§Review the definition of “financial statements”,§How to define “External Auditing” vs. “Internal Auditing? What are the keydeterminants?§Determine the factors to consider in accepting the audit engagement of aprospective client;§Identify the majors steps in audit planning & analyze how to assess risks;§Discuss the techniques used to obtain an in-depth understanding ofinternal control, then consider how to establish an overall audit strategy.SECTION 1Financial Statements RevisitedAC504 - F2017Session 1: Introduction to Auditing11Financial Statements Revisited –Purpose of Financial StatementsAC504 - F2017Session 1: Introduction to Auditing12Financial statements are a structured representation of the financial position (Balance Sheet) and financial performance (Income Statement) of an entity. The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. Financial statements also show the results of management’s stewardship of the resources entrusted to it.
RSB (F2017)5Financial Statements Revisited – Component of Financial StatementsAC504 - F2017Session 1: Introduction to Auditing13Components of Financial Statements:A complete set of financial statements (IFRS Standards) comprises:a balance sheet;an income statement;a statement of changes in equity showing either:all changes in equity, orchanges in equity other than those arising from transactions with equity holders acting in their capacity as equity holders;a cash flow statement; andnotes, comprising a summary of significant accounting policies and other explanatory notes.Financial Statements Revisited –User of Financial StatementsAC504 - F2017Session 1: Introduction to Auditing14User of the financial statementsInterest of the userEquity investors(existing and potential)They are interested whether buy, hold or sell the shares in hand and also enable them in payment of dividends.Loan creditorsi.e., existing and potential holders of debentures and loan stock, and providers of short-term loansThe amount will be paid when due and for continuation of the business.Employees(existing, potential and past)Interested in stability and profitability for employment opportunities, remuneration and retirement benefits.Business contactsincluding customers, trade creditors, competitors and potential take-over biddersWhether the payment of loan will be made in due dates and enable sustainability of business for future business with the enterprise.Government, including tax authorities, government departments and local authoritiesInterested in allocation of resources and also to regulate the activities of an enterprise and determining tax policies and as a basis for national income.Public, including tax payers, ratepayers and environmental groupsTrends and recent development in the prosperity of the entity and range of it’s activities.Basic Accounting PrinciplesAC504 - F2017