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Hayes

Hayes

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Principles of AuditingPrinciples of Auditing
An International PerspectiveAn International Perspective
ByRick S. HAYES and Arnold SCHILDERWith Roger Dassen & Philip Wallage
Engelstalige samenvatting,samengesteld uit de outlines per hoofdstuk opwww.auditingtext.com
Outline
Table of Contents
1.International Auditing Overview2.The Audit Market3.Ethics for Professional Accountants4.Introduction to Audit Process5.Client Acceptance6.Internal Control and Its Components7.Audit Planning8.Relying on Internal Control in the Audit Process9.Substantive Testing10.Completing the Audit11.External Audit Reports12.An audit – step by step13.Auditing beyond 2000This compilated outline is free available on www.pentagan.nl 
HAYES - Principles of Auditing, an international perspective
1
 
Chapter 1: International Auditing Overview
A.
Introduction
 A. Historical background1.Anthropologists have found records of auditing activity dating back to early Babylonian times (around3,000 BC).2.The practice of modern auditing dates back to the beginning of the modern corporation at the dawn othe Industrial Revolution.3.Management and financial reports: the flow of investor funds to the corporations and the whole processof allocation of financial resources through the securities markets has become dependent to a very largeextent upon reports made by management. Management can scarcely be expected to take an impartialview of this process.4.The role of an auditor: to provide with an independent and expert opinion on the fairness of thefinancial reports.B. The Auditor, Corporations and Financial InformationBy the audit process, the auditor enhances the usefulness and the value of the financial statements, but he alsoincreases the credibility of other non-audited information released by management.
i
C. Accounting and Auditing Standards1.Many countries have issued local auditing standards under which companies are audited in their homecountry.2.International Accounting Standards: The International Accounting Standards Committee (IASC) hasworked for over twenty years to harmonize international accounting standards and its pronouncements,International Accounting Standards (IAS). The IASs have been adopted by many countries which do nothave their own national accounting standards or which believe that international comparability is to bepreferred.3.International Auditing Standards: Auditing standards were required by multinational corporations whichwanted a world wide, consistent, high quality audit. International auditing standards have existed since theInternational Federation of Accountants (IFAC) came into being as a result of initiatives put forward in 1973and approved in 1977. Although ISAs are not required by all countries, we will use them as the basicstandards throughout this book because they represent the highest and best international representation of generally accepted auditing standards.4.A listing of the International Standards on Auditing is given llustration 1-1.D. Audit definitions
1.
There is no definition of an audit, per se, in the International Standards on Auditing. The definition given inISA 200 states the
objective of an audit 
 
ii
, “The objective on an audit of financial statements is to enable theauditor to express an opinion whether the financial statements are prepared, in all material respects, inaccordance with an identified financial reporting framework of other criteria.
2.
 A better, more general definition of auditing is the definition put forth by the American Accounting Association
iii
, “
 An audit is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between theseassertions and established criteria and communicating the results to interested users.
a.An audit is a
systematic 
approach: the audit follows a structured, documented plan (audit plan).b.An audit is
objectively 
conducted: an audit is an independent, objective and expert examination andevaluation of evidence.c.The audito
obtains and evaluates evidence
. The auditor assesses the reliability and sufficiency of theinformation contained in the underlying accounting records and other source data.d.The evidence obtained and evaluated by the auditor regards
assertions about economic actions and events
. The basis of evidence gathering objectives, the thing that the evidence must “prove” are the
assertions
of management.e.The audito
ascertains the degree of correspondence between assertions and established criteria
. Theaudit program tests most assertions by examining the physical evidence of documents, confirmation,inquiry and observation.f.The goal, or objective, of the audit is
communicating the results to interested users
. The audit isconducted with a view of expressing an informed and credible opinion, in a written report.
HAYES - Principles of Auditing, an international perspective
2
 
E. General Principles Governing an Audit of Financial Statements1. The financial statements audited under international standards
iv
are the balance sheets, income statements
v
,and cash flow statements
vi
and the notes thereto. The first International Standard on Auditing, ISA 1 (Subjectmatter Number 200)
vii
, discusses the principles governing an audit of financial statements.a.ISA 200 (1) states that an auditor could comply with the Code of Ethics for Professional Accountantsissued by IFAC, which is discussed later in Chapter 3.b.ISA 200 further states that the auditor should conduct an audit in accordance with InternationalStandards on Auditing.c.The term “scope of an audit” refers to the audit procedures deemed necessary in the circumstances toachieve the objective of the audit.d.An audit in accordance with ISAs is designed to provide reasonable assurance.
viii
e.There are certain inherent limitations in an audit that affect the auditor’s ability to detect materialmisstatements.f.The audit of the financial statements does not relieve management of its responsibilities.
III. Types of Audits
 A.Audits of financial statements examine financial statements to determine if they give a true andfair view or fairly present the financial statements in conformity with specified criteria.B.An
operational audit 
is a study of a specific unit of an organization for the purpose of measuring its performance.C.A
compliance audit 
 
is a review of an organization’s procedures performed to determinewhether the organization is following specific procedures, rules , or regulations set out by some higher authority.
IV. Types of Auditors
 A.Internal auditors are employed by individual companies to investigate and appraise theeffectiveness of company operations for management.B.Independent auditors are certified either by a professional organization. Certified auditors arecalled:1.Certified Public Accountants (CPA);2.Chartered Accountants (CA);3.Contador blico (CP);4.Expert Comptable;5.Auditor;6.Other titles.
V. The Audit Process Model
 A.Philip Wallage has likened the audit process to the empirical scientific cycle.
ix
B.The audit process begins with a client’s request for an audit of financial statements, is followedby a plan of the audit and tests of evidence, culminating in a judgement or opinion. In this book we will usea four phase standard audit process model based on the scientific empirical cycle.C.Phases of an audit are:
-
Phase I: Client Acceptance(pre-planning),
-
Phase II:Planning,
-
Phase III: Testing and Evidence,
-
Phase IV: Evaluation and Judgement.
VI. International Public Accountancy Firms
 A.The Big Six: Arthur Andersen & Co.; Coopers & Lybrand; Deloitte & Touche; Ernst & Young;KPMG; and Price Waterhouse.B.The allocation of personnel to an audit:1.Staff Accountants (or Junior Assistants then Senior);2.Senior Accountants (or Supervisor);3.Managers;4.Partners/Directors.
VII. Organizations That Affect Auditing
 A. International Federation of Accountants (IFAC): International Standards on Auditing (ISA) are developed by TheInternational Federation of Accountants (IFAC) through its International Auditing Practices Committee (IAPC).B. International Accounting Standards Committee (IASC):1.Formulate and publish in the public interest accounting standards;
HAYES - Principles of Auditing, an international perspective
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