Audit
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Audit From Wikipedia, the free encyclopedia
Jump to: navigation, search For other uses, see Audit (disambiguation). The examples and perspective in this article may not represent a worldwide view of the subject. Please improve this article and discuss the issue on the talk page.
Accountancy Key concepts Accountant Bookkeeping Trial balance General ledger Debits and credits Cost of goods sold Double-entry system Standard practices Cash and accrual basis GAAP / IFRS Financial statements Balance sheet Income statement Cash flow statement Ownership equity Retained earnings Auditing Financial audit GAAS Internal audit Sarbanes-Oxley Act Big Four auditors Fields of accounting Cost • Financial • Forensic Fund • Management • Tax This box: view • talk • edit
The general definition of an audit is an evaluation of a person, organization, system, process, enterprise, project or product. Audits are performed to ascertain the validity and reliability of information; also to provide an assessment of a system's internal control. The goal of an audit is to express an opinion on the person / organization/system (etc) in question, under evaluation based on work done on a test basis. Due to practical constraints, an audit seeks to provide only reasonable assurance that the statements are free from material error. Hence, statistical sampling is often adopted in audits. In the case of financial audits, a set of financial statements are said to be true and fair when they are free of material misstatements - a concept influenced by both quantitative and qualitative factors. Audit is a vital part of Accounting. Traditionally, audits were mainly associated with gaining information about financial systems and the financial records of a company or a business (see financial audit). However, recent auditing has begun to include other information about the system, such as information about environmental performance. As a result, there are now professions conducting environmental audits. In financial accounting, an audit is an independent assessment of the fairness by which a company's financial statements are presented by its management. It is performed by competent, independent and objective person(s) known as auditors or accountants, who then issue an auditor's report based on the results of the audit. Such systems must adhere to generally accepted standards set by governing bodies regulating businesses; these standards simply provide assurance for third parties or external users that such statements present a company's financial condition and results of operations "fairly."
Contents • • • •
1 Quality audits 2 Integrated audits 3 Types of auditors 4 See also
•
5 External links
[edit] Quality audits Main article: Quality audit Quality audits are performed to verify the effectiveness of a quality management system. This is part of certifications such as ISO 9001. Quality audits are essential to verify the existence of objective evidence of processes, to assess how successfully processes have been implemented, for judging the effectiveness of achieving any defined target levels,
providing evidence concerning reduction and elimination of problem areas and are a hands-on management tool for achieving continual improvement in an organization. To benefit the organization, quality auditing should not only report non-conformances and corrective actions but also highlight areas of good practice. In this way, other departments may share information and amend their working practices as a result, also enhancing continual improvement.
[edit] Integrated audits In the US, audits of publicly-listed companies are governed by rules laid down by the Public Company Accounting Oversight Board (PCAOB). Such an audit is called an integrated audit, where auditors have the additional responsibilities of expressing opinions on the management's assessment of the firm's internal control and the effectiveness of internal control over financial reporting, based on their (the auditors') own assessment.
[edit] Types of auditors There are two types of auditors: •
Internal auditors are employees of a company hired to assess and evaluate its system of internal control. To maintain independence, they present their reports directly to the board of directors or to top management. They provide functional operation to the concern. Internal auditors are employed by the organization they audit, their familiarity with the organization provides more insight into potential fraud and wrongdoing.
•
External auditors are independent staff assigned by an auditing firm to assess and evaluate financial statements of their clients or to perform other agreed-upon evaluations. Most external auditors are employed by accounting firms for annual engagements. They are called upon from outside the compan
Financial audit From Wikipedia, the free encyclopedia
Jump to: navigation, search
Accountancy
Key concepts Accountant Bookkeeping Trial balance General ledger Debits and credits Cost of goods sold Double-entry system Standard practices Cash and accrual basis GAAP / IFRS Financial statements Balance sheet Income statement Cash flow statement Ownership equity Retained earnings Auditing Financial audit GAAS Internal audit Sarbanes-Oxley Act Big Four auditors Fields of accounting Cost • Financial • Forensic Fund • Management • Tax This box: view • talk • edit
A financial audit, or more accurately, an audit of financial statements, is the review of the financial statements of a company or any other legal entity (including governments), resulting in the publication of an independent opinion on whether or not those financial statements are relevant, accurate, complete, and fairly presented. Financial audits are typically performed by firms of practicing accountants due to the specialist financial reporting knowledge they require. The financial audit is one of many assurance or attestation functions provided by accounting and auditing firms, whereby the firm provides an independent opinion on published information. Many organisations separately employ or hire internal auditors, who do not attest to financial reports but focus mainly on the internal controls of the organization. External auditors may choose to place limited reliance on the work of internal auditors.
