Quick Revision: Audit and accounting

Audit and accounting:

Auditing is defined as the systematic and independent assessment and examination of data, statement, records, operations and performance, financial or otherwise of an enterprise.

Objectives of Auditing:

PRIMARY OBJECTIVE

Examining the system of Internal check
Checking arithmetical accuracy of books of accounts
Verifying the authenticity and validity of transactions.
Checking the proper distinction of capital and revenue of transactions
Conforming existence and value of assets and liabilities.

SECONDARY OBJECTIVE

Detection and prevention of errors
Under or over valuation of stock
Detection and prevention of frauds

OTHER OBJECTIVE

To provide information to the Income tax Authority
To satisfy the provision of the Company Act
To have moral effect

Social Audit

Social Audit: It is an independent and systematic assessment and evaluation of an organisation as it relates to the attainment of its social goals. It is an instrument of social accountability of an organisation.

Basis of Social Audit: Social Audit is based on the principle that democratic local governance should be carried out as far as possible, with the Consent and understating of all concerned.

Objectives of social Audit:

To identify and measure the periodic net social contribution of an individual firm.
To help determine whether an individual firm plans and strategies and practices are carried out in accordance with social principle.
To make available in an optimum manner to all social commitments, relevant information on a firm’s objective, ultimate goals, policies, programmes, performance and contribution to social goals

Expected questions:

Meaning of Auditing
Objectives of Auditing
Social Audit
Basis of social audit
Objectives of social audit

Efficiency Audit:

It indicates towards appraisal or scrutiny of actual performance with reference to expected efficient standards.

Objectives of EA:

Optimum utilisation of Investment
Investment channelized in most profitable lines

Parameters of EA:

Return on Capital.
Capacity Utilisation.
Optimum utilisation of men, machines and materials.
Export performance and import substitution.
Liquidity position
Pay back period.

Performance Audit:

Objective and systematic examination of evidence to ensure that the performance of PSU is adequate.

Elements of Performance Audit:

economy: Resources are acquired at economical price with due regard to appropriate objective, acquired at appropriate time and having appropriate quality
Efficiency : Use of minimum resources to produce maximum output, use of same level of resources to produce more output
Effectiveness: Whether the expenditure incurred meets the intended objective, Deviation between actual and standard objective

Auditing is the process of reviewing and verifying financial statements to ensure that they are accurate and complete. The goal of auditing is to provide assurance to users of financial statements that the statements are free from material misstatement.

Accounting is the process of recording, classifying, and summarizing financial information. The goal of accounting is to provide information about a company’s financial performance to its managers, investors, and creditors.

Financial statements are reports that summarize a company’s financial performance. The three main financial statements are the balance sheet, the income statement, and the statement of cash flows.

Audit reports are documents that communicate the results of an audit. Audit reports typically include an opinion on the financial statements, as well as information about the scope of the audit and any significant findings.

Audit procedures are the steps that auditors take to gather evidence about the financial statements. Audit procedures can be classified as tests of controls or substantive procedures.

Audit evidence is the information that auditors use to support their conclusions about the financial statements. Audit evidence can be obtained from a variety of sources, including documents, records, and interviews.

Audit risk is the risk that the auditor will not detect a material misstatement in the financial statements. Audit risk is a function of inherent risk, control risk, and detection risk.

Materiality is the magnitude of an error or omission that could influence the economic decisions of users of financial statements.

Audit sampling is a technique that auditors use to select a subset of items from a Population in order to estimate the characteristics of the entire population.

Analytical procedures are evaluations of financial information made by comparing it to other information, such as budgets, forecasts, and Industry data.

Substantive procedures are audit procedures that are designed to test the accuracy and completeness of the financial statements.

Tests of controls are audit procedures that are designed to evaluate the effectiveness of a company’s INTERNAL CONTROL system.

Audit planning is the process of developing an audit strategy and plan. The goal of audit planning is to ensure that the audit is conducted in an efficient and effective manner.

Audit documentation is the record of the audit work that was performed. Audit documentation is used to support the auditor’s conclusions and to provide evidence of the audit work that was performed.

Audit reporting is the process of communicating the results of an audit to the users of financial statements. The goal of audit reporting is to provide users with information about the fairness of the financial statements.

Audit opinion is a statement that expresses the auditor’s conclusions about the fairness of the financial statements. The auditor’s opinion can be either unqualified, qualified, adverse, or disclaimer of opinion.

Audit engagement letters are letters that are sent to clients at the beginning of an audit engagement. Audit engagement letters describe the scope of the audit and the responsibilities of the auditor and the client.

Audit working papers are the documents that auditors prepare during the course of an audit. Audit working papers include the results of audit procedures, the auditor’s analysis of the evidence, and the auditor’s conclusions.

Audit independence is the auditor’s ability to act with Objectivity and impartiality. Audit independence is essential to the credibility of the audit opinion.

Audit ethics are the principles that guide the conduct of auditors. Audit ethics are designed to ensure that auditors act with Integrity and professionalism.

Audit regulation is the body of laws and regulations that govern the auditing profession. Audit regulation is designed to protect the public interest by ensuring that audits are conducted in a fair and objective manner.

Audit standards are the professional standards that auditors are required to follow. Audit standards are designed to ensure that audits are conducted in a consistent and high-quality manner.

Audit quality is the degree to which an audit meets the professional standards. Audit quality is important because it affects the reliability of the audit opinion.

Audit assurance is the provision of an opinion on the fairness of financial statements. Audit assurance is designed to provide users of financial statements with confidence in the reliability of the financial statements.

Audit risk management is the process of identifying and controlling the risks that could affect the audit. Audit risk management is important because it helps to ensure that the audit is conducted in an efficient and effective manner.

