The overview provides an introduction to the basic objectives and procedures involved in the auditing process. In addition, this article explains the process that auditors undertake as they plan and perform their audit and then prepare the audit report. This process includes such steps as designing the audit approach, performing tests of controls and transactions, performing analytical procedures and tests of details of balances, completing the audit and issuing an opinion.
Explanations of factors affecting the audit process are also provided, such as materiality and risk, professional ethics and legal liability. Finally, examples of the various forms of auditing, including internal financial auditing, government financial auditing and operational auditing, are included to help illustrate the roles that auditing plays in various industries and in differing aspects of the business model.
Heather Newton earned her J. She worked as an attorney at a large, international law firm in Washington, DC, before moving to Atlanta, where she is currently an editor for a legal publishing company. Prior to law school, she was a high school English teacher and freelance writer, and her works have appeared in numerous print and online publications. Our society depends on timely and accurate financial information. Businesses and investors alike need current, reliable information in order to make the decisions that must be made every day.
Much of the information that investors, companies and even the government receive and incorporate in their business decisions is provided by third parties.
Investors depend on corporate financial statements, lenders depend on consumer applications and the government relies upon tax returns filed by individuals and businesses.
However, investors, business leaders and government agents do not have the time or ability to verify all of the information on which they rely. Further, in many cases, the objectives of the information providers are at odds with the objectives of those who use the information.
Thus, there is a need for objective third parties who will verify reported information and summarize their findings to the information users. In some industries, these third parties are known as independent auditors and the process they undertake to collect, track and verify information is called an audit. Independent auditors are highly trained professionals who are guided by ethical and legal standards that are designed to safeguard the social need for accurate information and the high regard given the reports they produce.
This article explains the basic concepts and techniques of the auditing profession. It explains the attestation function and the other objectives and procedures of the auditing process. It also provides a description of the internal control evaluations that take place to ensure the accuracy of the information being audited and the reports that are drafted to summarize the audit findings. Also, factors that affect the auditing process are discussed, which include materiality and risk, professional ethics and legal liability.
Finally, the various types of auditing are explained, including internal financial auditing, government financial auditing and operational auditing. The following sections describe these concepts in more detail. Professional auditors serve as objective intermediaries who lend credibility to financial information by reporting whether the information conforms to generally recognized accounting and auditing standards. Auditing consists only of the review of reported information, and thus does not include the actual production of financial reports.
That function is performed by a company's accountants and financial analysts, who generally work under the direction of its controller or management team.
Auditors collect evidence, which consists of financial statements and the supporting documentation, which they cross-check and verify in order to determine whether the information in the financial statements is reliable. After completing this process, auditors compile a report that summarizes whether the information reported in the company's financial statements is reliable.
This report is essentially a professional opinion expressed by the auditing firm as to whether the company's reported financial position, operational capabilities, and any changes in its financial position, have been documented in accordance with generally accepted accounting principles. This process is critical because reliable and timely information enables capital markets to operate efficiently and allows individuals who depend on reported financial information to make informed decisions on a wide variety of economic issues.
Independent auditors are hired and paid by clients. A client is the person, company, board of directors, agency or group that retains the auditor to complete the auditing process, often called an "engagement," and pays the fee for the auditor's services.
Audits may be financial, in which the client's financial statements and other economic data are examined, or operational, whereby an auditor examines the efficiency and effectiveness of a client's business operations. In financial audits, the client and the auditee are usually the same. The auditee is the company or entity whose financial statements are being audited. Occasionally, the client and the auditee are different, such as when Corporation A hires and pays the auditors to audit Corporation B in conjunction with a proposed merger or acquisition.
Once independent auditors have reviewed the financial information provided by a client, the auditors prepare a report that expresses an opinion as to whether the financial information provided by the client has been compiled and presented in accordance with generally accepted accounting principles. This third-party scrutiny lends a certain amount of credibility to the financial information and is often referred to as an attestation.
Thus, to attest to information means to provide assurance as to its reliability. A financial statement audit is, by far, the most common type of attest function that auditors perform. However, professionally licensed auditors, known as certified public accountants "CPAs" , also attest to the reliability of a wide range of other types of information including financial forecasts, internal control policies and procedures, compliance with laws and regulations and advertising claims.
No matter what type of information is being examined, the objectives and techniques of the auditing process remain essentially the same. In order to meet these objectives, auditors gather evidence that enables them to determine the accuracy of management's assertion as to the reliability of the information.
A company's financial statements are generally submitted with an assertion by its management that the financial records have been prepared in accordance with generally accepted accounting principles "GAAP". After reviewing the financial records, the auditors issue a report summarizing their findings. In order to issue a report, auditors must ensure that the objectives for the audit have been met. Although not an insurer or a guarantor of the fairness or reliability of the information in the financial statements, the auditor has considerable responsibility for notifying users whether the statements are properly stated.
If the auditor believes that the statements are not fairly presented or is unable to reach a conclusion because of insufficient evidence, the auditor has the responsibility to convey this by altering the opinion expressed their report. The amount of evidence collected and reviewed by the auditors and the content of the audit report depends on the nature of the engagement. The two most common forms of attestation engagements are examinations, which are referred to as audits when they involve the review of financial statements, and reviews.
An examination or audit provides the highest level of managerial assurance that its financial statements have been prepared following generally accepted accounting principles is reliable. Oladeji, Tolulope, Ikpefan, A. O and Olokoyo, F. Khairina Rosli, Paul H. Manuscripts will be evaluated for originality, significance, clarity, and contribution. Submitted manuscript must not have been previously published or currently submitted for publication elsewhere.
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FAR Research Projects FAR will grant researchers conditional access to proprietary data and research subjects in audit firms in the Netherlands, allowing researchers the opportunity to establish an informed frame of reference of the inner workings of audit firms.
Audit quality, in one context or another, is the focus of the majority of the auditing research published over the past fifteen years. Its conceptual nature and relation to .
VA Research & Development Standardization of Audit Methodology Achieve consistent results VA-wide Facilitate data collection and reporting Allow for trending of findings to identify issues and make improvements system-wide Develop large cross-trained pool of research compliance experts Development of the Research Audit Worksheet The Office of Research Oversight RCO Advisory . AUDITING Generally Accepted Auditing Standards Generally Accepted Auditing Standards Introduction Audit is a basically an examination and a review of the financial statement that have been prepared by the management at the end of the financial period.
Fostering Independent Research and Academic Engagement. Since its inception, the CAQ has sought to improve audit quality by increasing engagement between auditors and the academic community and by fostering independent research related to the public company auditing profession. It argues that the development of the auditing research discipline has been hindered by desired attachments to so‐called notions of “scientific rigour” and a reluctance across significant parts of the discipline to undertake (or even acknowledge) research of a more “qualitative” or “critical” dimension.