Contents
• • •
1 Purpose 2 History o 2.1 Audit of government expenditure 3 Governance and Oversight 4 Stages of an audit o 4.1 Planning and risk assessment o 4.2 Internal controls testing o 4.3 Substantive procedures o 4.4 Finalization 5 Commercial relationships versus objectivity 6 Related qualifications 7 See also
•
8 References
• • • •
[edit] Purpose Financial audits exist to add credibility to the implied assertion by an organization's management that its financial statements fairly represent the organization's position and performance to the firm's stakeholders (interested parties). The principal stakeholders of a company are typically its shareholders, but other parties such as tax authorities, banks, regulators, suppliers, customers and employees may also have an interest in ensuring that the financial statements are accurate. The audit is designed to reduce the possibility that a material misstatement is not detected by audit procedures. A misstatement is defined as false or missing information, whether caused by fraud (including deliberate misstatement) or error. "Material" is very broadly defined as being large enough or important enough to cause stakeholders to alter their decisions. Audits exist because they add value through easing the cost of information asymmetry, not because they are required by law. For example, a privately-held company that does not issue securities on a public exchange might engage a firm to audit its financial statements in order to obtain more desirable loan terms from a financial institution or trade accounts with its customers. Without the audit, the lending party would not have assurance as to whether or not the company's financial position is accurate. In turn, the lender could price protect against this information asymmetry. The exact form and content of the "audit opinion" will vary between countries, firms and audited organizations. In the US, the CPA firm provides written assurance that financial reports are "fairly presented in conformity with generally accepted accounting principles (GAAP)." The
measure for "fairly presented" is that there is less than 5% chance (5% audit risk) that the financial statements are "materially misstated."
[edit] History [edit] Audit of government expenditure The earliest surviving mention of a public official charged with auditing government expenditure is a reference to the Auditor of the Exchequer in England in 1314. The Auditors of the Imprest were established under Queen Elizabeth I in 1559 with formal responsibility for auditing Exchequer payments. This system gradually lapsed and in 1780, Commissioners for Auditing the Public Accounts were appointed by statute. From 1834, the Commissioners worked in tandem with the Comptroller of the Exchequer, who was charged with controlling the issue of funds to the government. As Chancellor of the Exchequer, William Ewart Gladstone initiated major reforms of public finance and Parliamentary accountability. His 1866 Exchequer and Audit Departments Act required all departments, for the first time, to produce annual accounts, known as appropriation accounts. The Act also established the position of Comptroller and Auditor General (C&AG) and an Exchequer and Audit Department (E&AD) to provide supporting staff from within the civil service. The C&AG was given two main functions – to authorise the issue of public money to government from the Bank of England, having satisfied himself that this was within the limits Parliament had voted – and to audit the accounts of all Government departments and report to Parliament accordingly. Auditing of UK government expenditure is now carried out by the National Audit Office. Sing industry (acting through various organisations throughout the years) as to the accounting standards for financial reporting, and the U.S. Congress has deferred to the SEC. This is also typically the case in other developed economies. In the UK, auditing guidelines are set by the institutes (including ACCA, ICAEW, ICAS and ICAI) of which auditing firms and individual auditors are members. Accordingly, financial auditing standards and methods have tended to change significantly only after auditing failures. The most recent and familiar case is that of Enron. The company succeeded in hiding some important facts, such as off-book liabilities, from banks and shareholders. Eventually, Enron filed for bankruptcy, and (as of 2006) is in the process of being dissolved. One result of this scandal was that Arthur Andersen, then one of the five largest accountancy firms worldwide, lost their ability to audit public companies, essentially killing off the firm. A recent trend in audits (spurred on by such accounting scandals as Enron and Worldcom) has been an increased focus on internal control procedures, which aim to ensure the completeness, accuracy and validity of items in the accounts, and restricted
access to financial systems. This emphasis on the internal control environment is now a mandatory part of the audit of SEC-listed companies, under the auditing standards of the Public Company Accounting Oversight Board (PCAOB) set up by the Sarbanes-Oxley Act.