Audit quality control is the process of ensuring that audits are conducted in accordance with the professional standards. Audit quality control is important because it helps to ensure the reliability of the audit opinion.

Audit peer review is the process of reviewing the work of another auditor. Audit peer review is designed to improve the quality of audits by identifying and correcting errors and weaknesses.

Audit inspection is the process of reviewing the work of an audit firm by a government agency or professional organization. Audit inspection is designed to ensure that audit firms are complying with the professional standards.

Auditing

What is auditing?

Auditing is the process of reviewing and evaluating financial statements and other records to ensure that they are accurate and complete.

What are the different types of audits?

There are two main types of audits: financial audits and operational audits. Financial audits are conducted to ensure that financial statements are accurate and complete. Operational audits are conducted to assess the effectiveness of an organization’s operations.

What are the steps in the audit process?

The audit process typically involves the following steps:

Planning the audit
Performing the audit
Reporting the results of the audit
What are the different types of audit reports?

There are two main types of audit reports: unmodified reports and qualified reports. Unmodified reports indicate that the auditor has found no significant issues with the financial statements. Qualified reports indicate that the auditor has found some issues with the financial statements, but that these issues do not affect the overall accuracy of the statements.

What are the benefits of auditing?

Auditing can provide a number of benefits, including:

Increased confidence in the accuracy of financial statements
Improved risk management
Enhanced compliance with regulations
Reduced costs

Accounting

What is accounting?

Accounting is the process of recording, summarizing, and reporting financial information.

What are the different types of accounting?

There are two main types of accounting: financial accounting and managerial accounting. Financial accounting is concerned with the preparation of financial statements for external users, such as investors and creditors. Managerial accounting is concerned with the preparation of financial information for internal users, such as managers and employees.

What are the basic principles of accounting?

The basic principles of accounting include:

The principle of entity
The principle of continuity
The principle of going concern
The principle of consistency
The principle of materiality
The principle of conservatism
The principle of disclosure
What are the different financial statements?

The four main financial statements are:

The balance sheet
The income statement
The statement of cash flows
The statement of changes in Equity
What are the different accounting methods?

There are two main accounting methods: cash basis accounting and accrual basis accounting. Cash basis accounting records income when it is received and expenses when they are paid. Accrual basis accounting records income when it is earned and expenses when they are incurred.

What are the benefits of accounting?

Accounting can provide a number of benefits, including:

Increased efficiency
Improved decision-making
Reduced costs
Enhanced compliance with regulations
Increased transparency

Which of the following is not a type of audit?
(A) Financial audit
(B) Operational audit
(C) Compliance audit
(D) Marketing audit
The purpose of an audit is to:
(A) Ensure that financial statements are accurate
(B) Determine whether a company is in compliance with regulations
(C) Evaluate the effectiveness of a company’s internal controls
(D) All of the above
Which of the following is not a type of accounting?
(A) Financial accounting
(B) Managerial accounting
(C) Tax accounting
(D) Auditing
The purpose of financial accounting is to:
(A) Provide information to investors and creditors
(B) Provide information to managers
(C) Provide information to the government
(D) All of the above
The purpose of managerial accounting is to:
(A) Provide information to investors and creditors
(B) Provide information to managers
(C) Provide information to the government
(D) None of the above
The purpose of tax accounting is to:
(A) Ensure that companies pay the correct amount of taxes
(B) Help companies minimize their tax liability
(C) Both (A) and (B)
(D) None of the above
Which of the following is not a financial statement?
(A) Balance sheet
(B) Income statement
(C) Statement of cash flows
(D) Marketing report
The balance sheet shows a company’s:
(A) Assets, liabilities, and equity
(B) Income and expenses
(C) Cash flows
(D) None of the above
The income statement shows a company’s:
(A) Assets, liabilities, and equity
(B) Income and expenses
(C) Cash flows
(D) None of the above
The statement of cash flows shows a company’s:
(A) Assets, liabilities, and equity
(B) Income and expenses
(C) Cash flows
(D) None of the above
Which of the following is not a basic accounting equation?
(A) Assets = Liabilities + Equity
(B) Income = Revenue – Expenses
(C) Cash flows = Inflows – Outflows
(D) None of the above
The basic accounting equation states that:
(A) Assets must always equal liabilities plus equity
(B) Income must always equal revenue minus expenses
(C) Cash flows must always equal inflows minus outflows
(D) All of the above
Which of the following is not a type of accounting record?
(A) Journal
(B) Ledger
(C) Trial balance
(D) Marketing report
The journal is a record of:
(A) Financial transactions
(B) Non-financial transactions
(C) Both (A) and (B)
(D) None of the above
The ledger is a record of:
(A) Financial transactions
(B) Non-financial transactions
(C) Both (A) and (B)
(D) None of the above
The trial balance is a list of all the accounts in the ledger and their balances:
(A) At the beginning of the accounting period
(B) At the end of the accounting period
(C) Both (A) and (B)
(D) None of the above
Which of the following is not a financial ratio?
(A) Current ratio
(B) Quick ratio
(C) Debt-to-equity ratio
(D) Marketing return on investment
The current ratio is a measure of a company’s:
(A) Ability to pay its short-term debts
(B) Ability to pay its long-term debts
(C) Ability to generate profits
(D) None of the above
The quick ratio is a measure of a company’s:
(A) Ability to pay its short-term debts
(B) Ability to pay its long-term debts
(C) Ability to generate profits
(D) None of the above
The debt-to-equity ratio is a measure of a company’s:
(A) Financial leverage
(B) Profitability
(C) Liquidity
(D) None of the above