BIT-224 Audit Muhammad Khurshid Khan THE DEMAND FOR AUDITING Why do organizations request an audit? –Agency relationship Evidence supporting a demand.
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Presentation on theme: "BIT-224 Audit Muhammad Khurshid Khan THE DEMAND FOR AUDITING Why do organizations request an audit? –Agency relationship Evidence supporting a demand."— Presentation transcript:
THE DEMAND FOR AUDITING Why do organizations request an audit? –Agency relationship Evidence supporting a demand for auditing without regulation: –Early Greece –Extensive non-regulated audit
AUDITING, ATTESTATION, AND ASSURANCE SERVICES AUDITING (broadly defined) is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested parties. AUDITING (narrowly defined) is a written report on the examinations of financial statements for a client.
AUDITING, ATTESTATION, AND ASSURANCE SERVICES ATTESTATION occurs when a practitioner is engaged to issue or does issue a written communication that expresses a conclusion about the reliability of a written assertion that is the responsibility of another party. Examples: –The effectiveness of internal control –Financial information other than the financial statements –Future-oriented financial information –Compliance with statutory, regulatory, or contractual obligations –Management’s discussion and analysis
AUDITING, ATTESTATION, AND ASSURANCE SERVICES ASSURANCE services are independent professional services that improve the quality of information, or its context, for decision makers. Examples: –Risk assessment –Information system reliability –Electronic commerce –Health care performance measurement
THE RELATIONSHIP BETWEEN AUDITING, ATTESTATION, AND ASSURANCE SERVICES Attestation Auditing Assurance
TYPES OF AUDITS Financial statements audits: covers balance sheet, income statement and cash flows. Purpose is to determine whether these statements have been prepared in conformity with GAAP. Compliance audits: seek to determine that whether compliance has been ascertained with established laws and regulations and organization’s rules and procedures.
TYPES OF AUDITS Operational audits: is conducted to measuring performance of an operational unit of an organization to determine its efficiency. Comprehensive audits: include all aspects of interest. Forensic audits: focus on detecting frauds.
Scope of Audit Auditors testify, on the basis of their sample based examination, that financial statements whether fairly or otherwise represent affairs of the enterprise. The auditors do not generate information rather they enhance quality and sufficiency of information for external users. But auditors do not guarantee genuineness or otherwise and efficiency of information.
TYPES OF AUDITORS External auditors: these are external and independent auditors who perform audit to meet legal the requirement. Internal auditors: are employees of an organization and perform audit as internal requirement. Government auditors: perform audit of government departments. Forensic auditors: investigate frauds.
Requirements of Audit Independence; unbiased opinion is possible with freedom from parties involved but fee payment by the audited firm impairs this freedom. Competence: law requires only qualified people member of professional bodies can sign audit report. Honesty: although fee payment can impair freedom of auditor but honesty, discretion and tactfulness of auditors upkeep integrity of auditors. Further professional bodies supervise and inspect auditors to ensure their integrity.