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firstChapter-1Overviewofauditingandassuranceservices.pptxAUDITING
ACC 415
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Overview of auditing and assurance services: Meaning, definition, objectives, types of audit & auditors, Limitations. Distinction between auditing and accounting.
Saudi Organization for Certified Public Accountants (SOCPA): objectives, Saudi Auditing Standards
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The word 'Audit' is originated from the Latin word 'audire' which means 'to hear'.
The general definition of an audit is an evaluation of a person, organization, system, process, enterprise, project or product.
Auditing is concerned with verification and examination of verifiable information.
Audit means to an independent examination of the financial statements of an enterprises.
To ensure compliance with established policies and operational procedures, and to recommend necessary changes in controls, policies, or procedures.
Independent review and examination of records and activities to assess the adequacy of internal controls,
Meaning of Audit:
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DEFINITION OF AUDIT:
“Auditing 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” (American Accounting Association, 1972).
According to Lawrence R. Dicksee, "an audit is an examination of accounting records undertaken with a view to establishing whether they correctly and completely reflect the transactions to which they relate. In some instances, it may be necessary to ascertain whether the transactions themselves are supported by authority.“
R. K. Mautz defines auditing as being "concerned with the verification of accounting data, with determining the accuracy and reliability accounting statement and reports."
It is clear from the above definitions that auditing is the systematic and scientific examination of the books of a accounts and records of a business so as to enable the auditor to satisfy himself that the Balance Sheet and the Profit and Loss Account are properly drawn up so as to exhibit a true and fair view of the financial state of affairs of the business and profit or loss for the financial period. The Auditor will have to go through various books and accounts and related evidence to satisfy himself about the accuracy and authenticity to report the financial health of the business
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Objectives of Auditing:
(A) Primary Objective:
(a) To produce a report by the auditor of his opinion of the truth and fairness of financial statements so that any person reading or using them can have belief in them.
(B) Secondary Objective:
To detect errors and fraud
To prevent errors and fraud by the deterrent and moral effect of the audit.
To provide spin-off effects. The auditor will be able to assist his client with accounting, system, taxation, financial and other problems.
(C) Others :
Validity
Completeness
Ownership
Accuracy
Valuation
Classification
Disclosure
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Type of Audit:
Statutory Audit/ External audit: A legally required review of the accuracy of a company's or government's financial records. The purpose of a statutory audit is the same as the purpose of any other audit - to determine whether an organization is providing a fair and accurate representation of its financial position by examining information such as bank balances, bookkeeping records and financial transactions.
Private Audit: Private audit because of auditor’s desire and not because of law. E.g. sole trader and partnership.
Internal Audit: Internal audit is one conducted by an employee of the business into any aspect of its affairs.
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4. Management Audit: Management Audit is an inquiry into efficiency and effectiveness of management.
5. Financial Audit : A financial audit, or more accurately, an audit of financial statements, is the verification of the financial statements of a legal entity, with a view to express an audit opinion. The audit opinion is intended to provide reasonable assurance that the financial statements are presented fairly, in all material respects, and/or give a true and fair view in accordance with the financial reporting framework. The purpose of an audit is to enhance the degree of confidence of intended users in the financial statements.
Investigative Audit : This is an audit that takes place as a result of a report of unusual or suspicious activity on the part of an individual or a department. It is usually focused on specific aspects of the work of a department or individual.
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7. Operational Audit :An operations audit is an examination of the operations of the client's business. In this audit the auditor thoroughly examines the efficiency, effectiveness and economy of the operations with which the management of the entity (client) is achieving its objective
8. Others:
Computer Audit (IT Audit)
Compliance Audit – A compliance audit is conducted to determine whether the auditee is following specific procedures, rules or regulations set by some higher authority. Some examples may include wage laws, and examine contractual agreements with bankers and other lenders to be sure the company is complying with legal requirements.
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TYPES OF AUDITORS
External Auditors
External Auditors are also known as Independent Auditors or Professional accountants in public practice. An external auditor is an audit professional who performs an audit in accordance with specific laws or rules on the financial statements of a company, government entity, other legal entity or organization
Internal Auditors
Internal auditors are employed by individual corporations, government bodies or other entities. There are different tasks that the individual auditor might perform in the organization, such as financial, internal control, operational and forensic audits and compliance. They might also do consulting within the company.
Government Auditors
The government auditors work in the public sector, they are employed by the national or local government institutions and public organs. The majority of the government auditors main task is to act as assurance on compliance audit and operational audit. When the auditor audit a entity the assignment is to determine which rules, policies, laws or government regulations the entity follows.
