This document defines audit evidence and describes the types and sources of evidence an auditor obtains to form an opinion on financial statements. It discusses that audit evidence includes all information used to arrive at audit conclusions, such as accounting records and other information gathered. The auditor must obtain sufficient and appropriate evidence to provide reasonable assurance and issue an opinion. Evidence is gathered through tests of controls, substantive procedures like testing transactions and balances, and analytical procedures. The quality and quantity of evidence depends on the level of assurance being provided.
Many leaders in today’s business environment have recognized the need for internal audit to play a larger role – one that expands on its historic focus on value preservation to encompass activities related to value creation. Leading integrated internal audit functions will need to stay ahead of the risk curve rather than simply follow the business, whilst preserving the core compliance and assurance activities senior management and the audit committee require. Audit functions that focus their efforts on significant risks are able to concentrate their audit resources on issues that drive the business. This 3-day course has been designed to help internal auditors understand what is needed to make the audit function totally risk based
An internal audit is designed to review what a company is doing in order to identify potential threats to the organization's financial health and profitability and to make suggestions for mitigating the risk associated with those threats.
The most comprehensive definition of internal audit is given by the IIA, USA. It is,
"Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes."
The purpose of the presentation is to provide clarification for a better understanding of what internal audit definition, objectives, functions, stages and reporting are all about? What difference does it make in the presence of an external audit? How different is its scope from that of the external audit? How internal audit standards contribute to better performance of internal audit work and its reporting to the Board or Audit Committee?
This is a step-by-step process on how to plan and carry out Auditing. This shall be useful for Accountants , professionals,small businesses,big businesses.
Many leaders in today’s business environment have recognized the need for internal audit to play a larger role – one that expands on its historic focus on value preservation to encompass activities related to value creation. Leading integrated internal audit functions will need to stay ahead of the risk curve rather than simply follow the business, whilst preserving the core compliance and assurance activities senior management and the audit committee require. Audit functions that focus their efforts on significant risks are able to concentrate their audit resources on issues that drive the business. This 3-day course has been designed to help internal auditors understand what is needed to make the audit function totally risk based
An internal audit is designed to review what a company is doing in order to identify potential threats to the organization's financial health and profitability and to make suggestions for mitigating the risk associated with those threats.
The most comprehensive definition of internal audit is given by the IIA, USA. It is,
"Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes."
The purpose of the presentation is to provide clarification for a better understanding of what internal audit definition, objectives, functions, stages and reporting are all about? What difference does it make in the presence of an external audit? How different is its scope from that of the external audit? How internal audit standards contribute to better performance of internal audit work and its reporting to the Board or Audit Committee?
This is a step-by-step process on how to plan and carry out Auditing. This shall be useful for Accountants , professionals,small businesses,big businesses.
Audit company - Audit for companies - PKC Management ConsultingPKCIndia2
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3. Amin Siddiki FCA
Definition
All of the information used by the auditor in arriving at the
conclusions on which audit opinion is based.
4. Amin Siddiki FCA
Audit Evidence includes:
• all the information contained within the accounting records
underlying the financial statements and
• other information gathered by the auditors
5. Amin Siddiki FCA
Importance
The evidence gathered by auditors, to enable to express an
opinion of reasonable assurance on financial statements.
Audit requires a reasonable level of assurance to be given and
correspondingly detailed audit evidence needs to be obtained.
In a lower level of assurance engagement, less evidence will be
required to support the conclusion.
6. Amin Siddiki FCA
Management is responsible for the preparation of financial
Statements that give true and fair view, but what does it really
mean?
7. Amin Siddiki FCA
For each item in the financial statements, management is
making assertions
Assertions like:
PPE is owned by the company
The receivable rely do owe us this money and will pay fairly
soon
The payroll expenses was for the company’s genuine
employees working on the company’s business
8. Amin Siddiki FCA
To express a professional opinion, the auditors need to
gather evidence from various sources. There are potentially
two types of test which they will carry out:
• tests of controls and
• substantive procedures.
