial statements as they are being prepared. Predictive auditing is the process of using predictive analytics to identify potential risks of material misstatement in an organization’s financial statements. Prescriptive auditing is the process of using prescriptive analytics to identify potential opportunities for improvement in an organization’s operations. Auditing consulting is the process of providing advice to organizations on how to improve their internal controls. Auditing training is the process of providing training to auditors on how to conduct audits. Auditing Education is the process of providing education to students on how to become auditors. Auditing research is the process of conducting research on auditing issues. Auditing professional organizations are organizations that provide support and resources to auditors. Government regulation of auditing is the process of regulating the auditing profession by government agencies. International auditing is the process of auditing organizations that operate in multiple countries.

Auditing is a complex and demanding profession that requires a high level of skill and knowledge. Auditors play an important role in ensuring the accuracy and fairness of financial statements and in protecting the interests of investors and other stakeholders.

Accounting

  1. What is accounting?
    Accounting is the process of recording, classifying, summarizing, and reporting financial information.

  2. What are the three main types of accounting?
    The three main types of accounting are financial accounting, managerial accounting, and tax accounting.

  3. What are the basic principles of accounting?
    The basic principles of accounting are Objectivity, relevance, reliability, comparability, consistency, materiality, and conservatism.

  4. What are the financial statements?
    The financial statements are the income statement, balance sheet, and statement of cash flows.

  5. What is the income statement?
    The income statement is a financial statement that reports a company’s revenues, expenses, and net income for a specific period of time.

  6. What is the balance sheet?
    The balance sheet is a financial statement that reports a company’s assets, liabilities, and Equity at a specific point in time.

  7. What is the statement of cash flows?
    The statement of cash flows is a financial statement that reports a company’s cash flows from operating activities, investing activities, and financing activities for a specific period of time.

  8. What is a journal entry?
    A journal entry is a record of a financial transaction in a company’s accounting records.

  9. What is a ledger?
    A ledger is a book of accounts that contains all of a company’s financial transactions.

  10. What is a trial balance?
    A trial balance is a list of all of a company’s accounts and their balances at a specific point in time.

Finance

  1. What is finance?
    Finance is the study of Money, Banking, investments, and other financial instruments.

  2. What are the different types of Financial Markets?
    The different types of financial markets are the stock market, the bond market, and the Foreign Exchange market.

  3. What are the different types of financial instruments?
    The different types of financial instruments are stocks, Bonds, Options, and futures.

  4. What is a stock?
    A stock is a share of ownership in a company.

  5. What is a bond?
    A bond is a loan that a company or government issues to raise money.

  6. What is an option?
    An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an asset at a specified price on or before a specified date.

  7. What is a future?
    A future is a contract to buy or sell an asset at a specified price on a specified date in the future.

  8. What is risk?
    Risk is the possibility of loss or harm.

  9. What is return?
    Return is the amount of money that an investor makes on an Investment.

  10. What is diversification?
    Diversification is the practice of investing in a variety of assets to reduce risk.

Economics

  1. What is economics?
    Economics is the study of how people make choices under conditions of scarcity.

  2. What are the different types of Economic Systems?
    The different types of economic systems are capitalism, Socialism, and Communism.

  3. What is a market economy?
    A market economy is an economic system in which prices are determined by supply and demand.

  4. What is a command economy?
    A command economy is an economic system in which the government controls all aspects of the economy.

  5. What is a Mixed Economy?
    A mixed economy is an economic system in which the government and the private sector both play a role in the economy.

  6. Inflation/”>What is Inflation?
    Inflation is a general increase in prices and a decrease in the purchasing power of money.

  7. What is Deflation?
    Deflation is a general decrease in prices and an increase in the purchasing power of money.

  8. What is Unemployment?
    Unemployment is the state of being without work.

  9. What is POVERTY?
    Poverty is the state of being poor.

  10. What is economic Growth?
    Economic growth is an increase in the amount of goods and services produced by an economy.

  1. Which of the following is not a type of audit?
    (A) Financial audit
    (B) Operational audit
    (C) Compliance audit
    (D) Internal audit

  2. Which of the following is the most common type of audit?
    (A) Financial audit
    (B) Operational audit
    (C) Compliance audit
    (D) Internal audit

  3. The purpose of an audit is to:
    (A) Determine whether financial statements are accurate
    (B) Determine whether an organization is in compliance with laws and regulations
    (C) Determine whether an organization is operating efficiently and effectively
    (D) All of the above

  4. An auditor is an independent professional who:
    (A) Reviews financial statements to determine whether they are accurate
    (B) Reviews an organization’s operations to determine whether they are in compliance with laws and regulations
    (C) Reviews an organization’s operations to determine whether they are efficient and effective
    (D) All of the above

  5. The auditor’s report is a document that:
    (A) States the auditor’s opinion on the financial statements
    (B) States the auditor’s opinion on an organization’s compliance with laws and regulations
    (C) States the auditor’s opinion on an organization’s operations
    (D) All of the above

  6. The auditor’s report is typically divided into four sections:
    (A) Introduction, scope, opinion, and findings
    (B) Introduction, scope, findings, and recommendations
    (C) Introduction, scope, opinion, and recommendations
    (D) Introduction, scope, findings, and conclusions

  7. The auditor’s opinion is the most important part of the auditor’s report. The auditor’s opinion can be:
    (A) Unqualified
    (B) Qualified
    (C) Adverse
    (D) Disclaimer

  8. An unqualified opinion means that the auditor believes that the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.
    (A) True
    (B) False

  9. A qualified opinion means that the auditor has some reservations about the financial statements.
    (A) True
    (B) False

  10. An adverse opinion means that the auditor believes that the financial statements are not presented fairly, in all material respects, in accordance with the applicable financial reporting framework.
    (A) True
    (B) False

  11. A disclaimer of opinion means that the auditor is unable to express an opinion on the financial statements.
    (A) True
    (B) False

  12. The auditor’s report is an important document that provides information to users of financial statements. The auditor’s report should be read carefully and understood by all users of financial statements.
    (A) True
    (B) False

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