Audit is a branch of financial management concerned with evaluating the financial statute interns businesses. Audited are evaluations of the financial possibilities of a company. The companies prepare statements of the financial account their activities, which represent their total execution. These statements of the financial account are evaluated by the listeners, who evaluate them according to current standards' of industry. They are examined for exactitude and the equitability in their report. One expects that companies pass theirs audited, because the results are very important for the reputation and the success of the company. Audited are of great value to the external subsidiary companies of company, such as shareholders and investors, because they provide an additional reinsurance of their choice in the investments when the questions emerge.
History of Audit
Auditing is mainly like a method to maintain accountancy and the record keeping as its principal support. It was not until the arrival of the industrial revolution of 1750 to 1850, that audit began its evolution in a field of detection of fraud and financial responsibility. The companies increased for this period, having for result of the increased positions of work between the owners with the customers. Management was rented to actuate companies in the absences of the owners, and the owners found a need growing to supervise their financial activities, for the exactitude and the prevention of fraud. At the beginning of the 20th century, the practice of report of the listeners, that implied reports/ratios of tender their functions and results, were standardized like "report/ratio of the independent listener.
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"The increase in the demand of the listeners leads to the development of the process of test. The listeners developed a manner strategically of choosing the principal cases like representative of the total execution of the company. It was an accessible alternative to examine each case in detail, and it needed less time than the standard audit.
3. WHAT IS AUDIT SYSTEM OR AUDIT TRAIL?
A system of the intervention is generally a computer program that designs itself to attend with the completion of the procedures of the intervention. This type of software is bought by the companies of accounting, the inspectors and the departments of internal revision. The primary intention of a system of the intervention is to gather data, to at random make a sample of the data for each procedure of the intervention, activity of the track and helps in the creation of the closing report. There is an ample range of the systems of the intervention available, the designed small systems for a business of medium size to the great systems of the company for use of multinational organizations.
In order to work with a system of the intervention, training in accounting and reviewing it is required. Whereas the type of intervention can vary, a system of the intervention is more of general use for the financial or regulating interventions. In this type of intervention, the enormous amounts of data uploaded in the system and are used to create a series of tests. For many inspectors, the additional training in the system of the intervention is necessary. This can be finished with a series of courses, reviewing the documentation of the user or with seminaries.
the order of n to have an effective and reliable system of the intervention, software is due to install in a network of computers independently maintained, with the surrounding access of the security tightened to the system. The data of the transactional system uploaded with a safe process to make sure that any information is not altered. In many big companies, this is finished by a program that is worked on a base to program.
The primary task of a system of the intervention is to define the modem for a specific test of the intervention and to at random finish the selection of the data. The criteria for the selection of the data are fixed by the inspector, and the program itself uses several statistical questions and methods to make sure that the selection is truth at random. This process only saves significant time and effort during an intervention.
Always on Time
Marked to Standard
Whereas the inspector works with the plan of the intervention, he or she must bring up to date the plan of the project with time required and to work finished. A system of the intervention can follow and maintain this information automatically. A report provides the supervisor of the intervention, a list of the time last in the intervention, the work made and the name of the inspector. This type of report is required in any intervention and is very beneficial.
The sign of intervention of the term is used in more of a use in the world of the today business. Historically, an intervention sign had to do with being able to provide a complete history of any given financial transaction. The idea was to be able to completely identify each passage in the process of the initiation of the transaction to the completion of the transaction. Typically, this process happened being able to draft the paper documents that in the end demonstrated the progress of the transaction of the beginning. Today, an intervention sign also must don't necessarily with data that also overcome in electronic form, with the transactions limited the financial data.
A sign of intervention of any type will include an attempt to establish a chronological list of the steps as well as which were necessary to begin the transaction brings it to the completion. The intervention signs can be very simplistic or extremely complicated, depending on the number of the steps implied with the transaction. For example, to lead a sign of intervention in an invoice published by a salesman would be a relatively simple process.
Beginning with the receipt of the invoice, the document is followed with the accounts to pay, completely to the emission of a check or an electronic payment to place the debt. At the same time, to create a reviewed sign to consider the reconstruction of a manufacture process can contain many more steps and get to be very difficult to follow.
An inspector can choose to begin the process to create a sign of intervention of the principle or the completion of the transaction under consideration. Often, to begin the process of the intervention with the finished phase more recent and the work the other way around is the efficient means to establish the intervention sign. Nevertheless, when the point that begins and the point of the completion is established, it is possible to approach the sign of intervention of both ends simultaneously, simply completing the steps that happen between the passages of the beginning and the finishing to the transaction.
To use an intervention sign can often be an effective tool in the handling of the financial resources and others of a business or an organization. The process to identify the intervention sign can in fact help to identify the passages within the process that were unnecessary and that can be eliminated in the future transactions. Another important use of the intervention sign is that the process can open attempts to manipulate the financial profile of the organization, in an attempt to perhaps cover upon the fact that the bottoms lack or misappropriated of certain way. Basically, the intervention sign is a beneficial device to make sure that the transactions are lead smoothly and honest, with the minus amount of used necessary steps in the process.
The glossary meaning of the word "Peer" is "A person who has equivalent standing with a different or others".
The term "Review" is defined as "subject to a formal scrutiny or appraisal and re-evaluation of the matter in subject".
Thus, peer review for chartered accountants would mean assessment of a colleague's work efficiently. Peer review applies only to working Chartered Accountants as Audit and assurance work can be carried out by working Chartered Accountants only.
Peer review is carried out with an idea to recommend improvements in the reporting services provided unlike auditing and analysis which are conducted with a focus to comment on the reliability of the financial and accounting records.
