Table of Contents
Part 1 Question A: Explain how auditing theory might give useful insight into the practice of auditing. Your answer should refer to the postulates and concepts of auditing.
The audit can be considered as the independent and systematic examination of the accounts, books and statutory records. On the other hand, the audit can be also considered as the independent examination of the documents and vouchers of any organization for determining the financial statement and non-financial statement as well as. The audit is also attempts for making sure that books of accounts are maintained appropriately by the anxiety as the requirement of the law (Eng and Vichitsarawong, 2017). The word audit is come from the Latin word “audire”. The word “audire” means, “to hear”.
Some trends are followed by the auditors to conduct the auditing. The complete description of those trends has given below.
- Checking the records of the accounts
- Evaluation of the conformity
- Examination of the processes
- Assessment of the controls
- Report on the system of internet control
- Assessment of the system of the risk management
- Improvement of the system of the risk management
- Repotting the performed activity
- Adding the value plus
- Consolidation of the audit
- Capacity to manage the risk of finance
Skill of auditors
According to Doxey et al. (2015), here are several skills for the auditors and one great and successful auditor must contain this skill. The skills are such as containing the experience that is required, capability for making the independent decisions, capability for understanding various requirement of the business (Eng and Vichitsarawong, 2017). Apart from that one auditors must be dependable and he or she should contain useful communication skill as well as.
Containing the necessary experience:
According to Doxey et al. (2015), to be an auditor, one person must have some knowledge about accounting, taxation law and business. Apart from that knowledge, he or she must have a good computer operating skill, because the computer operating skill is very necessary for the auditing.
Capability of making the independent decision:
An auditor must be able for taking any kind of decision by his or her own. The decision of the auditor is very important for the operation of company (Kuruppu, and Oyelere, 2017). Therefore, the auditors should never have influenced by anybody for taking any type of dissection in any situation.
Capability to understand the requirement of the business:
One good auditor should always give the priority to the requirements, which is essential for the business (Mahdavi, and Daryaei, 2016).
One auditor must be dependable for the company. A good auditor never shares the details of the company with any third parties.
Useful communication skill:
This is one of the most essential skills for any auditors. To be a successful auditor, the auditors must have a useful communication skill.
Rules of audit:
There are several ethics for the auditors to conduct the process of auditing and those ethics are such as integrity, objectivity, independent, confidential, and competence (Mahdavi, and Daryaei, 2016).
- Doing the job with honesty, responsibility and good faith
- Observing the law with the necessity of the profession
- Observing the ethical objective
- Prohibition of illegal activities
2. Objectivity and Independent:
- Auditors never get involved in any type of activities or any type of relation, which can create the disagreements
- Auditors only provide the entity of the audit and the consultancy services
- Taking any kind of advantages, which can affect the objectivity of the assessment in the time of mission, are completely prohibited for any auditors
- Auditors must present any documents or any other facts, which can affect the structure of the audit in their report (Nogueira and Jorge, 2017)
As opined by Fischer et al. (2016), there are some other rules for the auditors. One auditor never uses the data or the information that they obtained from the process of audit for any illegal or personal purposes. Apart from the illegal and personal purpose, the auditor never used that in any purpose, which could create any type of risk as well as.
- Auditors must behave professionally in activities (Williams and Ravenscroft, 2015.)
- Auditors must be committed only for the mission, where they can use their skill, knowledge and experience
- Auditors should use only the methods of high quality (Pinho, 2014)
- Improvement continuous is an essential rule for auditors
- The professional studies and experience must be representative
- Knowing the application of the legislation to improve the level of the training
- Auditors must not exceed the professional competences
Advantages of auditing
- There are various advantages for the auditing; auditing is one of the most essential processes for any organization to develop the business (Sickles and D’Orsi, 2014).
- The audit helps for identifying the weakness in the system of accounting and make capable to provide the suggestions for the improvements.
