Auditing 1 Intro (Lecture) (Student)

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AUDITING 1
AN INTRODUCTION
October 2022
AGENDA
• What is Auditing?
• Why the Need to Audit?
• Types of Audits & Auditors
• How to Audit?
WHAT IS ACCOUNTING?
A QUICK RECAP
• An i_nformation
_ _ _ _ _ _ _ _ _ s_ystem
____
• R_ecords
_ _ _ _ _ economic transactions of an entity
• Provides r_ eports
_ _ _ _ _ on its f_ _inancial
_ _ _ _ _ _ condition
• Relied on by s_ _takeholders
_________
enerally A__________
• Governed by G__________ ccounting
ccepted A__________
rinciples
P__________
JUST WHAT IS AUDITING?
LET’S WATCH A VIDEO…

As you watch the video look out for answers to the following
questions:
1. Why do companies get their financial accounts audited?

2. What is the role of an auditor?
3. What are some essential characteristics of an auditor?
4. How long is an audit engagement?
5. Where and how do auditors perform audit?
WHAT IS AUDITING?
WHAT IS AUDITING? A BROAD

DEFINITION
Accumulates
Competent & Specific Quantifiable
Independent Economic Entity Info (Evidence)
Person
Provides
Audit
Opinion Evaluates
Against
Highlight Established
Key Audit Criteria
Matters
WHAT IS AUDITING?
Established criteria Quantifiable Info
Rules and regulations Can be quantified and verified
• GAAP, FRS • Financial Statements

• Companies’ Act
• Income Tax Act • Income Tax, GST
• COSO Framework • Payments process
• Company Policies and • Payroll Process
Procedures
• Loan agreement • Loan repayment performance
WHAT IS AUDITING?
Evidence Accumulates & Evaluates
Objective, factual proof to support a claim
• Collect, test, compile, review 

• Data and supporting documents conclude
• Oral testimony
• Third party confirmations
• Observations Reporting
Auditor’s Opinion
WHAT IS AUDITING?
Competence Independence
Ability to perform task Free from influence , unbiased
• Professionally qualified • In fact

• In appearance
WHAT IS AUDITING?
A BROAD DEFINITION
Process by which
• a competent, independent person
• accumulates and evaluates evidence about quantifiable info
• related to a specific economic entity for the purpose of determining
and reporting
• on the degree of correspondence between quantifiable info &
established criteria
WHY THE NEED TO AUDIT?
WHY NEED AUDITS?

• To reduce Information Risk
• Information Risk increases with:

• Remoteness
• Conflict of interest
• Voluminous data
• Complex transactions
WHY NEED AUDITS?

• Companies Act requirement
• Unless
• dormant company or
• qualify as a “small company”:
• A private company
• Any two of the following criteria in the last 2 FY:
• Staff count <= 50
• Total Annual Revenues <= $10m
• Total Assets <= $10m
• Wef 1 July 2015
DIFFERENCES BETWEEN
AUDITING AND ACCOUNTING ?
TYPES OF AUDITORS AND
AUDITS
TYPES OF AUDITORS
• Independent Auditors
• Internal Auditors
• Government Auditors
• Forensic Auditors
INDEPENDENT AUDITORS
• Not employed by the company they audit
• Also known as external auditor
• Statutory/ Financial Statement audit
• Fee basis
• GAAS
• Public Accounting firms: Sole practitioner, partnership
engage
client Firm
audit
you
ACCOUNTING FIRMS
THE BIG FOUR & SOME HISTORY…
ACCOUNTING FIRMS
SERVICE LINES
• Auditing and assurance
• Tax
• Consulting
• Accounting
pwc and oscars

