UNIT 1 – AUDIT OVERVIEW

ACTIVITIES/ASSESSMENT:
1. In your own words, what is the societal role of Independent
Financial audit?
Independent Financial Audit plays a vital role towards the community. It
gives assurance and confidence to interested users that will make the users
based their decisions. This audit also helps its clients to build strong impression
towards its users by conducting audit that will make the financial statements fairly
presented and reliable.

2. Differentiate the role of an external auditor from internal auditor.

External auditors are independent auditors from CPA firms or individual
practitioners that may perform different types of audit and consultancy services to
assess whether the assertion of a client’s management is parallel with financial
reporting framework in financial audit, compliance with laws and regulations in
compliance audit and objectives set by the company in operational audit. While
internal auditors are employee dependent with an entity. Internal auditors are
mainly performing compliance and performance audit. In performing performance
audit, they determine whether the standards and objectives of a company were
applied and followed. While they perform compliance audit in order to follow the
rules and regulations of government agencies and to avoid legal conflicts and
issues.

3. What are the basic distinctions between Auditing and

Accounting? Explain further.
Accounting is a process of making different types of financial statements
and reports based on its interested users. Accounting must follow different
standards based on the financial statements used. The financial statements and
other types of reports will be subject to audit because auditing will test the
assertion of the management regarding its FS and reports, whether it follows
standards and benchmarks. Auditing recommends what will be the better way of
conducting FS and reports in order to attain improvement.

4. What are the limitations of Financial Statement Audit? Explain

further.
The limitations of Financial Statement Audit represent that attainment of
zero audit risk is impossible. It requires auditor’s judgement in different matters.
By using test and sample risk, it limits the number of populations that will be
tested. Furthermore, it will rely on what the management will portray to the
auditors due to some assertions that cannot be audited. Also, the inherent
limitations of accounting and internal control will be a burden to auditors. The
nature of audit evidence available and the undetected fraud will confuse auditors,
whether they make proper audit. Lastly, availability and assertion of audit
evidence may cause misleading audit conclusions.