- The process of auditing provides many advantages to the business of any organization and there are many advantages of the process of auditing in the financial department of any organization (Nogueira and Jorge, 2017). The areas that are facilities by the process of auditing are such as, the process of running the business, the margin of the business, and achievement of the goals of the business.
- The process of the auditing may enhance the reliability and the credibility of the figures that is being submitted to the future investor. If any owner is planning about attracting the selling or investing the shares, he or she can carry out the audits regularly (Nogueira and Jorge, 2017).
- Credit rating can be affected, if there is no audit. Besides, the suppliers are not capable for providing the proper credit limits.
- In the events such as loss, adjusters and claiming of insurance mostly depend in the process of auditing.
Achievements of the audit:
There are various achievements for the process of audit and the achievements are such as, Tax code compliance, Meeting Legal Requirements, Achievement of Company Goals, Effective Use of Resources and Future Business Planning (Kumor and Mackowiak, 2018).
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Federal, local and state authorities need companies for compiling with the codes of tax considering reporting and accounting. The audit also evaluates the proper methods of accounting and those methods are such as reduction of vehicles and equipment by the organization for the development of the business.
One organization should ensure the meets legal necessities for the matters like paying with the employees in the fixed time (Kumor and Mackowiak, 2018). Contributing to voluntary and mandatory employee advantages and collecting the tax that is required. Various large organizations appoint the auditors for making sure compliance with the laws.
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Every organization and every employee of that organization sets their organizational goals and accomplishing those goals is very essential for developing the business of that organization. The process of auditing helps in this place to the organization. The audit plays a essential role for the organization and help them to achieve their organizational goals.
The professional auditors are appointed by the organization for conducting the audits and evaluate the organizational utilization of the resources.
Company uses the information from the audits of financial accounts and financial records for charting the trends and for setting the future direction.
Part 2 Question B: Audit evidence is required to be both sufficient and appropriate. Explain what is meant by this statement giving appropriate examples.
Audit evidence is very essential for preparing the financial report of the company as it act as proof of correct auditing. The quality of audit needs to be accurate and sufficient so that the balance of company is matched and this is only possible with appropriate evidence of auditing (Ayorinde and Babajide, 2015). Certified Accountant needs to validate the evidence and consider it for an effective approach of an audit following the international standards for auditing (ISA) rules. Auditors require evidence of an audit in order to cross verify that the financial transaction of the company has accurate information and it is adequate in nature.
Current Trends and Historical View of Auditing
According to Biesta, (2015), the practice of auditing started in 1970 by a bunch of industrial companies for review of the company status regarding the operation units. It helped in better understanding of the local laws and environment, policies of corporate sector and national regulations and laws. Auditing is regarded as the useful tool, which helps in the development of the organization and maintains the environmental legislation. Due to the poor performance in environmental sector it was observed that many organizations had to bear financial loss thus, auditing played a role in the better reviewing of the company’s financial profile (Hutabarat, 2018). Securities and Exchange Commission (SEC) requested to provide the report of environmental along with the financial report at the year ending. Steadily the process of environmental auditing started to evolve globally as legal legislation and reflected the clear report for developing the environment and the growth of the company.
Auditing is very much effective in the capital markets, the cost of the financial is reduced and contribution is made towards to growth of economic sector. Environmental changes in the auditing field have improved the performance of the industry (Niktaba and Aslani, 2015). Latest trends related to audit includes the growth of revenue of the firm, competition in the market of auditing, governance policies within the network structure. However, it also enhancing quality and resources extent and upcoming technology affect audit. As opined by Ojasoo and Leppiman (2016), the motive of appropriate auditing leads to the correct outcome of the business activities that reflect the standings of the company in the financial sector. Offshoring, reduce excellence of cost, utilizing the technicians of data relevant and audit outsourcing. CAATs (Computer Assisted Auditing Techniques) are being used by many organizations for improving the value of audit. Tools of analytical and data mining are being used by the auditors so that the effectiveness of the audit are visible to the client (Siam and Mansour, 2016). Apart from that, the increased complex operations of the business have forced companies to organize skilful auditor with appropriate tools of auditing. In order to review the evidence of business operations sufficiently, proper means of auditing and techniques along with the experienced judgement by auditor are essential for the better running of business activities (Silvers, Licina and Jolevska, 2018). In quest, legislation obligations have bound small firms to obtain the auditing process for correct norms of accounting and there is no alternate substitute for replacing audit.
