An audit is defined as a methodical process obtaining a company or an organization's financial records, which is later on examined by a competent and unbiased person, such as the auditor and presented to the interested parties. It is an evaluation to find out whether the item observed is carried out and prepared as expected to know the validity of the information obtained. The auditors must know what and how much evidence to be collected because it will determine the auditor's decision. The auditors collect useful information and process this information following the established procedures provided by the auditing standards boards. This basic rule, and steps include the Generally Accepted Accounting Principles (GAAP) and all that involved in preparing the financial statement, including the auditor must abide to the requirements established by the Generally Accepted Accounting Principles. Audit is a very important process that provides the assurance to the users of the audited information. Audited information will clarify if the audited information is useful and reliable to the company or otherwise and to find out whether the established procedures are followed. There are three types of auditors but in this paper, the external auditor will be the main focus. Furthermore, there will be discussions about the current issues and objectives of the International Auditing and Assurance Standards Boards and The Audit and Assurance Standards Board in Malaysia.


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There are three different types of auditors, company auditors, government auditors and internal auditors. Company auditors are usually the partners of an accounting firm who audit the financial statements of the company. Government auditors audit the government departments and statutory bodies such as the public institutes and the city halls. The types of auditors mentioned above are from outside of the organization this is why they are independent of the company involved. However, internal auditors are associated with operational and compliance audit and they are mainly the employees of the company, which makes them not very independent. There is one relationship involving the internal audit with an external audit. An internal audit only reports directly to the Board of Directors or the Audit Committee, while an external audit reports to the Audit Committee through the Chief of Executive Officers on the financial statements. An external audit is not a part of the accounting firm, organization or an internal control system. It is an external employee engages to the specific task to conduct an audit and give opinion whether or not the financial statements of external stakeholders accounts following the fair and true concept. Purposely, an external auditor must know if the efficiency of the organization's internal control system is reliable or no and to do so, the external auditor will examined the internal control system to the extent on the system's reliability.

As an independent auditor, such as the external auditor gathers, plans, conducts and reports the results based on the Generally Accepted Auditing Standards. In order to conduct a fair audit, an external auditor must follow the procedures and standards given. The Audit Committee is largely involved in selecting the proper and most suitable external auditor and they also play a very important role in evaluating the auditor overall performance. According to the Generally Accepted Auditing Standards, an external auditor must have the suitable technical training and expertise to perform an audit as well as maintaining an independence rational attitude a very important character in an auditor. Generally Accepted Auditing Standards requires the external auditor to make sure that the Audit Committee is informed on all matters that has come to the attention, including legal and illegal company's acts which could effect the company's annual financial report. The auditor must fully understand the entity before obtaining the evidence needed to avoid any mistake in the statements due to errors and to design the suitable nature and level of audit procedures.

The auditor must also follow the procedures by the Generally Accepted Accounting Principles and identify the situation of the principles that may not be observed in the current period, in order to proceed to the next period. The independence mental character of an external auditor also plays a very important part in conducting a report. It is important because any concerned parties should not influence anything the auditor discloses into the report or else the result may not be truthful. The auditor will state either to express or not to express the opinion and the reason regarding the financial statements in the auditor report. For example, if at any times, the auditor discovers that the firm is not independent, it is necessary for the auditor to stop auditing. The auditor has to issue a short report stating that the firm is not being independent therefore the auditor cannot give any kind of opinion regarding to the financial statement. Finally, the auditor has to clarify in the final report, whether the information is adequate or otherwise.

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External auditors follow the standard settings set by the national and international standard settings organizations, which are International Auditing and Assurance Standards Boards and the Audit and Assurance Standards Board as the national board. These boards introduced and develop standards to set onto the extent of an economic act. The International Auditing and Assurance Standards Boards (IAASB) is an independent standard-setting board of the International Federation of Accountants (IFAC), which is based in New York. It was originally named the International Auditing Practices Committee (IAPC) in 1978 and has been recognized worldwide for the quality and credibility of the standard setting process. IAASB has launched 32 International Standards on Auditing (ISA) and 20 International Auditing Statements (IAP). Through out the years, IAASB has declared topics regarding the economy such as quality control.

