1UNIT 1: OVERVIEW OF AUDITING Contents 1.0Aims and Objective 1.1Introduction 1.2Over view of Auditing 1.2.1Definition 1.2.2Demand for Audit 1.2.3Internal Auditing 1.3Types of Auditing 1.3.1Financial Statement Audits1.3.2Compliance Audits1.3.3Operational Audits1.4Summary 1.5Glossary 1.6Answers to Check Your Progress 1.7Model Examination Questions1.0 AIMS AND OBJECTIVES After studying this unit, you should be able to: -explain the meaning of Auditing -explain the need for Auditing -explain Internal Auditing, and -identify the types of Audits. 1.1 INTRODUCTION This unit deals with the definition of Auditing, why there is a demand for Auditing by stock holders, managers, employees, and debt holders, what is the role of Internal Auditing in an organization; and deals with description of types of Audits commonly used by the professional Auditors.
2The public accounting profession (CPA), as we knew it today grew mainly out of the demand for financial statement Audits. Very specific auditing standards, referred to as generally accepted auditing standards (GAAS), are provided for conducting financial statement audits. How ever, In recent years, the profession has been asked to provide services beyond the traditional financial Statement Audit. These include compliance and operational Audits. 1.2.OVERVIEW OF AUDITING 1.2.1 Definition of AuditingThe American Accounting Association, committee on Basic Auditing concepts - Defined Auditing as: Auditing is systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between assertions and established criteria and communicating the results to interested users. The phrases in this definition require additional explanation. The phrase systematic process implies there should be a well-planned approach for conducting an audit. This plan involves objectively obtaining and evaluating evidence. The evidence gathered by the auditor must relate to assertions about economic actions and events. For example. Financial statements prepared by management contain numerous assertions. If the Balance sheet contains amount of Br. 10million for property, plant and equipment, management is asserting (declaring) that the company owns the assts, uses them in the production of goods and services, and that this amount represents their un depreciated historical costs. The Auditor compares the evidence gathered to assertions about economic activity in order to assess the degree of correspondence between those assertions and established criteria. Generally Accepted Accounting Principles (GAAP) are normally used for measuring the degree of correspondence, for financial Audits. The last Phrase, communicating the results to interested Users, is concerned with the type of report the auditor provides to the intended users. (Banker, investors, stockholders, Creditors, e.t.c ).
31.2.2 Demand for AuditThe essence of demand for audit refers to the question “why do organizations request an
- Summer '16
- Financial audit, operational audit