Share
Explore BrainMass

Auditing a dynamic concept commencing where accountancy ends

Explain the nature and functions of auditing.
Relate your explanation to the audit functions in your organization, or an organization with which you are familiar. :An audit is a dynamic concept that begins where accountancy ends. Auditing is concerned with making and analytical and critical examination of books of account, checking & verification of evidence in support of entries appearing in the books of account, and ascertaining the authenticity of assertions in the financial statements. It is the scrutiny of accounts of the business with the help of vouchers & documents provided to the auditor.

We have the same experience that has been narrated here. Vouchers are same, accounting is same and audit is same.

ââ?¬¢ Describe the elements of the Generally Accepted Auditing Standards (GAAS).:

1) General standards:-
a) The auditor must have adequate technical training & proficiency to perform the audit.
b) The auditor must maintain independence (in fact and appearance) in mental attitude in all matters related to the audit.
c) The auditor must exercise due professional care during the performance of the audit and the preparation of the report. The auditor must diligently perform the audit and report any misleading statements in the report

2) Standards of fieldwork:
i) The auditor must adequately plan the work and must properly supervise any assistants.
ii) The auditor must obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement of the financial statements whether due to error or fraud, and to design the nature, timing, and extent of further audit procedures.
iii) The auditor must obtain sufficient appropriate audit evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit.

3) Standards of reporting

1) The auditor must state in the auditor's report whether the financial statements are presented in accordance with generally accepted accounting principles.
2) The auditor must identify in the auditor's report those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period.
3) When the auditor determines that informative disclosures are not reasonably adequate, the auditor must so state in the auditor's report.
4) The auditor must either express an opinion regarding the financial statements, taken as a whole, or state that an opinion cannot be expressed, in the auditor's report. When the auditor cannot express an overall opinion, the auditor should state the reasons therefore in the auditor's report. In all cases where an auditor's name is associated with financial statements, the auditor should clearly indicate the character of the auditor's work, if any, and the degree of responsibility the auditor is taking, in the auditor's report.

ââ?¬¢ Describe how these standards apply to financial, operational, and compliance audits.

Financial statement audits are performed in coordination with GAAP and other established criteria when obtaining evidence about a companyââ?¬â?¢s presentation of its financial position. Evidence evaluated includes results of operations and cash flows for the purpose of conveying an opinion for users of the financial data. To ensure independence in mental attitude, as noted under GAAS general standards, most states have enacted laws so that only certified public accountants (CPAs) can perform financial statement audits. To further enforce this GAAS element, many corporations hire an external audit firm.

An operational audit evaluates a company's efficiency and effectiveness in regard to operational activities in relation to specified objectives. The standards of field work area of auditing plays an important role in operational audits. A high degree of importance is placed on the auditor's efficiency and effectiveness reports and the auditor's recommendations for improvement by the entity.

A compliance audit determines if a company is acting in accordance with rules and regulations in financial and operational activities. This type of audit demonstrates standards of reporting element of GAAS and a requirement under SOX. "The Sarbanes-Oxley Act of 2002 requires companies to have a dual-purpose audit that audits both the financial statements and management's assertion as to whether it has complied with criteria regarding an adequate system of internal control over financial reporting".

Sarbanes-Oxley Act and the Public Company Accounting Oversight Board
SOX greatly affect how auditors are to perform their jobs. Most notably, specific procedures must be followed when obtaining evidence to opine on. In addition, SOX outlines how internal controls are audited, as the auditor's job is to offer an opinion on the effectiveness of the entityââ?¬â?¢s internal control over financial reporting.
In effort to enhance the efficiency and effectiveness of audits, auditing techniques used by many industry professionals prior to SOX, were no longer deemed acceptable

ââ?¬¢ Explain the effect that the Sarbanes-Oxley Act of 2002, and the Public Company Accounting Oversight Board (PCAOB), will have on audits of publicly traded companies. Sarbanes-Oxley Act and the Public Company Accounting Oversight Board

SOX greatly affect how auditors are to perform their jobs. Most notably, specific procedures must be followed when obtaining evidence to opine on. In addition, SOX outlines how internal controls are audited, as the auditor's job is to offer an opinion on the effectiveness of the entityââ?¬â?¢s internal control over financial reporting.
In effort to enhance the efficiency and effectiveness of audits, auditing techniques used by many industry professionals prior to SOX, were no longer deemed acceptable

ââ?¬¢ Discuss the additional requirements that are placed on auditors from this act and the actions of the PCAOB.

In addition to PCAOB Auditing Standard No. 6, auditors must comply with other requirements, such as: auditing internal controls over financial reporting that is integrated with an audit of financial statements, presenting specific documentation to provide a written record of the basis for the auditorââ?¬â?¢s conclusions, and reporting on previously documented materials. Additional requirements by SOX include restricting auditing companies from providing additional, non-auditing, services.

The need for improved regulation over publicly traded corporations forced new laws to be passed and procedures to be followed by both management and auditors of an entity. Many of the standards required by auditors today are due to newly established criteria by the GAAS, the SOX act passing into law, and PCAOB standards.

Solution Preview

Dear Student,

Please find below the response.

Thanks

Manishi

*****************************************************************************************************************

An audit is a dynamic concept that begins where accountancy ends. Auditing is concerned with making and analytical and critical examination of books of account, checking & verification of evidence in support of entries appearing in the books of account, and ascertaining the authenticity of assertions in the financial statements. It is the scrutiny of accounts of the business with the help of vouchers & documents provided to the auditor.

Schlosser defined auditing as a ââ?¬Å"systematic examination of financial statements records and related operation to determine adherence to generally accepted accounting principals, management policies or stated requirements. The definition extends the scope of auditing to include allied operations in addition to verification of accounting statements. Scope of audit now includes cost audit, management audit, internal audit& quality audit etc. However, based on the purpose of examination, an audit can be broadly classified into:
ââ?¬¢ Independent
ââ?¬¢ Internal
ââ?¬¢ Government
Primary: To examine reliability & validity of financial statements so as to render an opinion on the truth and fairness of the presentation on those statements ââ?¬"An auditor is required to state whether in his opinion (a) Balance Sheet gives a fair view of the state of the companyââ?¬â?¢s affairs at the end of its financial year & (b) profit & loss account gives a true & fair view for its financial year.

Secondary: Detection and prevention of frauds & errors ââ?¬" An error may be defined as any unintentional mistake or incorrect description in the books of account or records whether by way of (a)mathematical or clerical mistakes in the record or data ;(b) oversight or misinterpretation of facts; or (c) misapplication of accounting policies. An error is generally taken to be innocent & not deliberate. Where it appears to be willfully made, it takes the character of a fraud.

Organizations carry out various types of audit, for virtually every function and department, to ensure compliance with regulatory and internal policies. Thus, we have a specialized audits such as quality ...

$2.19