[edit] Governance and Oversight Many countries have government sponsored or mandated organizations who develop and maintain auditing standards, commonly referred to generally accepted auditing standards or GAAS. These standards prescribe different aspects of auditing such as the opinion, stages of an audit, and controls over work product (i.e., working papers). Some oversight organizations require auditors and audit firms to undergo a third-party quality review periodically to ensure the applicable GAAS is followed.
[edit] Stages of an audit A financial audit is performed before the release of the financial statements (typically on an annual basis), and will overlap the year-end (the date which the financial statements relate to). The following are the stages of a typical audit:[citation needed]
[edit] Planning and risk assessment Timing: before year-end Purpose: •
•
To understand the business of the company and the environment in which it operates. o What should auditors understand?[1] The relevant industry, regulatory, and other external factors including the applicable financial reporting framework The nature of the entity The entity’s selection and application of accounting policies The entity’s objectives and strategies, and the related business risks that may result in material misstatement of the financial statements The measurement and review of the entity’s financial performance Internal control relevant to the audit To determine the major audit risks (i.e. the chance that the auditor will issue the wrong opinion). For example, if sales representatives stand to gain bonuses based on their sales, and they account for the sales they generate, they have both the incentive and the ability to overstate their sales figures, thus leading to overstated
revenue. In response, the auditor would typically plan to increase the rigour of their procedures for checking the sales figures.
[edit] Internal controls testing Timing: before and/or after year-end Purpose: •
To assess the operating effectiveness of internal controls (e.g. authourisation of transactions, account reconciliations, segregation of duties) including IT General Controls. If internal controls are assessed as effective, this will reduce (but not entirely eliminate) the amount of 'substantive' work the auditor needs to do (see below).
Notes: •
•
In some cases an auditor may not perform any internal controls testing, because he/she does not expect internal controls to be reliable. When no internal controls testing is performed, the audit is said to follow a substantive approach. This test determines the amount of work to be performed i.e. substantive testing or test of details.[citation needed]
[edit] Substantive procedures Financial audits exist to add credibility to the implied assertion by an organization's management that its financial statements fairly represent the organization's position and performance to the firm's stakeholders (interested parties). The principal stakeholders of a company are typically its shareholders, but other parties such as tax authorities, banks, regulators, suppliers, customers and employees may also have an interest in ensuring that the financial statements are accurate. The audit is designed to reduce the possibility of a material misstatement. A misstatement is defined as false or missing information, whether caused by fraud (including deliberate misstatement) or error. Material is very broadly defined as being large enough or important enough to cause stakeholders to alter their decisions. The exact 'audit opinion' will vary between countries, firms and audited organisations. In the US, the CPA firm provides written assurance that financial reports are 'fairly presented in conformity with generally accepted accounting principles (GAAP).' The measure for 'fairly presented' is that there is less than 5% chance (5% audit risk) that the financial statements are 'materially misstated'.
[edit] Finalization
Timing: at the end of the audit Purpose: • • •
To compile a report to management regarding any important matters that came to the auditor's attention during performance of the audit, To evaluate and review the audit evidence obtained, ensuring sufficient appropriate evidence was obtained for every material assertion and To consider the type of audit opinion that should be reported based on the audit evidence obtained.
