<<–2/”>a >a href=”https://exam.pscnotes.com/auditing/”>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
- 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). 2. 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. 3. 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
- 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 reviewing and evaluating financial statements, records, and other documents to ensure that they are accurate and complete. Auditing can be conducted by internal auditors, who are employees of the company being audited, or by external auditors, who are independent professionals.
The objectives of auditing are to provide assurance to users of financial statements that the statements are free from material misstatement, to detect and prevent fraud, and to improve the efficiency and effectiveness of internal controls.
There are three main types of auditing: financial auditing, operational auditing, and compliance auditing. Financial auditing is the most common type of auditing and involves the review of financial statements to ensure that they are accurate and complete. Operational auditing is the review of a company’s operations to identify areas where efficiency and effectiveness can be improved. Compliance auditing is the review of a company’s compliance with laws and regulations.
There are a number of auditing standards that auditors must follow, including the International Standards on Auditing (ISAs) and the Statements on Auditing Standards (SASs). The ISAs are developed by the International Auditing and Assurance Standards Board (IAASB), which is an independent standard-setting body that is part of the International Federation of Accountants (IFAC). The SASs are developed by the Auditing Standards Board (ASB), which is a private-sector, not-for-profit organization that is responsible for setting auditing standards in the United States.
Auditors use a variety of procedures to gather evidence to support their findings. These procedures may include inspecting documents, observing activities, interviewing people, and recalculating amounts.
Auditors must document their work in order to support their findings and conclusions. The documentation should be sufficient to enable an independent auditor to understand the audit procedures that were performed, the evidence that was obtained, and the conclusions that were reached.
Auditors must adhere to ethical standards in their work. These standards include independence, Objectivity, professional competence, and due care.
Auditors face a number of risks in their work, including the risk of material misstatement, the risk of fraud, and the risk of non-compliance with laws and regulations.
Auditors also face a number of challenges in their work, including the complexity of financial reporting, the ever-changing regulatory environment, and the increasing demands of users of financial statements.
Despite the risks and challenges, auditing is a valuable service that can provide assurance to users of financial statements, detect and prevent fraud, and improve the efficiency and effectiveness of internal controls.
Auditing careers offer a variety of opportunities for individuals with a variety of skills and interests. Auditors can work in a variety of industries, including public accounting, private Industry, government, and non-profit organizations. Auditors can also work in a variety of roles, including financial auditors, operational auditors, and compliance auditors.
There are a number of educational and certification requirements for auditors. Most auditors have a bachelor’s degree in accounting or a related field. Some auditors also have a master’s degree in accounting or a related field. In addition to Education, auditors must also be certified by a professional organization, such as the American Institute of Certified Public Accountants (AICPA).
There are a number of professional associations for auditors, including the AICPA, the Institute of Internal Auditors (IIA), and the Association of Certified Fraud Examiners (ACFE). These associations offer a variety of resources and support to auditors, including continuing education, networking opportunities, and publications.
There are a number of auditing publications available, including the Journal of Accountancy, the Auditing Journal, and the International Journal of Auditing. These publications provide information on auditing theory, practice, and research.
There are a number of auditing software programs available, including ACL, IDEA, and Audit Command Language (ACL). These programs can help auditors to gather, analyze, and report on audit evidence.
There are a number of auditing tools available, including calculators, spreadsheets, and databases. These tools can help auditors to perform their work more efficiently and effectively.
There are a number of auditing resources available, including websites, books, and articles. These resources can provide information on auditing theory, practice, and research.
Auditing is a process of gathering and evaluating evidence to determine whether an organization’s financial statements are accurate and reliable. The objectives of auditing are to provide assurance to users of financial statements that the statements are free from material misstatement, and to detect and report any material misstatements that are found.
Here are some frequently asked questions about auditing:
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What is auditing?
Auditing is a process of gathering and evaluating evidence to determine whether an organization’s financial statements are accurate and reliable. -
What are the objectives of auditing?
The objectives of auditing are to provide assurance to users of financial statements that the statements are free from material misstatement, and to detect and report any material misstatements that are found. -
Who are auditors?
Auditors are independent professionals who are responsible for conducting audits of financial statements. -
What are the different types of audits?
There are two main types of audits: financial audits and operational audits. Financial audits are conducted to determine whether an organization’s financial statements are accurate and reliable. Operational audits are conducted to evaluate the effectiveness of an organization’s operations. -
What are the different phases of an audit?
The three main phases of an audit are planning, fieldwork, and reporting. Planning involves developing an audit strategy and obtaining an understanding of the organization’s business. Fieldwork involves gathering evidence to support the audit opinion. Reporting involves communicating the audit results to the organization’s management and to users of the financial statements. -
What are the different types of evidence?
There are two main types of evidence: documentary evidence and testimonial evidence. Documentary evidence is evidence that is in writing, such as financial statements, contracts, and invoices. Testimonial evidence is evidence that is provided by people, such as interviews with management and employees. -
What are the different types of audit opinions?