Procedures to gather Audit Evidence
9. Amin Siddiki FCA
Tests of Controls
Performed to obtain audit evidence about the effectiveness of
controls in preventing, or detecting and correcting material
misstatements at the assertion level.
When the auditors carry out test of controls, they are seeking to rely on
the good operation of the control system that the company has in place
to draw a conclusion that the financial statements give a true and fair
view.
10. Amin Siddiki FCA
To Test “Test of Control”:
Auditor must use inquiry along with Re-performance, Recalculation
and Inspection
11. Amin Siddiki FCA
Substantive Procedures
Audit procedures performed to detect material misstatements at the assertion
level. They include:
• Tests of detail of classes of transactions, account balances and disclosures.
• Substantive analytical procedures.
When the auditors carry out substantive procedures, they are testing whether
specific items within balances or transactions in the financial statements are
stated correctly. BSAs require that the auditors must always carry out some
substantive procedures, because the limitations in internal control systems mean
that the control system can never be fully relied on.
12. Amin Siddiki FCA
Auditors require sufficient appropriate audit evidence to be
able to draw reasonable conclusions on which to base the
audit opinion.
Sufficiency and appropriateness are interrelated and apply to
both tests of controls and substantive procedures.
Sufficiency is the measure of the quantity of audit evidence.
Appropriateness is the measure of the quality or reliability
of the audit evidence.
What kind of Audit Evidence requires?
14. Amin Siddiki FCA
Quantity of Audit Evidence
Depends on the level of assurance being offered in an
engagement.
The quantity of audit evidence required is affected by the level of
risk in the area being audited. It is also affected by the quality of
evidence obtained.
If the evidence is high quality, the auditor may need less than if it
were poor quality.
Obtaining a high quantity of poor quality evidence will not cancel
out its poor quality.
15. Amin Siddiki FCA
Quality of Audit Evidence
External Audit evidence from external sources is more reliable than
that obtained from the entity’s records.
Auditor Evidence obtained directly by auditors is more reliable than that
obtained indirectly or by inference.
Entity Evidence obtained from the entity’s records is more reliable
when related control systems operate effectively.
Written Evidence in the form of documents (paper or electronic) or
written representations are more reliable than oral
representations.
Originals Original documents are more reliable than photocopies or
facsimiles.
17. Amin Siddiki FCA
The financial statements assertions are representations by
management, explicit or otherwise, that are embodied in the
financial statements.
The auditor should use assertions for
• classes of transactions
• account balances and
• Presentation & disclosures
Financial Statement Assertions
18. Amin Siddiki FCA
Occurrence Transactions and events that have been recorded have
occurred and pertain to the entity.
Completeness All transactions and events that should have been
recorded.
Accuracy Amounts and other data relating to the recorded
transactions and events have been recorded
appropriately.
Cut-off Transactions and events have been recorded in the correct
accounting period.
Classification
Transactions and events have been recorded in the proper
accounts.
Assertions about classes of transactions and events for the period under audit
19. Amin Siddiki FCA
Assertions about account balances at the period end
Existence • Assets, liabilities and equity interests exist.
Rights and
Obligations
• The entity holds or controls the rights to
assets, and liabilities are the obligations of
the entity.
Completeness
• All assets, liabilities and equity interests
that should have been recorded.
Valuation and
Allocation
• Assets, liabilities and equity interests are
included in the financial statements at
appropriate amounts and any resulting
valuation or allocation adjustments are
appropriately recorded.
20. Amin Siddiki FCA
Assertion about presentation and disclosure
Occurrence
and Right &
Obligations
Disclosed events, transactions and other matters have occurred and
pertain to the entity.
Completeness All disclosures that should have been included in the financial
statements have been included.
Classification
and
Understandab
ility
Financial information is appropriately presented and described and
disclosures are clearly expressed.
Accuracy and
Valuation
Financial and other information are disclosed fairly and at
appropriate amount.
