.
Introduction to Financial
Statements and Audit
Introduction to Financial
Statements and Audit
We cover in this session the following:

1. Introduction to Financial State...
Introduction to Financial Statements
Purpose of Financial Statements
Financial statements are a structured representation ...
Introduction to Financial Statements – User of
Financial Statements
User of the financial statements

Interest of the user...
Why do we audit them- Need for Audit
Principle provides capital
and hires manager
to manage it.

Principle
(Shareholders)
...
M waseem jutt
UNIVERSITY OF CENTRAL PUNJAB
COURSE
MCOM
K1F12MCOM0047
Financial statement and audit major
points for discussion
Objective

Types

Complete process
Regulation

Expectation gap
Objective
• Verify the Financial statements which are true
and fair
• Compliance with international standards of
reporting...
Objectives of Auditing
• Primary Objective (main objective)
–To produce a report by the auditor
of his opinion of the trut...
Objectives of Auditing
• Secondary
– To detect errors and fraud ( Consider
materiality)
– To prevent errors and fraud by t...
Talha shahzadi
UNIVERSITY OF CENTRAL PUNJAB
COURSE
MCOM
K1F12MCOM0004
Types of Audit

Internal audit not required by law but external
audit is require in some situations.
Internal audit do only for in these
situations
• The exercise of special investigations on detection
of fraud.
• The prepa...
Internal auditing

External auditing

Objectives

To advise management on whether To provide an opinion on whether
the org...
Statutory
audit

Nonstatutory
audit

• carried because the law requires them.
Statutes include Companies Act,
Parastatal o...
Planning of the audit

Complete
process of audit

Assessment of the accounting and internal
control systems and audit risk...
Rana sohail
UNIVERSITY OF CENTRAL PUNJAB
COURSE
MCOM
K1F12MCOM00o07
AUDITING, ATTESTATION, AND ASSURANCE
SERVICES
• ATTESTATION occurs when a practitioner is engaged to
issue or does issue a...
AUDITING, ATTESTATION, AND ASSURANCE SERVICES

ASSURANCE services are independent
professional services that improve the q...
•

IFAC (international federation for accountancy)
IFAC is comprised of 179 members and associates in 130
countries, repre...
Subsidiary boards
i) IAASB
The International Auditing and Assurance
Standards Board (IAASB) is an independent
standard-set...
Ejaz gadi
UNIVERSITY OF CENTRAL PUNJAB
COURSE
MCOM
K1F12MCOM0025
Professional ethics
• The International Ethics Standards Board for
Accountants (IESBA) is an independent standardsetting b...
Conceptual framework
principal
threats
Safe guards
Principal
• Objectivity ( auditor must be independent)
• Integrity ( auditor must be honest and
punctual)
• Professional c...
Malik saqib
UNIVERSITY OF CENTRAL PUNJAB
COURSE
MCOM
K1F12MCOM0025
Threats
• interest threat ( auditor must be independent
person, he have no any interest in company
and its profits)
• Advo...
Expectation gap
• Auditor not prepare the financial statements
of that company where he is doing audit.
• Qualified report...
financial statements and audit
financial statements and audit
financial statements and audit
financial statements and audit
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financial statements and audit