INTERNAL AUDITORS
• Employees of the company they audit
• Report directly to top mgmt - audit committee, BoD
• Compliance audits
• Operational audits
• Not a statutory requirement
INTERNAL AUDITORS
GOVERNMENT AUDITORS
• Employees of government
• Eg Auditor General’s Office
• All types of audits, focusing on compliance
• Perform audits on:
• government departments
• statutory bodies
• government owned companies
• regulated companies
https://www.straitstimes.com/singapore/key-findings
FORENSIC AUDITORS
• Detects, investigates and deters FRAUD
• Investigative or Forensic Audit
• Could be employee of companies or CPA firm or government
agencies
Dec 2017
http://www.straitstimes.com/singapore/courts-crime/criminal-syndicate-scams-40-million-of-fake-skillsfuture-claims-in-singapores
https://www.todayonline.com/singapore/former-mosque-chairman-stole-s370000-donations-he-claimed-he-would-safekeep
TYPES OF AUDITORS
TYPES OF AUDITORS
Tasks Performed Type of Auditor
• From the video..
• Ensure financial statements are
• Double check financial work by others
Independent
• Financial regulations are met
Auditor
• Look for signs of

mismanagement, waste or fraud Internal Auditor Forensic Auditor
• Examine companies and citizens

Government
suspected of underpaying taxes
Auditor
FINANCIAL STATEMENT
AUDITS
FINANCIAL STATEMENT
AUDITS OBJECTIVE
• To express an opinion on whether the financial statements give a
true and fair view in conformity with Financial Reporting
Standards and Companies Act
• Communication of Key Audit Matters (KAMs)*
• * New requirement for FS audits of listed entities for periods

ending on or after 15 December 2016.
FINANCIAL STATEMENT AUDITS

FINANCIAL STATEMENTS
• Statement of Financial Position
• Statement of Comprehensive Income
• Statement Of Changes In Equity
• Statement of Cash flows
Objective
• Notes To The Accounts •To express an opinion on
whether the financial
statements give a true and
fair view in conformity with
FRS and CA
•Communication of Key
Audit Matters

TRUE AND FAIR
• Reasonable assurance that no material misstatements
• Appropriate accounting principles, consistently applied
• Adequate disclosure
• Reasonable accounting estimates
• Fair presentation
Objective
• In line with auditors’ understanding •To express an opinion
of entity and its environment on whether the
financial statements
give a true and fair
• Refer to SSA 700 Para 10-15
view in conformity
with FRS and CA

EXPRESS AN OPINION
Opinion type True &
Fair?
Unqualified
Emphasis of Matter
Objective
Qualified (except for) •To express an opinion
Disclaimer on whether the
financial statements
Adverse give a true and fair
view in conformity
FRS and CA
Refer to SSA 701
“REASONABLE ASSURANCE
THAT NO MATERIAL
MISSTATEMENTS”
MATERIALITY
• Magnitude of misstatement
• Affects judgment of a reasonable person, when making decisions,
while relying on FS
• Relative, not absolute
• Quantitative + Qualitative
MISSTATEMENTS
Misstatements in the FS can either be
Fraud or Error
Q: What is the difference between fraud and error?

A: Intention
Error = honest mistake
Fraud = neither honest nor a mistake
Q: Which is more difficult to uncover:

• Fraud or Error?
• Management fraud or employee fraud?
MISSTATEMENTS
MISSTATEMENTS
FRAUD OR ERROR?
• Deliberately failed to record a supplier invoice
• Misplaced a sales invoice, resulting in omission of sales record
• Intentionally misrepresented to the auditors

COMMUNICATING KAMS
Explaining the KAM:
Why the matter was considered to be one of the most significant in the audit?
How the matter was addressed in the audit via the key audit procedures?
Reference to the related disclosures in FS
Outcome of the auditor’s procedures - Findings