[edit] Commercial relationships versus objectivity One of the major issues faced by private auditing firms is the need to provide independent auditing services while maintaining a business relationship with the audited company. The auditing firm's responsibility to check and confirm the reliability of financial statements may be limited by pressure from the audited company, who pays the auditing firm for the service. The auditing firm's need to maintain a viable business through auditing revenue may be weighed against its duty to examine and verify the accuracy, relevancy, and completeness of the company's financial statements. Numerous proposals are made to revise the current system to provide better economic incentives to auditors to perform the auditing function without having their commercial interests compromised by client relationships. Examples are more direct incentive compensation awards and financial statement insurance approaches. See, respectively, Incentive Systems to Promote Capital Market Gatekeeper Effectiveness and Financial Statement Insurance.
[edit] Related qualifications •
There are several related professional qualifications in the field of financial audit including Certified General Accountant (CGA), Chartered Certified Accountant, Chartered Accountant and Certified Public Accountant.
Back to a fundamental question, what is the difference between accounting and auditing from a financial perspective? A quick answer is: Accounting is a process of preparing the works, Auditing is a process of evaluating & scrutinizing of the work prepared. In other words, accountants are in charged of the day-to-day duties of maintaing the accounts, implementing the board financial strategy, if any. At the end of the period, accountant would produce Financial Statement, a summary report of the financial performance throughout the period. Whereas, auditor conduct a check on the accuracy of the financial
statements, to ensure that there is no material misstatement of the financial statement prepared.
Accounting is concerned with the preparing of financial statements while auditing is concerned with checking of financial statements. The purpose of accounting is to show the performance and financial position of a business . The purpose of auditing is to certify the true and fair view of financial statements. Accounting requires that an accountant must have accounting knowledge while auditing work required that an auditor must have accounting as well as auditing knowledge. Accounting is concerned with current data. It is constructive in nature. Auditing is concerned with past data. It is analytical in nature. The time period of accounting is usually one year. It takes one year to complete record. The time period of auditing is usually less than one year. It may be completed within one month. The accountant is permanent employee of the business. The auditor is an independent person. The work of an accountant starts when the work of the book keeper ends. The work of an auditor starts when the work of accountant ends. An accountant may not be a chartered accountant as per law. An auditor must be chartered accountant for public companies. The accountant has no liability for preparing final accounts. The auditor has liability after presenting audit report.
Jump to: navigation, search For other uses, see Audit (disambiguation). The examples and perspective in this article may not represent a worldwide view of the subject. Please improve this article and discuss the issue on the talk page.
Accountancy Key concepts Accountant Bookkeeping Trial balance General ledger Debits and credits Cost of goods sold Double-entry system Standard practices Cash and accrual basis GAAP / IFRS Financial statements Balance sheet Income statement Cash flow statement Ownership equity Retained earnings Auditing Financial audit GAAS Internal audit Sarbanes-Oxley Act Big Four auditors Fields of accounting Cost • Financial • Forensic Fund • Management • Tax This box: view • talk • edit
The general definition of an audit is an evaluation of a person, organization, system, process, enterprise, project or product. Audits are performed to ascertain the validity and reliability of information; also to provide an assessment of a system's internal control. The goal of an audit is to express an opinion on the person / organization/system (etc) in question, under evaluation based on work done on a test basis. Due to practical constraints, an audit seeks to provide only reasonable assurance that the statements are free from material error. Hence, statistical sampling is often adopted in audits. In the case of financial audits, a set of financial statements are said to be true and fair when they are free of material misstatements - a concept influenced by both quantitative and qualitative factors. Audit is a vital part of Accounting. Traditionally, audits were mainly associated with gaining information about financial systems and the financial records of a company or a business (see financial audit). However, recent auditing has begun to include other information about the system, such as information about environmental performance. As a result, there are now professions conducting environmental audits. In financial accounting, an audit is an independent assessment of the fairness by which a company's financial statements are presented by its management. It is performed by competent, independent and objective person(s) known as auditors or accountants, who then issue an auditor's report based on the results of the audit. Such systems must adhere to generally accepted standards set by governing bodies regulating businesses; these standards simply provide assurance for third parties or external users that such statements present a company's financial condition and results of operations "fairly."
