Acc 309 Principles of Auditing

Course Instructor: Mr G. Tobedza BCom,

MBA, FCCA, CFA.
Office 245/213
Email tobedzag@ub.ac.bw
Whatsapp: +267 73146699

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 Nature of Auditing

Auditing is the accumulation and evaluation

of evidence about information to determine
and report on the degree of correspondence
between the information and established criteria.

Auditing should be done by a competent,

independent person.

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Definition
What? - Independent examination
Why? – to express on opinion on whether F/S
have been prepared in accordance to GAAP or
IFRS.
When? After management has prepared and
presented f/s. Auditors do not prepare f/s
Who? Independent external professional
Cannot be an employee
Certified by a professional body.
No personal relationship with those charged executive
management and governance.
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No financial interest/ shareholder or creditor etc
 Evid
Accumulating Evidence and to de
audi
Evaluating Evidence esta

Transaction
data Written and
electronic Observations
Communications
Client with outsiders
Testimony

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 Information and Established
Criteria
To do an audit, there must be information in a
verifiable form and some standards (criteria)
by which the auditor can evaluate the information.

Criteria
FASB IASB(ifrs)

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Competent, Independent Person
Judgment and
Competence
Experience

Independence

Evaluation
of Evidence

Proper
Conclusion
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 Demand for Auditing its
benefits
in reducing information risk.

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 Reducing Information Risk

 User verifies information

 User shares information risk with management

 Audited financial statements are provided

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 Causes of Information Risk

 Remoteness of information-
provided by others and should be verified.
 Biases and motives of the provider

 Voluminous data

 Complex exchange transactions

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Relationships Among Auditors, Client, and External Users

Client or audit Auditor issues

committee hires report relied
auditor Auditor upon by users to reduce
information risk

Provides capital
External
Client
Users
Client provides financial
statements to users
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Types of auditors
Certified Public Accountants/ Firms
1. Deloitte – $59.3 billion (Deloitte Info)
2. PwC – $50.3 billion (PwC Info)
3. EY – $45.4 billion (EY Info)
4. KPMG – $34.64 billion (KPMG Info)
5. BDO – $12.8 billion (BDO Accounting Firm Information)
6. RSM $8 billion
7. Grant Thornton – $6.6 billion
8. Nexia International $5 billion
9. Crowe Horwath $ 4.3 billion
10. Baker Tilly $4.3 billion

Auditor General
BURS Agents
Internal Auditors

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Types of Audits
Operational Audit
review of company operational procedures to evaluate
efficiency and effectiveness. At completion is normally
recommendations for improvement. E.g. efficiency and
accuracy of payroll transaction processing
Compliance Audit
determine whether the auditee is following specific
procedures, rules or regulations. Eg review payroll to
determine if in agreement with minimum wage laws.
Financial Statement
determine whether FS are prepared in accordance
GAAP and IFRS

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Types of Audit Opinions
Unmodified Opinion( Unqualified or clean)
Unmodified with explanatory paragraphs.
Qualified Opinion
Adverse Opinion
Disclaimer

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Unmodified Opinion/ Clean
Must meet the following conditions
Include all financial statements
Sufficient and appropriate evidence collected
Financial Statement presented fairly in accordance with
GAAP or appropriate framework.
No circumstances requiring the addition an emphasis of
matter paragraph or modification
Unmodified with Explanatory paragraph
Lack of consistency in application of GAAP.
Auditor agrees with instances of departure from
promulgated accounting principles
Substantial doubt about going concern
Emphasis of other matters
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Reports involving other auditors (revised wording)
Unmodified
the opinion that is expressed when the auditor
concludes that the financial statements are
presented fairly, in all material respects, in
accordance with the applicable financial
reporting framework or generally accepted
accounting principles.