RESPONSIBILITIES
RESPONSIBILITIES FOR
FS
Management Auditor
• Prepare, present FS in line with • Audit FS in line with SSA
FRS and CA
• Maintain adequate internal •Express opinion in audit report
control system to • Highlight key audit matters in
o Record transactions audit report
correctly •Exercise professional judgement
o Safeguard assets •Maintain professional skepticism
•Maintain independence
o Assess company’s ability to
continue as a going concern
o Adopt appropriate accounting
policies
RESPONSIBILITIES
DETECTING FRAUD AND ERRORS
• By giving an unqualified audit opinion, are auditors giving a
guarantee of the financial statements?
• Are auditors responsible for detecting
• Management fraud?
• Forgery?
• Collusion?
RESPONSIBILITIES
Management’s Auditor’s
• Design, implement and • Maintain
maintain an adequate internal professional skepticism
control system to prevent, • Assess risk of fraud
detect and correct fraud and
errors • Plan audit according to risk
assessment
RESPONSIBILITIES
• When Auditors suspect fraud
• Inform management
• Assess potential effect on financial statement
• Perform additional procedures
• Sure that fraud exists => reflect on FS
• Not sure => legal advice before issue report
• Inform Finance Minister if >= S$20k
LIMITATIONS OF AN
AUDIT
• Use of testing, sampling
• Limitations of internal controls
• Reliance on management representation
• Audit opinion depends on auditor’s judgement
• Audit evidence is persuasive, not conclusive
THE AUDIT PROCESS

4 PHASES
• Understand business, industry
Planning • Assess business risk, fraud risk
Testing Controls and • Reliance on controls?

Transactions • Assess misstatements likelihood
Testing Ending • Analytical procedures

Balances • Additional tests
• Presentation, disclosure
Issue Audit Report • Communication
IN SUMMARY…
QUICK TEST!
T/F? WHY?
1. An operational audit checks if rules are being followed.
2. In an FS audit, the auditor's key responsibility is to detect fraud

and error.
3. A “qualified” audit opinion states that the financial statement is

truly and fairly presented.
4. The audit report guarantees the reliability of the financial

statement.
AUDIT AS A SUBJECT
AUDITING 1
Introduction and FS Audit
Internal Controls Com-

munication
Audit Evidence & Documentation
Sales Collections Accounts Cash Fixed Assets

cycle cycle Receivables Balances Balances
AUDITING 2
Impact of IT on the Audit
Analytical
Purchase & Payment Review
Inventory Accounts Payable Procedures
Cycle
& Expenses
Auditor’s
Audit Planning,
Regulatory Completing Audit Report
Materiality &
Environment the Audit
Audit Risk
(Corp Gov)
KEY AUDIT
TERMINOLOGIES
• This topic’s key terminologies can be found in pdf file on MeL and
via:
https://quizlet.com/_1k7h7s
Password: auditing1
You may access the link to test your knowledge on the key terms we
have learned today. Have fun 
WHAT HIT YOU TODAY?

NEXT WEEK
WEEK 2
Lecture
Tutorial Sales Cycle (I) –
Internal Controls
Intro & Audit of FS *Pre-lecture learning

Auditing 1 Intro (Lecture) (Student)

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Official (Closed) - Non Sensitive

LET’S WATCH A VIDEO…

1. Why do companies get their financial accounts audited?

WHAT IS AUDITING? A BROAD

• GAAP, FRS • Financial Statements

• Collect, test, compile, review 

• Professionally qualified • In fact

WHY NEED AUDITS?

• Information Risk increases with:

WHY NEED AUDITS?

pwc and oscars

• Look for signs of

• Examine companies and citizens

• Communication of Key Audit Matters (KAMs)*

• * New requirement for FS audits of listed entities for periods

FINANCIAL STATEMENT AUDITS

FINANCIAL STATEMENT AUDITS

FINANCIAL STATEMENT AUDITS

Q: What is the difference between fraud and error?

Q: Which is more difficult to uncover:

FINANCIAL STATEMENT AUDITS

Reference to the related disclosures in FS

Outcome of the auditor’s procedures - Findings

THE AUDIT PROCESS

Testing Controls and • Reliance on controls?

Testing Ending • Analytical procedures

2. In an FS audit, the auditor's key responsibility is to detect fraud

3. A “qualified” audit opinion states that the financial statement is

4. The audit report guarantees the reliability of the financial

Internal Controls Com-

Sales Collections Accounts Cash Fixed Assets

WHAT HIT YOU TODAY?

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