There are four main types of audit opinions: unqualified opinion, qualified opinion, adverse opinion, and disclaimer of opinion. An unqualified opinion is an opinion that the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. A qualified opinion is an opinion that the financial statements are presented fairly, in all material respects, except for one or more specific matters. An adverse opinion is an opinion that the financial statements are not presented fairly, in all material respects, in accordance with the applicable financial reporting framework. A disclaimer of opinion is an opinion that the auditor is unable to express an opinion on the financial statements. -
What are the different types of audit reports?
There are two main types of audit reports: standard audit reports and modified audit reports. Standard audit reports are reports that express an unqualified opinion on the financial statements. Modified audit reports are reports that express a qualified opinion, an adverse opinion, or a disclaimer of opinion. -
What are the different types of audit firms?
There are two main types of audit firms: public accounting firms and internal audit departments. Public accounting firms are independent firms that provide auditing services to clients. Internal audit departments are departments within organizations that provide auditing services to the organization. -
What are the different types of audit standards?
There are two main types of audit standards: generally accepted auditing standards (GAAS) and International Standards on Auditing (ISAs). GAAS are standards that are issued by the Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA). ISAs are standards that are issued by the International Auditing and Assurance Standards Board (IAASB). -
What are the different types of audit regulations?
There are two main types of audit regulations: Sarbanes-Oxley Act of 2002 (SOX) and the Dodd-Frank Wall Street Reform and Consumer protection Act of 2010 (Dodd-Frank). SOX is a law that was enacted in response to the Enron scandal. Dodd-Frank is a law that was enacted in response to the financial crisis of 2008. -
What are the different types of audit risks?
There are two main types of audit risks: inherent risk and control risk. Inherent risk is the risk that a material misstatement could occur in an account balance or disclosure, assuming that there are no related controls. Control risk is the risk that a material misstatement will not be prevented or detected on a timely basis by the organization’s INTERNAL CONTROL system. -
What are the different types of audit procedures?
There are two main types of audit procedures: substantive procedures and tests of controls. Substantive procedures are procedures that are designed to detect material misstatements in account balances or disclosures. Tests of controls are procedures that are designed to evaluate the effectiveness of an organization’s internal control system. -
What are the different types of audit sampling?
There are two main types of audit sampling: statistical sampling and non-statistical sampling. Statistical sampling is a sampling technique that uses Probability theory to select a sample from a
Question 1
Which of the following is not an objective of auditing?
(A) To ensure that the financial statements are accurate and complete.
(B) To provide assurance to users of the financial statements.
(C) To detect fraud and errors.
(D) To identify areas of improvement in the company’s financial reporting system.
Answer
(C)
Explanation
The objective of auditing is to provide assurance to users of the financial statements that the financial statements are free from material misstatement, whether due to fraud or error. Auditing does not involve the detection of fraud or errors, but rather the assessment of the risk of material misstatement and the procedures necessary to reduce that risk to an acceptable level.
Question 2
Which of the following is not a type of audit?
(A) Financial audit.
(B) Operational audit.
(C) Compliance audit.
(D) Internal audit.
Answer
(D)
Explanation
Internal audit is a type of audit that is conducted by an organization’s own employees. The objective of internal audit is to provide assurance to the organization’s management and board of directors that the organization’s risk management, control, and governance systems are effective.
Question 3
Which of the following is not a characteristic of an independent auditor?
(A) Independence in fact.
(B) Independence in appearance.
(C) Competence.
(D) Due professional care.
Answer
(A)
Explanation
An independent auditor is an auditor who is free from any relationship that could impair his or her objectivity. Independence in fact means that the auditor is not subject to any undue influence from the client. Independence in appearance means that the auditor’s independence must be perceived by third parties as being free from any undue influence.
Question 4
Which of the following is not a principle of auditing?
(A) Professionalism.
(B) Objectivity.
(C) Due care.
(D) Materiality.
Answer
(D)
Explanation
The principles of auditing are the fundamental concepts that guide the auditor’s work. The principles of auditing are:
- Professionalism: The auditor must be competent and have the necessary skills and knowledge to perform the audit.
- Objectivity: The auditor must be independent and free from any bias.
- Due care: The auditor must exercise due care in performing the audit.
- Materiality: The auditor must consider the materiality of the information in the financial statements.
- Completeness: The auditor must obtain sufficient appropriate audit evidence to support the financial statements.
- Accuracy: The auditor must ensure that the financial statements are accurate.
- Conservatism: The auditor must exercise professional judgment in the preparation of the financial statements.
- Disclosure: The auditor must ensure that the financial statements are complete and disclose all relevant information.
Question 5
Which of the following is not a type of audit evidence?
(A) Documentary evidence.
(B) Physical evidence.
(C) Analytical evidence.
(D) Verbal evidence.
Answer
(D)
Explanation
Audit evidence is the information used by the auditor to support the conclusions drawn in the audit report. Audit evidence can be obtained from a variety of sources, including:
- Documentary evidence: This includes documents such as financial statements, contracts, and invoices.
- Physical evidence: This includes tangible items such as inventory and equipment.
- Analytical evidence: This includes information that is derived from the analysis of financial and non-financial data.
- Verbal evidence: This includes information that is obtained from interviews with management, employees, and other third parties.