22. Amin Siddiki FCA
Inspection
Inspection involves examining records or documents,
whether internal or external, in paper form, electronic
form, or other media or a physical examination of an
asset. An example of inspection used as a test of controls
is inspection of records for evidence of authorization.
Inspection of tangible assets may provide reliable audit
evidence with respect to their existence, but not
necessarily about the entity’s rights and obligations or
valuations of assets.
23. Amin Siddiki FCA
Observation
Observation consists of looking at a process or
procedure being performed by others.
Examples include observation of the counting of
inventories by the entity’s personnel and
observation of the performance of control
activities.
24. Amin Siddiki FCA
External
Confirmation
An external confirmation represents audit evidence
obtained by the auditor as a direct written response
to the auditor from a third party (the confirming
party), in paper form, or by electronic or other
medium. For example, the auditor may ask direct
confirmation of receivables by communication with
debtors.
25. Amin Siddiki FCA
Recalculation Recalculation consists of checking the
mathematical accuracy of documents or records.
Recalculation may be performed manually or
electronically.
26. Amin Siddiki FCA
Re-
performance
Re-performance involves the auditor’s independent
execution of procedures or controls that were
originally performed as part of the entity’s
internal control. Recalculation may be performed
manually or electronically, for example, re-
performing the ageing of accounts receivable.
27. Amin Siddiki FCA
Analytical
Procedures
Analytical procedures consist of evaluation of
financial information through analysis of plausible
relationships among both financial and non-
financial data. Analytical procedures also
encompass such investigation of identified
fluctuations or relationships that are inconsistent
with other relevant information or that differ from
expected
28. Amin Siddiki FCA
Inquiry
Inquiry consists of information of knowledgeable
persons, both financial and non-financial, within
the entity or outside the entity. Inquiry is used
extensively throughout the audit in addition to other
audit procedures. Inquiries may range from formal
written inquiries to informal oral inquiries.
Evaluating responses to inquiries is an integral
part of the inquiry process.
29. Amin Siddiki FCA
Reporting
BSA 700:
The Independent Audtor’s Report on a complete set of
General Purpose Financial Statements
30. Amin Siddiki FCA
Audit Report
Unmodifie
d Report
Modified
Emphasis
of matter
Qualified Report
Based on
Scope
Limitation
Based on
Disagreem
ent
Disclaimer
of Opinion
Adverse
Opinion
31. Amin Siddiki FCA
Material &
Pervasive
Less
More
Scope
Limitation
Qualified
Except for
Disclaimer
Disagreement
Qualified
Except for
Adverse
32. Amin Siddiki FCA
Nature of Matter Giving
Rise to the Modification
Financial statements are
materially misstated
Inability to obtain
sufficient appropriate
audit evidence
Auditor’s Judgment about the Pervasiveness of the
Effects or Possible Effects on the Financial
Statements
Material but Not
Pervasive
Qualified Opinion
Qualified Opinion
Material and Pervasive
Adverse Opinion
Disclaimer of Opinion
33. Amin Siddiki FCA
Basic Elements/ Contents of the Auditor’s Report
The auditor’s report includes the following basic elements
ordinarily in the following layout:
34. Amin Siddiki FCA
Title What kind of report
Addressee Report to whom
Introductory
Paragraph-
Identification of the Financial Statements audited
A statement of the responsibility
Scope Paragraph A reference to the BSAs or relevant national standards or practices
A description of the work the auditor performed
Opinion
Paragraph
Reference to the financial reporting framework used to prepare the
financial statements
An expression of opinion on the financial statements
Date of the report Date of the signed by auditor
Auditor’s Address Address of the firm
Auditor’s
Signature
Who is responsible for ie: Audit Firm
35. Amin Siddiki FCA
Title
The auditor’s report should have an appropriate title. It may be
appropriate to use the term “Independent Auditor” in the title to
distinguish the auditor’s report from the report that might be issued by
others such as officers of the entity, the board of directors, or from the
reports of other auditors who may not have to abide by the same ethical
requirements as the independent auditor.