Contents • • • •
1 Quality audits 2 Integrated audits 3 Types of auditors 4 See also
•
5 External links
[edit] Quality audits Main article: Quality audit Quality audits are performed to verify the effectiveness of a quality management system. This is part of certifications such as ISO 9001. Quality audits are essential to verify the existence of objective evidence of processes, to assess how successfully processes have been implemented, for judging the effectiveness of achieving any defined target levels,
providing evidence concerning reduction and elimination of problem areas and are a hands-on management tool for achieving continual improvement in an organization. To benefit the organization, quality auditing should not only report non-conformances and corrective actions but also highlight areas of good practice. In this way, other departments may share information and amend their working practices as a result, also enhancing continual improvement.
[edit] Integrated audits In the US, audits of publicly-listed companies are governed by rules laid down by the Public Company Accounting Oversight Board (PCAOB). Such an audit is called an integrated audit, where auditors have the additional responsibilities of expressing opinions on the management's assessment of the firm's internal control and the effectiveness of internal control over financial reporting, based on their (the auditors') own assessment.
[edit] Types of auditors There are two types of auditors: •
Internal auditors are employees of a company hired to assess and evaluate its system of internal control. To maintain independence, they present their reports directly to the board of directors or to top management. They provide functional operation to the concern. Internal auditors are employed by the organization they audit, their familiarity with the organization provides more insight into potential fraud and wrongdoing.
•
External auditors are independent staff assigned by an auditing firm to assess and evaluate financial statements of their clients or to perform other agreed-upon evaluations. Most external auditors are employed by accounting firms for annual engagements. They are called upon from outside the compan
Financial audit From Wikipedia, the free encyclopedia
Jump to: navigation, search
Accountancy
Key concepts Accountant Bookkeeping Trial balance General ledger Debits and credits Cost of goods sold Double-entry system Standard practices Cash and accrual basis GAAP / IFRS Financial statements Balance sheet Income statement Cash flow statement Ownership equity Retained earnings Auditing Financial audit GAAS Internal audit Sarbanes-Oxley Act Big Four auditors Fields of accounting Cost • Financial • Forensic Fund • Management • Tax This box: view • talk • edit
A financial audit, or more accurately, an audit of financial statements, is the review of the financial statements of a company or any other legal entity (including governments), resulting in the publication of an independent opinion on whether or not those financial statements are relevant, accurate, complete, and fairly presented. Financial audits are typically performed by firms of practicing accountants due to the specialist financial reporting knowledge they require. The financial audit is one of many assurance or attestation functions provided by accounting and auditing firms, whereby the firm provides an independent opinion on published information. Many organisations separately employ or hire internal auditors, who do not attest to financial reports but focus mainly on the internal controls of the organization. External auditors may choose to place limited reliance on the work of internal auditors.
Contents
• • •
1 Purpose 2 History o 2.1 Audit of government expenditure 3 Governance and Oversight 4 Stages of an audit o 4.1 Planning and risk assessment o 4.2 Internal controls testing o 4.3 Substantive procedures o 4.4 Finalization 5 Commercial relationships versus objectivity 6 Related qualifications 7 See also
•
8 References
• • • •
[edit] Purpose Financial audits exist to add credibility to the implied assertion by an organization's management that its financial statements fairly represent the organization's position and performance to the firm's stakeholders (interested parties). The principal stakeholders of a company are typically its shareholders, but other parties such as tax authorities, banks, regulators, suppliers, customers and employees may also have an interest in ensuring that the financial statements are accurate. The audit is designed to reduce the possibility that a material misstatement is not detected by audit procedures. A misstatement is defined as false or missing information, whether caused by fraud (including deliberate misstatement) or error. "Material" is very broadly defined as being large enough or important enough to cause stakeholders to alter their decisions. Audits exist because they add value through easing the cost of information asymmetry, not because they are required by law. For example, a privately-held company that does not issue securities on a public exchange might engage a firm to audit its financial statements in order to obtain more desirable loan terms from a financial institution or trade accounts with its customers. Without the audit, the lending party would not have assurance as to whether or not the company's financial position is accurate. In turn, the lender could price protect against this information asymmetry. The exact form and content of the "audit opinion" will vary between countries, firms and audited organizations. In the US, the CPA firm provides written assurance that financial reports are "fairly presented in conformity with generally accepted accounting principles (GAAP)." The
measure for "fairly presented" is that there is less than 5% chance (5% audit risk) that the financial statements are "materially misstated."
