Audit Chapter 1.docx - Audit Chapter 1 u2013 Introduction...

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Audit Chapter 1 – Introduction to Auditing Five steps to Auditing: Step 1: when we appoint an auditor o The board of directors, specifically the audit committee of the BODs will go about hiring an independent external auditor. o Board of Directors through the shareholders chooses and appoints the external auditor at the organization's annual general meeting or before it. Step 2: when the auditor excepts an auditing project o The auditor still have the prerogative to determine whether or not they want to accept the appointment. o At this stage of acceptance, the auditor will be informed of the scope of the audit, as well as their responsibilities Step 3: when an auditor performs the planning for that audit o Is all about understanding the client's business processes and identifying and assessing different risks the organization possesses and familiarize ourselves with the controls that the organization possesses as well. o Auditor will design at different testing procedures. Step 4: All of the field work, which takes the biggest chunk of time o Fieldwork is the performance of the planned audit procedures. Step 5: is about the auditor completion procedures, as well as reporting. o The completion procedures and reporting is all about concluding on the audit procedures. o During completion, we do things like consider subsequent events, going concern issues and events which might not have been known to the auditor before. o After, the audit opinion is drafted and communicated in an independent auditor’s report o Then an additional report, which is called the management representation letter or the management REP letter, where the auditor communicates other findings including deficiencies and internal control and other findings that are important to the users of the financials. Introduction: The Concept of Auditing The role of audits is critical in the current business environment Important decisions are made on the basis of accounting information. Audits reduce the risk that these decisions will be based on inaccurate information. Auditors provide assurance as to the accuracy of accounting information. This creates “three-party accountability.” Three party accountability is when one party has to rely on the auctions and information provided by another party who may not share the same interests Is a three point relationship amongst the auditor of the financial information, management preparing the financial information or the company, and the users of the financial information which can include the government, banks, lenders, creditors, new potential purchasers of an organization and shareholders if it’s a public entity Objectives of each party: Users: Want accurate and timely financial information from which they can make decisions
Management: presenting their numbers in the best possible way, to potentially maximize profit, revenue, assets while minimizing liabilities and expenses.

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