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Modified or Qualified Opinion
Happens under three circumstances
Financial statements are not prepared according to
GAAP and auditor disagree.
Scope restriction by client or other circumstances
(GAAS)
Auditor is not independent (GAAS)

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GAAP Issues
Changes in GAAP- consistency auditor disagree
Disclosure not enough
Departure for GAAP - auditor disagrees
Misapplication of GAAP
Unreasonable estimates- auditor disagrees
What opinion can we give?
Qualified opinion
Issue is material but not severe and pervasive
limited to certain area and does not alter the fundamental understanding of
the F/S.
Adverse opinion
Material severe and pervasive and can alter the fundamental understanding of
the financial statements.
GAAS issues
The scope of the audit has been restricted (scope limitation)
Unable to obtain appropriate evidence but auditor conclude that possible effect
of material misstatement could be material but not severe and pervasive.
Material but not severe. Scope limitation.
Then a qualified opinion.
Examples of scope limitation
Time constraint not enough time
Unable to observe inventory
Unable or cannot confirm AR
Unable to obtain attorney letter.
Accounting records not adequate
Are we confined or restricted
Restricted or constrained by circumstances or management restrict us.
If management the escalate to board committee.
IF material severe and pervasive then – Disclaimer ( Not adversed)
The auditor is not Independent (disclaim no reasons
should be sited)
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Disclaimer
the opinion that is expressed when the auditor is
unable to obtain sufficient appropriate audit
evidence on which to base the opinion, and the
auditor concludes that the possible effects on the
financial statements of undetected
misstatements, if any, could be both material and
pervasive.

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Qualified
the opinion that is expressed when the auditor
either;
(a) having obtained sufficient appropriate audit
evidence, concludes that misstatements,
individually or in the aggregate, are material but not
pervasive to the financial statements; (GAAP)
or (b) is unable to obtain sufficient appropriate audit
evidence on which to base the opinion, but
concludes that the possible effects on the financial
statements of undetected misstatements, if any,
could be material but not pervasive.(GAAS)

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Adverse
the opinion that is expressed when the auditor,
having obtained sufficient appropriate audit
evidence, concludes that misstatements,
individually or in the aggregate, are both
material and pervasive to the financial
statements.

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 Describe assurance services and
distinguish audit services from other
assurance and non-assurance services
provided by CPAs.

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Comparison Table
Comparison Table

Audit Assurance

It involves the evaluation of the accounting information Assurance is a way to analyze and assess the procedures,
available in financial statements. operations, and processes.

It ensures that the presented accounting information is

The basic aim is to present fair and accurate financial
accurate. Meaning thereby there are no misrepresentations or
information that follows accounting principles and standards.
irregularities in such a report.

The practitioner may restrict to a specific area due to the

The audit is performed under international auditing standards .
assurance terms.

All stakeholders of a company are engaged Assurance may restrict to one type of stakeholder

Resources and time necessary for conducting an audit are

Resources and time required for assurance are relatively lower
relatively higher

Audit points out any dishonest activity or misuse of the funds Assurance is done after the audit and provides essential
in financial statements information for better decision making.

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 Assurance Services

An independent professional service

Can be performed by CPAs or by a variety

of other professionals

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Auditing, Attestation and Assurance
Services
Auditing, Attestation and Assurance

Lends Credibility Example

to financial Statements
Auditing only through an audit B/S, IS, CF, SE ,
opinion

Attestation to any assertions by Projections,

Management not just F/S

Any type of information

where an opinion is
Assurance rendered. Can be no- Sports Awards, Lottery Awards,
financial information.
Therefore, auditing is an
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assurance service on F/S
 Attestation Services
Five
Categories
1. Audit 3. Review
Historical
Financial
Statements

2. Internal
Control over 4. Information
Financial 5. Other
Reporting
Technology

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 Other Assurance Services

Most of the other assurance services that CPAs

provide do not meet the formal definition
of attestation services.

The CPA is not required to issue a written report.

The assurance does not have to be about the

reliability of another party’s assertion about
compliance with specified criteria.

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Green Initiatives Bring Assurance
Opportunities, Competition
Global interest has triggered a surge in reports.

95% of the Global Fortune 250 released

environmental, social, and governance data.

Presented in standalone reports or integrated

into annual financial reports.

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 Other Assurance Services
Examples
Assess risks of accumulation, distribution,
and storage of digital information…

including

assessing security risks and related

controls over data and other information
stored electronically, including the
adequacy of backup and off-site storage.
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 Assurance, Attestation, and
Nonassurance Services

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