[edit] History [edit] Audit of government expenditure The earliest surviving mention of a public official charged with auditing government expenditure is a reference to the Auditor of the Exchequer in England in 1314. The Auditors of the Imprest were established under Queen Elizabeth I in 1559 with formal responsibility for auditing Exchequer payments. This system gradually lapsed and in 1780, Commissioners for Auditing the Public Accounts were appointed by statute. From 1834, the Commissioners worked in tandem with the Comptroller of the Exchequer, who was charged with controlling the issue of funds to the government. As Chancellor of the Exchequer, William Ewart Gladstone initiated major reforms of public finance and Parliamentary accountability. His 1866 Exchequer and Audit Departments Act required all departments, for the first time, to produce annual accounts, known as appropriation accounts. The Act also established the position of Comptroller and Auditor General (C&AG) and an Exchequer and Audit Department (E&AD) to provide supporting staff from within the civil service. The C&AG was given two main functions – to authorise the issue of public money to government from the Bank of England, having satisfied himself that this was within the limits Parliament had voted – and to audit the accounts of all Government departments and report to Parliament accordingly. Auditing of UK government expenditure is now carried out by the National Audit Office. Sing industry (acting through various organisations throughout the years) as to the accounting standards for financial reporting, and the U.S. Congress has deferred to the SEC. This is also typically the case in other developed economies. In the UK, auditing guidelines are set by the institutes (including ACCA, ICAEW, ICAS and ICAI) of which auditing firms and individual auditors are members. Accordingly, financial auditing standards and methods have tended to change significantly only after auditing failures. The most recent and familiar case is that of Enron. The company succeeded in hiding some important facts, such as off-book liabilities, from banks and shareholders. Eventually, Enron filed for bankruptcy, and (as of 2006) is in the process of being dissolved. One result of this scandal was that Arthur Andersen, then one of the five largest accountancy firms worldwide, lost their ability to audit public companies, essentially killing off the firm. A recent trend in audits (spurred on by such accounting scandals as Enron and Worldcom) has been an increased focus on internal control procedures, which aim to ensure the completeness, accuracy and validity of items in the accounts, and restricted
access to financial systems. This emphasis on the internal control environment is now a mandatory part of the audit of SEC-listed companies, under the auditing standards of the Public Company Accounting Oversight Board (PCAOB) set up by the Sarbanes-Oxley Act.
[edit] Governance and Oversight Many countries have government sponsored or mandated organizations who develop and maintain auditing standards, commonly referred to generally accepted auditing standards or GAAS. These standards prescribe different aspects of auditing such as the opinion, stages of an audit, and controls over work product (i.e., working papers). Some oversight organizations require auditors and audit firms to undergo a third-party quality review periodically to ensure the applicable GAAS is followed.
[edit] Stages of an audit A financial audit is performed before the release of the financial statements (typically on an annual basis), and will overlap the year-end (the date which the financial statements relate to). The following are the stages of a typical audit:[citation needed]
[edit] Planning and risk assessment Timing: before year-end Purpose: •
•
To understand the business of the company and the environment in which it operates. o What should auditors understand?[1] The relevant industry, regulatory, and other external factors including the applicable financial reporting framework The nature of the entity The entity’s selection and application of accounting policies The entity’s objectives and strategies, and the related business risks that may result in material misstatement of the financial statements The measurement and review of the entity’s financial performance Internal control relevant to the audit To determine the major audit risks (i.e. the chance that the auditor will issue the wrong opinion). For example, if sales representatives stand to gain bonuses based on their sales, and they account for the sales they generate, they have both the incentive and the ability to overstate their sales figures, thus leading to overstated
revenue. In response, the auditor would typically plan to increase the rigour of their procedures for checking the sales figures.
