AUDITING

P.GURU PRASAD FACULTY INC GUNTUR

Auditing
 Audit

is the activity of examination and verification of records and other evidence by an individual or a body of persons so as to confirm whether these records and evidence present a true and fair picture of whatever they are supposed to reflect. Audits are most commonly used in the accounting and finance functions

Audit category Brief description Financial statement audit Internal audit
Gives

Categories Of Audits

an opinion on the accuracy of the financial statements Ensures compliance with the relevant accounting standards and reporting framework
An

independent appraisal function established within an organization to examine and evaluate its activities as a service to the organization Need not be limited to books of accounts and related records
Deters,

Fraud auditing and forensic audit Operational audit

detects, investigates, and reports

fraud Forensic: related to the legal system, especially issues of evidence
Audits

operational aspects of the enterprise Quality audit, R&D audit, etc

Audit category Brief description Information systems audit Management audit
Audit

of computer systems Checks whether the computer system safeguards assets, maintains data integrity, and contributes to organizational effectiveness and efficiency
Audit

of the management, as a tool for evaluation and control of organizational performance Examines the conditions and provides a diagnosis of deficiencies with recommendations for correcting them
Audit

Social audit Environmental audit

of the enterprise's reported performance in meeting its declared social , community, or environmental objectives
Environmental

compliance audit: a checking

mechanism Environmental management audit: an evaluation mechanism

The Sarbanes-Oxley Act

The Sarbanes Oxley act 2002 aimed to improve corporate governance and corporate accountability. This improvement was brought about by enhancing the internal checks within the organization by incorporating a new control systems which guaranteed complete disclosure in financial reporting and total transparency in corporate governance. The public organizations in the USA, international companies registered with the securities and exchange commission, and also the auditing firms that assisted them were all bound by the Sarbanes Oxley act

The Sarbanes-Oxley Act
 Sec

302:-the financial reports should be certified by signing officers. (Corporate Responsibility)  Sec 401:- the financial statements should be accurate in that they should not have wrong statements  Sec 802:-this section talked about the punishments that could be imposed if the documents were altered or information was fabricated in order to mislead the stakeholders.  10 years for auditors, 20 years for other persons-imprisonment

Types of management Audits
 Complete

management audit  Compliance management audit  Program management audit  Functional management audit  Efficiency audit  Propriety audit

Components of audit risk

Audit Risk A.R

=

Inherent Risk IR

*

Control Risk CR

*

Detection Risk DR

Audit risk
 Audit

risk of an auditor failing to detect actual or potential material losses or account misstatements at the conclusion of the audit.  Inherent risk:- is the risk of a material misstatement assuming that there are no related internal control structure policies or procedures. These risks arise due to various factors that affect the entity’s operations.

Audit risk
Control

risk:- is the risk that an error occurring in an audit area, which could be material, individually or in combination with other errors, will not be prevented or detected and corrected on a timely basis by the internal control system

Audit risk
Detection

Risk:- is the risk that the auditor’s substantive procedures will not detect an error which could be material, individually or in combination with other errors. Detection risk is influenced by the procedures that are used by the auditors to audit the system and the way in which they are applied.

Audit risk
Audit

risk is the product of the three components just mentioned above. The audit risk should not be greater than the acceptable audit risk-(the maximum risk that the auditor wishes to accept) (refer page no 114)

Certified fraud examiners (CFEs)
 Who

are trained to detect, investigate , and deter fraud. CFEs are professionals who are knowledgeable in four major areasfraud investigation, legal standards regarding evidence of fraud, the patters of fraudulent financial transactions, and knowledge of the criminal behavior associated with fraudulent activities. CFEs can act as forensic accountants.

 Inventory

Various approaches of social audit

and short descriptions of programs which a firm has developed to deal with social problems.  Program management approach:is more systematic effort to measure the costs, benefits, and achievements  Cost benefit approach:-to list all social costs and benefits incurred by an firm in terms of money  Social indicator approach:-housing, good health, and job opportunities

approach:- a simple listing

Types of social audits Social balance sheet and income statements Social performance audit Macro-micro social indicator audit

scope
This kind of audit requires quantification of social costs and income. It is conducted to assess social costs in terms of money with the ultimate objective of reducing such social costs This audit is conducted to assess the performance of organizations with respect to some area of social or public concern, for example, it can assume the form of a research based appraisal that is conducted to find out the social impact of pollution caused by an organization This type of audit is conducted to evaluate an organization's social performance in terms of social indicators that signify public interest. It evaluates the contribution of the organization to the well being of the local community

Constituency group attitudes audit Government mandated audits Social process or program audit

This kind of audit is conducted to ascertain how corporate actions affect employees or the general public in different ways. Depending on the findings of the audit, the policies or actions of the organizations are modified.

This type of audit is conducted by authorized government agencies to study an organization's performance in areas of social concern , such as environmental protection This audit is limited to specific processes and programs of an organization that may have social implications. It aims to appraise a program which has already been initiated by the organizations

The auditing process
 Staffing

the audit team  Creating an audit project plan  Laying the ground work  Conducting the audit  Analyzing audit results  Sharing audit results  Writing audit reports  Dealing with resistance to audit recommendations  Building an ongoing audit program

Audit verification procedures

description
Checking the accounting records of physical assets by physically counting the assets Identifying similarities or difference in the characteristics of information obtained from two or more sources
Scrutinizing documents or other records in order to detect errors or irregularities

Count compare Examine Inspecting tangible resources

Scrutinizing physical assets in order to detect errors or abnormalities

Audit verification procedures
Recompute d Reconcile Confirm vouch Trace
Checking the mathematical calculations that have been performed earlier
Matching two independent sets of records an showing mathematically, with the differences between the two records

Obtaining information from an independent source so as to verify the existing information
Verifying recorded transitions or amounts by examining supporting documents.

Tracing procedures that begin with the original documents and are followed through the processing cycles into summary accounting records.

Benefits of Auditing
 Identify

opportunities for improvement  Identify outdated strategies  Increase management’s ability to address concerns  Enhance teamwork  Reality check

Thank you
 It

takes a minute to have a crush on someone, an hour to like someone, and a day to love someone -- but it takes a lifetime to forget someone. – Unknown  "Copy from one, it's plagiarism; copy from many, it's research." -Wilson Mizner (18761933)  One tequila, two tequila, three tequila, flat on floor – in front of a t - shirt  I am a bomb technician. If you see me running, try to keep up. -On the back of a t-shirt

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