Forensic Auditors
Forensic audits’ mission is to detect, investigate and deter fraud and white-collar crimes. Forensic audits are often employee’s of corporations, audit firms, government agencies and investigative and consulting services firms.
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DISTINCTION BETWEEN AUDITING AND ACCOUNTING
The role of accountancy is to record the transaction in the book of accounts, extraction of trial balance, preparation of Trading and profit and loss account and balance sheet etc. On the other hand auditing is the examination of books of accounts and checking the financial statements for the purpose of finding out the true and fair position and results of operation of a concern. Audit is concerned with detailed examination of the complete accounting records but it does not involve the preparation of accounts.
If the auditor is asked to write the books of accounts, extract an agreed trial balance and profit and loss account and Balance sheet, he would be doing the work of an accountant and not the work of an auditor. Preparation of account is not the part of auditing. An auditor, using his appointing authority, needs to check thoroughly, whether the Profit and Loss account and the Balance Sheet have been properly drawn up and reveal the 'true and fair view' of the state of affairs and results of operation of the concern and report it to the parties interested.
Auditing without the prior existence of accounts is not possible. When the accountant finishes his work, the auditor starts his work.
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| Auditing | Accounting | Contents |
| Auditing is determining whether recorded information properly reflects the economic events that occurred during the accounting period | Accounting is the recording, classifying, and summarizing of economic events for the purpose of providing financial information used in decision making. | Definition |
| the main goal of an audit is to perform thorough evaluation of a company's financial records and reports and provide a company with improvement recommendations based on that evaluation | The main goal of accounting is to provide a company with clear, comprehensive, and reliable information about its economic activities and status of its assets and liabilities. | Objective |
| Auditing ensure such information is reliable and comforts with established rules and regulations | Accounting provides financial information to users of such information | Nature |
| In auditing “Auditor” is a Key person. | In Accounting “Accountant” is the key person. | Key Person |
| An audit is a review of the accounting practice. | Accounting is the day to day practice of administering the financial aspect of a business, such as invoicing, billing, banking etc... | Review |
| The auditing work start after completion of Accounting work. | Accounting work done in first stage. | Stage |
DISTINCTION BETWEEN AUDITING AND ACCOUNTING
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The responsibility for preparation and presentation of the financial statements is that of directors of the entity. The audit does not relieve the directors of any of their responsibilities.:
Auditors opinion is not a guarantee of the future sustainability of the entity.
Auditors opinion is not an assurance of management’s effectiveness and efficient.
Informal relation
The auditors attitude is not professional.
Interference or Pressure of Management
Limitation of Audit
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Auditing in Saudi Arabia
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SAUDI AUDITING SYSTEM AND PRACTICES
Historical Background:
The 1965 Companies Act the first law in Saudi Arabia to recognize the accounting profession and to require company management to prepare audited financial statements for shareholders
The first law to regulate the auditing profession in Saudi Arabia was the 1974 Law of Certified Accountants. Articles 2 and 3 set the conditions for individuals to register as an external auditor with the Ministry of Commerce.
The development of accounting and auditing in Saudi Arabia was the establishment the Saudi Organization for Certified Public Accountants (SOCPA)
The rapid growth in the number and size of Saudi Arabian companies and the introduction of new technology has enhanced the need for internal control, monitoring and evaluation
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Saudi Organization for Certified Public Accountants (SOCPA) is a professional organization established under Royal Decree No. M12 dated 1.05.1412H corresponding to 19.11.1991G.
It operates under the supervision of the Ministry of Commerce in order to promote the accounting and auditing profession and all matters that might lead to the development of the profession and upgrading its status.
The SOCPA consisting with A thirteen members Board manages.
Objectives of SOCPA:
Review, develop and approve accounting and auditing standards.
Monitoring the performance of certified public accountants to ensure their compliance with accounting and auditing standards and with the provisions of CPA (Certified Public Accountant) Regulations and its by- laws.
Establish SOCPA fellowship examination rules and organize CPE courses.
Conduct researches and studies; publish periodicals, books and bulletins covering accounting and auditing subjects; and participating in local and international committees and symposiums relating to the profession of accounting and auditing.
Saudi Organization for Certified Public Accountants (SOCPA)
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SAUDI AUDITING STANDARDS
Auditing standards, which cover : general standards including professional qualification, independence, due care; standards of field work including planning, Control, Recording, Evidence, Reporting and relevant procedures.