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4. AUDIT WORKING PAPERS
Normally, audit working paper consists of the following,
A) A permanent audit file normally includes:
Copy of initial appointment letter if the engagement is of frequent nature
Record of statements with the retiring auditor, if any, before approval of the appointment as auditor
NOC from previous auditor
Information concerning the legal and organizational formation of the body.
In the case of a company, this contains the Memorandum and Articles of Association.
In the case of a statutory corporation, this contains the Act and Regulations under which the corporation functions .i.e.
In case of partnerships- Partnership deed
In case of trusts- Trust deed
In case of societies- Certificate of registration/ policies and Bye-laws.
Organizational arrangement of the client
List of governing body including Name, Address and contact information. For example, the List of Directors in case of a company, List of partners in a partnership and list of Trustees in a Trust.
Extracts or copies of important legal documents, conformities and minutes related to the audit.
A record of the study and assessment of the internal controls related to the accounting system. This might be in the form of narrative metaphors, survey or flow charts, or some arrangement thereof.
Copies of audited financial statements for earlier years
Examination of significant ratios and trends
Copies of letters for management issued by the auditor, if any.
Notes concerning significant accounting policies.
Significant audit observations of previous years.
Evaluation of risks and risk management
Major policies associated to Purchases and Sales
Information regarding sister concerns
Information of Bankers, Registrars, Lawyers etc
System and Data Security policies
Business Ongoing Plans
B) A current file normally pertains;
The current file normally comprises:
Correspondence relating to acceptance of yearly reappointment.
Extracts of significant matters in the minutes of Board Meetings and General Meetings, as are related to the audit.
Evidence of the planning procedure of the audit and audit program
Analysis of complete transactions and balances.
A record of the nature, timing and degree of auditing events performed, and the results of such events
Evidence that the work performed by assistants was administered and reviewed.
Copies of exchanges with other auditors, proficient and other third parties.
Copies of letters or notes concerning audit matters corresponded to or discussed with the client, including the terms of the appointment and material limitation in relevant in-house controls.
Letters of representation or affirmation received from the client.
Conclusions reached by the auditor concerning considerable aspects of the audit, including the method in which exceptions and unusual matters, if any, disclosed by the auditor's procedures were determined or treated.
Copies of the financial information being reported on and the associated audit reports.
Audit assessment points and highlight.
Major flaw in Internal control
The audit working papers (existing and permanent) for a client audit appointment should be satisfactorily detailed to enable another appropriately practiced and competent auditor who is not common with the client to gain an overall understanding of the engagement.
THE NEED FOR WORKING PAPERS
The need for Working papers can be scheduled as follows:
They support in the planning and performance of the audit;
They aid in the direction and review of the audit work and to evaluation the quality of work performed, in accordance with AAS 17 "Quality Control for Audit Work";
They provide confirmation of the audit work performed to support the auditor's opinion
They document clearly and reasonably the schedule, results of test, etc.
The working papers should evidence observance with technical standards
They document that Internal control has been suitably studied and evaluated; and
They document that the evidence obtained and actions performed afford a reasonable basis for an opinion.
They retain a record of matters of ongoing significance to future audits of the entity;
They enable an skilled auditor to conduct quality control reviews in accordance with Statement on Peer Review
The process of preparing adequate audit documentation contributes to the quality of an audit
They fulfill the need to document oral discussions of considerable matters and communicate to those charged with control, as discussed in auditing standards, "Communication of Audit Matters with those Charged with Governance.
5. WHAT IS AUDIT DOCUMENTATION?
Audit documentation is written documentation of the basis of auditor's conclusion that make available the support for the auditor's representations, whether those representations are controlled in the auditor's report or else. It includes records of the development and presentation of the work, the procedures performed, proof obtained and conclusion reached by the auditors.
Audit documentation also may be passed as to work papers or working papers
Auditors who are new to an engagement and assessment to the prior year's documentation to know the work performed as a support in planning and performing the existing engagement.
Supervisory workforce who review documentation arranged by assistants on the engagement
Engagement supervisors and engagement quality assessor who review documentation to recognize how the engagement team reached considerable conclusions and whether there is sufficient evidential support for those conclusions.
A descendant auditor who assessed a predecessor auditor's audit documentation. Internal and external assessment teams that review records to assess audit quality and conformity with auditing and related proficient practice standards, appropriate laws, rules and regulations and the auditor's own quality control policies.
The auditor must prepare audit documentation in association with each engagement conducted pursuant to standards. Audit documentation includes memorandum, confirmations, communication, schedules, audit plan and letter of representations. It maybe in form of paper, electronic files and other medium
Audit documentation shows that the work was infact performed. Audit documentation should include information the auditor has acknowledged relating to important findings or issues that is inconsistent with or oppose the auditor's final conclusions.
Findings of auditing procedures that point out a need of significant amendment of planned auditing procedures, the continuation of material misstatements , oversight in the financial statements, the existence of important deficiencies, or material flaws in internal control over financial reporting.
The auditor must retain audit documentation for 07 years from the date of audit grants consent to use the auditor's report in association with the issuance of the company's financial statements.
Directions to staff on Audit documentation
Proper guidance should be given to staff concerning the following,
Filing / custody of working papers
Checklist of documents to be attaind and maintained
Indexing of working papers
Suitable numbering / sequencing of working papers
Shortening of overall findings
Writing of inquiries
Discussing with seniors on matters of significance
Disposing of Queries -at staff level / senior level / associate level
Significance of the working papers to be signed, dates and approved by related level of audit staff with adequate cross reference
Importance of representation the client's name, record number, accounting period, subject of working paper and indication of working paper with existing or permanent file.