SESSION – 1A

AN INTRODUCTION TO AUDITING AND

ASSURANCE
MOHSIN PATEL
THE STUDY OF AUDITING
The study of auditing is different from other
accounting courses that you have taken because …

IN OTHER COURSES AUDITING

Rules, Analytical and

techniques and logical skills
computations to
prepare and Much more
analyse financial conceptual in
information nature
THE DEMAND FOR AUDITING AND
ASSURANCE

Thedevelopment
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AUDITING AND ASSURANCE
DEFINED
Assurance
Auditing

An engagement in which a practitioner

expresses a conclusion designed to
enhance the degree of confidence of
the intended users other than the
responsible party about the outcome of
the evaluation or measurement of a
subject matter against criteria.
AUDITING AND ASSURANCE DEFINED

Assurance

Auditing

Auditing comes under the umbrella of

Assurance. It is a systematic process of
objectively obtaining and evaluating
evidence regarding assertions about
economic actions and events to
ascertain the degree of correspondence
between those assertions and
established criteria and communicating
the results to interested users.
ASSURANCE = Confidence
a) Three party relationship: 1) intended user, (2) responsible party and
(3) the Practitioner
b) Subject matter: data to be evaluated that has been prepared by the
responsible party i.e. historical financial information, non-financial
performance (key performance indicators), processes (internal control) and
behavior (compliance with laws and regulations).
c)Criteria (suitable): The subject matter is evaluated or measured against
criteria in order to reach an opinion (Accounting Framework).
ASSURANCE (continued)
d) Evidence: Sufficient appropriate evidence needs to be
gathered to support the required level of assurance.
e) Report: A written report (Audit Report) containing the
practitioner's opinion is issued to the intended user, in the
form appropriate to a reasonable assurance engagement or a
limited assurance engagement.
Why auditor gives reasonable assurance only?
1. It is not objective, judgments are to be made (what to test, how to test, risk
assessment, audit opinion)
2. Not all items are tested (sampling risk)
3. Limitations of accounting and control system (human error, unusual
transactions, possibility of collusion and fraud, controls override)
4. Inherent limitation of Audit Report (standard report format, users may not
understand the report)
5. Audit report issued a long time after the year end
 CORPORATE GOVERNANCE

• A process by which owners and creditors exert control and

require accountability for resources entrusted to
organizations
• Owners elect board of directors to provide:
• Oversight of organizations’ activities
• Accountability to stakeholders
PARTIES INVOLVED IN CORPORATE
GOVERNANCE
• Board of directors: The major representative of stockholders,
who ensure that the organization is run according to the
organization’s charter and that there is proper accountability
• Audit committee: A subcommittee of the board of directors
responsible for monitoring audit activities and serving as a
surrogate for the interests of shareholders
MCQ-1:
Which two of the following are elements of an assurance engagement?
• (1) A three-party relationship
• (2) Suitable criteria
• (3) Determination of materiality
• (4) An engagement letter

A (1) and (2) only

B (1) and (3) only
C (2) and (3) only
D (1), (2) and (3)
Solution to MCQ-1:
• (1) A three-party relationship
• (2) Suitable criteria

There are five elements in total: Criteria, Report,

Evidence, Subject matter and Three-party relationship
(remember CREST).
 AUDITING DEMANDS LOGIC AND REASONING

An auditor needs to understand more than just the

accounting concepts and techniques.
Auditing is a fundamentally logical process of
thinking and reasoning – so use your common sense
and reasoning skills!

As you learn new auditing concepts, take out some

time to understand the underlying logic and how the
concepts interrelate with other concepts.