Auditing Professional and Strategies
Adequate auditing with quality nature is necessary for an organization to achieve its desired goals successfully. The examination or inspection of the business roles with compliance concerned is the major part of conducting the activities of the business (Suryanto, 2015). A systematic process records all the relevant activities of business and evaluates that all the policies and requirements of company are fulfilled. As opined by Wong (2016), Internal Audits and External Audits are the two major role of auditing to cover all the segments of the business. Internal audits are performed by the internal employee of an organization and are referred as 1st party audit while outside agent carry out the external audit and refer as 2nd or 3rd party audit. Both the audits are essential for better understanding of the evidence of business role.
Internal Audits – As stated by Yang, Liao Liu and Shi (2014), mainly a particular auditor is appointed from the organization itself to validate the weakness and strengths of the company against the procedures and methods of the company itself. The internal auditor has nothing to do with the area of auditing and shows no interest at the outcome of auditing.
External Audits – The third party auditor conduct the audit on the supplier on behalf of a customer. External audit is directly related to the purchasing decision of the customers thus; it needs to be carried out in more formal way than internal audits.
The quality of audit is determined as Product, process and system that enhances the value of auditing and reflect clear image of all the segments of the business.
Audit of Product – It is mainly related with the checking and examining of the product of the company such as customer’s needs, specifications, performance etc.
Audit of Process – It deals with the process of the business operations or instructions to reflect the effective outcome of the business activities (Suryanto, 2015). Checking the conformance such as time, pressure, accuracy etc. are involved with the role of process audit along with examining the procedures of the business.
Audit of system – It includes auditing of managerial role and environment safety concerned and food safety management for the company. According to Niktaba and Aslani (2015), appropriate and sufficient evidence of audit are measured with the help of above mentioned information and four important steps of auditing, Firstly, preparing, second performance of the preparation of audit then followed by reporting of the audit and finally the follow-up of reported audit (Biesta, 2015). These steps build the strong formation of evidence of auditing. The information gathered from the source for evidence should be structured under the guidelines of the audit code.
Ethics and Code in the Auditing Process
The provided evidence should abide by the norms and regulations of ethics code to avoid the act of non-compliance. According to Silvers, Licina and Jolevska (2018), it promotes the culture of ethics and plays an important role in the profession of internal auditing. The ethics code guides the entire system of auditing less than one structure so that there is no partiality among the system of internal audits. Few principles need to be focus upon are:
Integrity – This helps in building of trust in the judgements made by auditors.
Objectivity – an enhanced level of outcome is received by internal auditors, which helps in proper understanding of the business activities with their behaviour of accurate examining of the business role (Siam and Mansour, 2016)
Confidentiality – The information of the company should be well secured and privacy should be maintained by internal auditors and abide by the compliance rule of the law
Competency – internal auditors need to follow International Standards for the Professional Practice of Internal Auditing and should provide the services in which they have skilful knowledge and experience. The quality and proficiency needs to be enhanced by the auditors.
Auditing Creates Effective Performance
The goal of auditing is to improve the quality of tracking business activities and it helps in the effective designing of the role of the business (Hutabarat, 2018). The outline of the business can be measured with the proper auditing and necessary steps and measurements can be well taken for balancing the level of business towards the achievements. Cost reduction and other improvements help business in reflecting higher revenue and efficiency in the performance overall (Silvers, Licina and Jolevska, 2018). Thus, it increases the value of the financial statements and enhances confidence to take superior step towards the goal with the help of strong forming of the financial record.
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