  1. 1. .
  2. 2. Introduction to Financial Statements and Audit
  3. 3. Introduction to Financial Statements and Audit We cover in this session the following: 1. Introduction to Financial Statements 2. User’s of financial statements 3. Why do we audit them
  4. 4. Introduction to Financial Statements Purpose of Financial Statements Financial 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.
  5. 5. Introduction to Financial Statements – User of Financial Statements User of the financial statements Interest of the user Equity 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 creditors ie, existing and potential holders of debentures and loan stock, and providers of short-term loans The 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 contacts including customers, trade creditors, competitors and potential take-over bidders Whether 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 authorities Interested 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 groups Trends and recent development in the prosperity of the entity and range of it’s activities.
  6. 6. Why do we audit them- Need for Audit Principle provides capital and hires manager to manage it. Principle (Shareholders) Information irregularity and conflict of interest lead to information risk for the principle Directors Director is accountable to Principle; provides financial reports. Auditor gathers evidence to evaluate fairness of manager financial statements. Auditor Directors hires audit to report on the fairness of manager financial statements. Risk information irregularity of principle reduce.
  7. 7. M waseem jutt UNIVERSITY OF CENTRAL PUNJAB COURSE MCOM K1F12MCOM0047
  8. 8. Financial statement and audit major points for discussion Objective Types Complete process Regulation Expectation gap
  9. 9. Objective • Verify the Financial statements which are true and fair • Compliance with international standards of reporting (IAS-1) • International accounting standard1(presentation f/s)
  10. 10. Objectives of Auditing • Primary Objective (main objective) –To produce a report by the auditor of his opinion of the truth and fairness of financial statements so that any person reading or using them can have belief in them @Sako Mayrick 2006
  11. 11. Objectives of Auditing • Secondary – To detect errors and fraud ( Consider materiality) – To prevent errors and fraud by the deterrent and moral effect of the audit – To provide spin- off effects. The auditor will be able to assist his clients with accounting , systems, taxation , financial , and other problems. @Sako Mayrick 2006
  12. 12. Talha shahzadi UNIVERSITY OF CENTRAL PUNJAB COURSE MCOM K1F12MCOM0004
  13. 13. Types of Audit Internal audit not required by law but external audit is require in some situations.
  14. 14. Internal audit do only for in these situations • The exercise of special investigations on detection of fraud. • The preparation and documentation of internal procedures and processes in accordance with client needs and in accordance with regulatory bodies' requirements. • The design and implementation of internal audit programs. • The preparation of internal audit reports for management use and for company internal audit committees.
  15. 15. Internal auditing External auditing Objectives To advise management on whether To provide an opinion on whether the organization has sound the financial statements provide systems of internal controls to a true and fair view protect the organization against loss Legal basis All areas of the organization, Financial focus operational as well as financial Scope All areas of the organization, Financial focus operational as well as financial Approach Increasingly risk base Assess risks Evaluate system of controls Test operation of system Make recommendation improvements Responsibility To Increasingly risk based Test underlying transactions that form the basis of the financial statements for advice and make To form opinion on whether the recommendations on the internal financial statements provide a control and corporate true and fair view. governance @Sako Mayrick 2006
  16. 16. Statutory audit Nonstatutory audit • carried because the law requires them. Statutes include Companies Act, Parastatal organization Act • Not compulsory for private companies • Only require for the satisfaction of shares holders
  17. 17. Planning of the audit Complete process of audit Assessment of the accounting and internal control systems and audit risk assessments Consideration of the ways in which audit evidence can be sought Testing of Internal Controls ‘test of control’ Reduced testing of transactions and balances “substantive procedures’ Extensive testing of transactions and balances ‘substantive procedures’ Review of financial statements @Sako Mayrick 2006 Audit Report
  18. 18. Rana sohail UNIVERSITY OF CENTRAL PUNJAB COURSE MCOM K1F12MCOM00o07
  19. 19. 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 @Sako Mayrick 2006
  20. 20. 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 @Sako Mayrick 2006
  21. 21. • IFAC (international federation for accountancy) IFAC is comprised of 179 members and associates in 130 countries, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce. IFAC members are professional accountancy organizations recognized by law or general consensus within their countries as substantial national organizations. National organizations may apply to become an IFAC associate where the organization is working toward membership.
  22. 22. Subsidiary boards i) IAASB The International Auditing and Assurance Standards Board (IAASB) is an independent standard-setting body that serves the public interest by setting high-quality international standards for auditing. ii) IFRS ( international financial reporting standard) iii) IAS (international accounting standard
  23. 23. Ejaz gadi UNIVERSITY OF CENTRAL PUNJAB COURSE MCOM K1F12MCOM0025
  24. 24. Professional ethics • The International Ethics Standards Board for Accountants (IESBA) is an independent standardsetting body that serves the public interest by setting high-quality ethical standards for professional accountants and by facilitating the convergence of international and national ethical standards, including auditor independence requirements, through the development of a healthy, internationally appropriate code of ethics.
  25. 25. Conceptual framework principal threats Safe guards
  26. 26. Principal • Objectivity ( auditor must be independent) • Integrity ( auditor must be honest and punctual) • Professional competence ( update with knowledge and standards • Confidentiality (auditor don’t share the secrecy of company to others. • Professional behavior ( auditor behavior must be the professional.
  27. 27. Malik saqib UNIVERSITY OF CENTRAL PUNJAB COURSE MCOM K1F12MCOM0025
  28. 28. Threats • interest threat ( auditor must be independent person, he have no any interest in company and its profits) • Advocacy ( he is not doing any work on company behalf like negotiate with others organizations and companies) • Intimation( he is purely independent person)
  29. 29. Expectation gap • Auditor not prepare the financial statements of that company where he is doing audit. • Qualified reports are the negative report of the organization while unqualified reports are positive reports of the company • Auditor is not hire for the detection of fraud while he is hire for opinions on statements, but if he find any detection he will point out it.
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