The royal decree No. M/12 dated 13-05-1412H was issued approving CPAS' Regulations. Article 2 concerning the conditions of enrollment in the register, requires for registration as CPA that the applicant shall be, among other requirements :
Holder of a Bachelor's degree in Accountancy or any other equivalent Certificate as may be deemed acceptable by the competent authorities in charge of equivalency of degrees
Having practical experience in the field of accounting after graduation with any of the following bodies :
(A)Certified public Accountants firms. This period of service shall be for a minimum of three years, reducible to two years if the applicant is a holder of a Master's degree in accountancy or an equivalent degree, and to one year if the applicant is a holder of a PH.D. in accountancy or an equivalent degree.
(B)Government bodies, companies or sole proprietorships according to the conditions and terms stipulated in the Executive By-laws, provided that such terms are no less than those stated in paragraph (A) above.
Full member of the Saudi Organization for Certified public Accountants(SOCPA)
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SAUDI AUDITING STANDARDS
Article 11 requires a CPA to attend a given number of seminars as may be specified and held by SOCPA.
Article 19 stated that SOCPA is entrusted to organize course of continuous education within its duties to promote the profession
Article 20 states the organization consists of the following :
Full members, namely :
(A) All Certified Public Accountants licensed to practice the profession in the Kingdom at the time these regulations come into force, provided that they attend the course held by the organization and pass the examinations within a period not exceeding three years.
(B) Those who hold the qualifications provided for in paragraph (4) Article (2) of the regulations, provided that they obtain the fellowship certificate.
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SAUDI AUDITING STANDARDS
Associate members and they are those who apply for membership from among those who hold the qualifications refereed to in paragraph (4), Article (2) of the regulations
Article 25 specified the power SOCPA board of directors' which included organization of programs and courses of continuous professional education
SOCPA education and training committee issued it aims to update the information's, professional and technical skills in subjects related the accounting and auditing profession, for the purpose of maintaining or improving professional and technical competence
The rules considered CPE as mandatory to SOCPA members. Non. Compliance with these rules may cause cancellation of membership
The education and training committee is authorized to accept or reject the reasons for non-compliance with CPE requirements
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Assurance Services
Assurance services are professional
services that improve the quality of
information for decision makers.
Assurance services can be
performed by CPAs or by
a variety of other professionals.
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Attestation Services
An attestation service is a type of assurance
service in which the CPA firm issues a
report about the reliability of an assertion
that is the responsibility of another party.
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Other Assurance Services
Most other assurance services do not meet the
formal definition of attestation services.
The CPA must be independent.
The CPA is not required to provide a written report.
The CPA must provide assurance.
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Assurance Services on Information Technology
There is an increased demand for assurance
about computer controls surrounding
information transacted electronically
and the security of the information
related to the transactions.
– assurance over Web site controls
– assurance about information system reliability
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Assurance Services on Information Technology
WebTrust is an attestation service, and the
WebTrust seal is a symbolic representation
of the CPA’s report on management’s
assertions about its disclosure of
electronic commerce practices.
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Assurance Services on Information Technology
SysTrust is an attest-type engagement
to evaluate and test system reliability in
areas such as security and data integrity.
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Other Assurance Services Examples
Controls over and risks related to investments,
including policies related to derivatives…
assessing the processes in a company’s
investment practices to identify risks and to
determine the effectiveness of those processes.
involves
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Other Assurance Services Examples
Mystery shopping…
performing anonymous shopping to
assess sales personnel dealings with
customers and procedures they follow.
involves
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Other Assurance Services Examples
Assess risks of accumulation, distribution,
and storage of digital information…
assessing security risks and related
controls over data and other information
stored electronically, including the
adequacy of backup and off-site storage.
involves
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Other Assurance Services Examples
Fraud and illegal acts risk assessment…
developing fraud risk profiles and assessing the
adequacy of company systems and policies in
preventing and detecting fraud and illegal acts.
involves
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Assurance, Attestation, and Nonassurance Services
ASSURANCE SERVICES
Other Attestation Services
(e.g., WebTrust, SysTrust)
Other Assurance Services
(e.g., CPA Performance View)
Certain
Management
Consulting
ATTESTATION SERVICES
Audits
Reviews
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Assurance, Attestation, and Nonassurance Services
NONASSURANCE SERVICES
Other Management
Consulting
Tax
Services
Certain
Management
Consulting
Accounting and
Bookkeeping
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