Topic 1 introduction AUDITING AND ASSURANCE SERVICES IN MALAYSIA

1. TOPIC 1:INTRODUCTION
References: Chapter 1,2 & 5
AUD390 2011

2.  Definition of auditing
 Distinction between auditing & accounting
 Demand for auditing
 Types of audits & auditors
 Profile of the auditing profession
 Stewardship, accountability and agency
 Malaysian approved standards on auditing
AUD390 2011

3. Auditing is the accumulation and evaluation of
evidence about information to determine and
report on the degree of correspondence between
the information and established criteria.
(Arens, 2008)
 Information and established criteria
 Accumulation and evaluating evidence
 Competent, independent person (Auditor)
 Reporting (Audit Report)
AUD390 2011

4. To obtain reasonable assurance about whether the
financial report as a whole is free from material
misstatement, whether due to fraud or error,
thereby enabling the auditor to express an
opinion on whether the financial report is
prepared, in all material respects, in accordance
with an applicable financial reporting framework;
(Gay & Simnett, 2012)
AUD390 2011

5. AUD390 2011
Audits Reviews
Internal Controls over
Financial Reporting
Other Attestation Services
Other Assurance Services
NONASSURANCE SERVICESASSURANCE SERVICES
Other Management
Consulting
Accounting &
Bookkeeping
Tax Services
Certain
Management
Consulting
ATTESTATION SERVICES

6.  An independent professional service that
improves the quality of information for decision-
makers
Can be performed by auditors or a variety of
other professionals
E.g. the Consumers Association of Penang (CAP)
provides the information to help consumers make
intelligent decisions about the product they buy
AUD390 2011

7.  Category of assurance services provided by CA
firms:-
Attestation services
Assurance services on Information Technology
Assurance services on:
Controls over and risk related to investments, including
policies and related to derivatives
Mysery shopping
Assess risks of accumulation, distribution and storage of
digital information
Fraud and illegal acts risk assessment
ISO 9000 certifications, etc.
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8. The CA firm issue a report about the reliability of
an assertion that is made by another party
4 categories of attestation:
Audit of historical financial statements
Effectiveness of internal controls over financial
reporting
Review of historical financial statements
Other attestation services that may be applied to a
broad range of subject matter
AUD390 2011

9.  Other services provided by CA firms that fall
outside the scope of assurance services. E.g.
Accounting and bookkeeping services
Tax services
Management consulting services
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10.  ACCOUNTING is the recording, classifying, and
summarizing of economic events in a logical
manner for the purpose of providing financial
information for decision making. Person in-
change known as ACCOUNTANT
 The difference… AUDITOR focus on determining
whether recoded information properly reflects
the economic events that occurred during the
accounting period
AUD390 2011

11.  Compliance Audit
 Performance Audit
 Financial Statements Audit
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12. AUD390 2011
 Is conducted to determine whether the auditee
is following specific procedures, rules or
regulations set by higher authority
 E.g. Determining whether accounting personnel
are following the procedures prescribed by
company controller
 Results of the audit – Findings are reported to
higher management of the unit being audited for
necessary improvements
 Performed by the internal auditor, external
auditor & government auditor

13. AUD390 2011
 Also known as ‘Value For Money Auditing’,
‘Operational Auditing’, ‘Efficiency Auditing’ or
‘Program Results Auditing’
 Evaluate the efficiency & effectiveness of any
part of an organization's operating procedures &
methods
 E.g. evaluate the efficiency & accuracy of
processing payroll transactions in a newly
installed computer system
 Results of the audit - recommendation for
improving the operations are propose to the
management
 Performed by the internal auditor of a company
or management consultancy works by external
auditor

14. AUD390 2011
 Is conducted to determine whether the overall
FS (the information being verified) are stated in
accordance with specific criteria i.e. an
approved accounting standards
 Results of the audit – draw conclusions on the FS
that can be relied upon by different group of
users for the different purposes
 Performed by the external auditor on the
frequent interval e.g. quarterly, half yearly or
yearly basis

15. AUD390 2011
 External Auditor
 Internal Auditors
 Government Auditors
 Inland Revenue Assessment Officers

16. AUD390 2011
S8 of the Company Act (CA) 1965 …requires a
company to appoint an “Approved Company
Auditor” to audit every company incorporated
under the Act
 External auditor work in the CPA firm i.e. public
accounting firm ranges from sole proprietorship
to partnership providing services such as
attestation services, accounting or tax services
and management advisory services

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 Employed by individual companies to audit for
management
 Involved in operational auditing or have
expertise in evaluating computer systems

18. AUD390 2011
 Working for the Auditor General Department,
headed by the Auditor General and reports to &
is responsible solely to Yang Dipertuan Agong
 Responsible to evaluate the operational
efficiency & effectiveness for all federal &
states as well as statutory bodies & public
authorities

19. AUD390 2011
 Staff of Inland Revenue Board (IRB), which
responsible for enforcing the Income Tax Act as
being defined by Parliament and interpreted by
Courts
 Responsible to audit the taxpayers’ returns to
determine whether they have complied with the
tax laws

20. AUD390 2011
PRINCIPAL
(Absentee
Owner)
AUDITOR
AGENT
(Manager)
Information
assymmetry &
conflicts of interest
lead to information
risk for the principal
Principal provides capital & hires agent to manage it
Agent is accountable to principal;
provides financial reports
Auditor gathers evidence to
evaluate fairness of agents
financial report. Auditor issues
audit opinion to accompany
agent’s financial reports.
Adding credibility to the
reports and reduce principal’s
information risk
Agent hires auditor to
report on the fairness of
agent’s financial reports.
Agent pays auditor to
reduce principal’s
information risk

21. AUD390 2011
 A general guidelines to aid auditors in fulfilling
their professional responsibilities in the audit of
historical financial statements

22. AUD390 2011
1. Development of Auditing.
2. Distinction between Auditing & Accounting.
3. Types of Audits and Auditors.
4. Difference between External Auditor & Internal
Auditor on appointment, responsibility, scope
of works and objective.
5. Common objectives to both External and
Internal Auditors
6. To be able to use work undertaken by internal
audit, external auditor must be satisfied as the
standard and reliability of the information.
Explain the criteria that the external auditor
should consider in deciding the use of
internal’s auditor work.