This chapter provides an overview of auditing. It covers topics like generally accepted auditing standards, competence and independence of auditors, audit planning and supervision, audit evidence, gathering evidence through inspection, observation, inquiry and other procedures. It discusses auditing in depth by examining the system and tracing transactions. It also covers test checks, related precautions, factors determining sample size, and compliance with accounting standards and enactments. Finally, it lists various accounting and auditing statements, guidance and standards.

1. CHAPTER 2
AN OVERVIEW OF
AUDITING

2. An Overview of Auditing
 Topics covered;
 Generally accepted auditing practice
 Competence, independence, and confidentiality
 Audit planning and supervision
 Audit evidence
 Gathering audit evidence
 Auditing in depth
 Test check
 Precautions relating test checks
 Sampling factors
 Compliance to accounting, auditing standards and enactments
 Accounting/auditing statements, guidance notes, and standards
 Auditing and information technology

3. Generally Accepted Auditing
Standards
Competency of
the auditor
Well-planned
and supervised
Sufficiency of
data
Professionalism

4. Competence, Independence, and
Confidentiality
 Chartered accountants are competent by
practical training and passing prescribed
examination.
 Acting without fear or favor independent.
 The following persons aren’t independent;
 Employee of the company
 Partner of the company
 A person who has debt
 Must keep all information confidential. Can
disclose in case of legal or professional
requirements.

5. Audit Planning and Supervision
Setting up
clear aim
for -
opinion,
certification
, or advice
Program
the audit
work
Schedule
the task
Deploy the
staff
Co-
ordinate
Supervise
Review the
findings

6. Audit Evidence
 Audit evidence must
be;
 Sufficient
 Appropriate
 Relevant
 Enough
 Procedures followed;
 Compliance- for large
organizations where
systematic
transactions occur
and maintained
meaning internal
control mechanism is
good.
 Substantive –
checking of evidence
for completeness,
accuracy, and validity
within a very good
systematic

7. Gathering Audit Evidence
Inspection
Observation
Inquiry and
confirmation
Computation
Analytical
review

8. Auditing in-Depth
Examinatio
n of
System
applied
For tracing
Certain
transaction
From the
origin
To the
conclusion
Investigatin
g at each
stage
For the
record
created
With the
appropriate
authorizatio
n

9. Test Check
 To select and examine
 A representative sample
 From a large number
 Of similar items
 No need to check all the transaction

10. Test Checks Precautions
 Check every entry
 Randomly
 Different period and entry for different check
 Check for large entry
 Check for entry by different staff
 Avoid cash book audit

11. Factors Determining Size of
Sample
Internal
control
system
Nature
and
volume
of
busines
s
Time
Audit
aim
Risk
toleranc
e level
Previou
s
history
Analytic
al
review

12. Accounting Compliance, Audit
Standards and Enactments
GAA
P
• Double entry
• Book-value vs.
market value
• Accrual concept
• Capital vs. revenue
expenditure
• Conservatism

13. Accounting/Auditing Statements,
Guidance, and Standards
GAAP – Generally
Accepted Accounting
Principles
AS – Accounting
Standards
AAS – Auditing and
Assurance Standards
IAS – International
Accounting Standards
IAG – International
Auditing Guidelines
IA PC – International
Auditing Practices
Committee