36. Amin Siddiki FCA
Addressee
The auditor’s report should be appropriately addressed as required by the
circumstances of the engagement and local regulations. The report is
ordinarily addressed either to the shareholders or the board of directors
of the entity whose financial statements are being audited
37. Amin Siddiki FCA
Opening or Introductory Paragraph
The auditor’s report should identify the financial statements of the
entity that have been audited, including the date of and period
covered by the financial statements.
The report should include a statement that the financial statements
are the responsibility of the entity’s management and a statement
that the responsibility of the auditor is to express an opinion on
the financial statements based on the audit.
38. Amin Siddiki FCA
An illustration of these matters in an opening (introductory) paragraph
is:
“We have audited the accompanying balance sheet of the ABC Company
as of December 31, 20XX and the related profit and Loss account cash
flows for the year then ended. The Preparation of these financial
statements is the responsibility of the Company’s managing. Our
responsibility is to express an independent opinion on these financial
statements based on our audit.”
39. Amin Siddiki FCA
Scope Paragraph
The auditor’s report should describe the scope of the audit by stating that
the audit was conducted in accordance with BSAs. Scope refers to the
auditor’s ability to perform audit procedures deemed necessary in the
circumstances.
The auditor’s report should describe the audit as including:
1. Examining, on a test basis, evidence to support the financial statement
amounts and disclosures;
2. Assessing the accounting principles used in the preparation of the
financial statements;
3. Assessing the significant estimates made by management in the
preparation of the financial statements; and
4. Evaluating the overall financial statement presentation.
5. The report should include a statement by the auditor that the audit
provides a reasonable basis for the opinion.
40. Amin Siddiki FCA
An illustration of these matters in a scope paragraph is:
“We conducted our audit in accordance with Bangladesh Standards on
Auditing (BSA). Those Standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.”
41. Amin Siddiki FCA
Opinion Paragraph
The opinion paragraph of the auditor’s report should clearly indicate
the financial reporting framework used to prepare the financial
statements and state the auditor’s opinion as to whether the financial
statements give a true and fair view (or are presented fairly, in all
material respects) in accordance with that financial reporting framework
and where appropriate, whether the financial statements comply with
statutory requirements.
42. Amin Siddiki FCA
“In our opinion, the financial statements give a true and fair
view (or present fairly, in all material respects) of the financial
position of the company as of December 31, 20XX and of the
results of its operations and its cash flows for the year then
ended in accordance with Bangladesh Accounting Standards.”
43. Amin Siddiki FCA
Date of Report
The auditor should date the report as of the completion date of the
audit.
Since the auditor’s responsibility is to report on the financial statements
as prepared by management, the auditor should not date the report
earlier than the date on which the financial statements are signed or
approved by management.
44. Amin Siddiki FCA
Auditor’s Address
The auditor’s report shall name the location in the jurisdiction where the
auditor practices.
45. Amin Siddiki FCA
Auditor’s Signature
The report should be signed in the name of the audit firm. The auditor’s
report is ordinarily signed in the name of the firm because the firm
assumes responsibility for the audit.
46. Amin Siddiki FCA
Expectation Gap
The expectation gap is defined as the difference between
the apparent public perceptions of the responsibilities of
auditor’s on the one hand and the legal and professional
reality on the other.
47. Amin Siddiki FCA
This definition is not definitive. But some issues can be highlighted.
Misunderstanding of the nature of audited financial Statements.
• The financial position provides a fair valuation of the reporting
entity
• The amounts in the financial statements are stated precisely
• The audited financial statements will guarantee that the entity
concerned will continue to exits
48. Amin Siddiki FCA
Misunderstanding as to the type and extent of
work undertaken by auditors.
• All items in financial statements are tested
• Auditors will uncover all errors
• Auditors should detect all fraud
49. Amin Siddiki FCA
Misunderstanding about the level of assurance
provided by auditors
• The auditors provide absolute assurance that
the figures in the financial statements are
correct.