[edit] Internal controls testing Timing: before and/or after year-end Purpose: •
To assess the operating effectiveness of internal controls (e.g. authourisation of transactions, account reconciliations, segregation of duties) including IT General Controls. If internal controls are assessed as effective, this will reduce (but not entirely eliminate) the amount of 'substantive' work the auditor needs to do (see below).
Notes: •
•
In some cases an auditor may not perform any internal controls testing, because he/she does not expect internal controls to be reliable. When no internal controls testing is performed, the audit is said to follow a substantive approach. This test determines the amount of work to be performed i.e. substantive testing or test of details.[citation needed]
[edit] Substantive procedures Financial audits exist to add credibility to the implied assertion by an organization's management that its financial statements fairly represent the organization's position and performance to the firm's stakeholders (interested parties). The principal stakeholders of a company are typically its shareholders, but other parties such as tax authorities, banks, regulators, suppliers, customers and employees may also have an interest in ensuring that the financial statements are accurate. The audit is designed to reduce the possibility of a material misstatement. A misstatement is defined as false or missing information, whether caused by fraud (including deliberate misstatement) or error. Material is very broadly defined as being large enough or important enough to cause stakeholders to alter their decisions. The exact 'audit opinion' will vary between countries, firms and audited organisations. In the US, the CPA firm provides written assurance that financial reports are 'fairly presented in conformity with generally accepted accounting principles (GAAP).' The measure for 'fairly presented' is that there is less than 5% chance (5% audit risk) that the financial statements are 'materially misstated'.
[edit] Finalization
Timing: at the end of the audit Purpose: • • •
To compile a report to management regarding any important matters that came to the auditor's attention during performance of the audit, To evaluate and review the audit evidence obtained, ensuring sufficient appropriate evidence was obtained for every material assertion and To consider the type of audit opinion that should be reported based on the audit evidence obtained.
[edit] Commercial relationships versus objectivity One of the major issues faced by private auditing firms is the need to provide independent auditing services while maintaining a business relationship with the audited company. The auditing firm's responsibility to check and confirm the reliability of financial statements may be limited by pressure from the audited company, who pays the auditing firm for the service. The auditing firm's need to maintain a viable business through auditing revenue may be weighed against its duty to examine and verify the accuracy, relevancy, and completeness of the company's financial statements. Numerous proposals are made to revise the current system to provide better economic incentives to auditors to perform the auditing function without having their commercial interests compromised by client relationships. Examples are more direct incentive compensation awards and financial statement insurance approaches. See, respectively, Incentive Systems to Promote Capital Market Gatekeeper Effectiveness and Financial Statement Insurance.
[edit] Related qualifications •
There are several related professional qualifications in the field of financial audit including Certified General Accountant (CGA), Chartered Certified Accountant, Chartered Accountant and Certified Public Accountant.
Back to a fundamental question, what is the difference between accounting and auditing from a financial perspective? A quick answer is: Accounting is a process of preparing the works, Auditing is a process of evaluating & scrutinizing of the work prepared. In other words, accountants are in charged of the day-to-day duties of maintaing the accounts, implementing the board financial strategy, if any. At the end of the period, accountant would produce Financial Statement, a summary report of the financial performance throughout the period. Whereas, auditor conduct a check on the accuracy of the financial
statements, to ensure that there is no material misstatement of the financial statement prepared.
Accounting is concerned with the preparing of financial statements while auditing is concerned with checking of financial statements. The purpose of accounting is to show the performance and financial position of a business . The purpose of auditing is to certify the true and fair view of financial statements. Accounting requires that an accountant must have accounting knowledge while auditing work required that an auditor must have accounting as well as auditing knowledge. Accounting is concerned with current data. It is constructive in nature. Auditing is concerned with past data. It is analytical in nature. The time period of accounting is usually one year. It takes one year to complete record. The time period of auditing is usually less than one year. It may be completed within one month. The accountant is permanent employee of the business. The auditor is an independent person. The work of an accountant starts when the work of the book keeper ends. The work of an auditor starts when the work of accountant ends. An accountant may not be a chartered accountant as per law. An auditor must be chartered accountant for public companies. The accountant has no liability for preparing final accounts. The auditor has liability after presenting audit report.