The IAASB primary purpose is to set out independently a high standard to pursuit the public interest. Its standard settings are mainly dealing with reviewing, other assurance quality control, and high recognizable quality of auditing standards as well as other related services meeting the national and international standards. This is to enhance the value and consistency of accounting practice around the world to increase the public assurance in financial reporting. Approximately 100 countries are adopting or in use of International Standards on Auditing (ISA) issued by IAASB into as a basis of their national auditing standards. As a result, IAASB has been developing ISA over the years to make sure that the auditors have the right requirement to deal with any public or market concern issues. IAASB outlined a process to meet the exact standards. The process conceive of research and consultation, transparent debate, public comment exposure, comment consideration and the final affirmative approval made by at least two-thirds vote of the IAASB members.

One of IAASB current issue is the Fair Value Auditing Guidance. The purpose of this meeting is to find a proper approach to introduce fair value concept in an audit.

As well as international, the national auditing standards board also requires the external auditor to follow its standards. In Malaysia, the Auditing Practices Board supports the auditing standards. Malaysian Institute of Accountants (MIA) established this group of Auditing Practices Board. Since 41 years ago, MIA has been active in helping the Malaysian environment and has put a lot of contribution in the well being of building the nations economy. Other than issuing the auditing standards, Auditing Practices Board also announce other guidelines to be use by the auditors. This guideline includes the Recommended Practices Guide (RPG) and technical bulletins. MIA involves in observing international and local accounting development and has a frequent discussion with the regulatory bodies frequently so that the standards will always be improved to match the national standard setting.

The main purposes of MIA is to support and continuously develop auditing and assurance services as well as to serve the public interest and increase the accounting as a profession in Malaysia. As a member of the International Federation of Accountants (IFAC), Malaysia has to abide to all the standard settings in all of the auditing performance. MIA also expects to revise and consider of adopting latest standard settings and other declarations issued by the International Auditing and Assurance Standards Boards (IAASB). MIA adapts the ISA before they could be use by auditors of the company's in Malaysia. Each standard has an identification numeric title, for example there is ISA 200, ISA 220 and others. Other than the standards set by the International Standards of Auditing, MIA also introduce its own standards, in which the standard is only related to the local issues. MIA is responsibly aware of the yearly plans, projects and intentional direction, to be aware of the capacity of human and financial resources in Malaysia.

True and fair value means that the statements should be presented reasonably and truthful. Auditor carries out an audit of a certain financial statements and the auditor's opinion will state if the financial statement as arranged by the management has meet the requirement of Companies Act 1965. This includes complying with General Auditing and Assurance Principles and accounting standards which has been issued by the Malaysian Accounting Standards Boards (MASB) under Section 166A of the Act. When preparing for a financial statement, all legal provision and other laws, which are relevant to the account, has to be followed. The only way the statements can meet up with the requirements if Companies Act 1965 is when financial statements show a true and fair view of the company, in another words everything that has undergone in the company is written in the statement.

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The true and fair view is not defined in the Companies Act 1965. However, this true and fair view must be shown on the statement so that the financial statements does not contain any misstatements and will not mislead the company in further decision making. Another regulation to a true and fair view concept is when a financial statement has recorded all the business transactions accurately based on the accounting accepted principles and following the accounting standards. All business transactions should be written in the account clearly and correctly without leaving any small matters because this will effect the audited information. An external auditor is not expected to make sure that the financial statement is free of errors and fraud. Although, an external auditor will have to examine the organization's financial statements to verify if it has shown the true and fair value. All financial statements have to follow the correct and unbiased accounting criteria that have been established in order to acquire a true and fair value. Many have assumed when complying with the established criteria will most likely lead to a true and fair value financial statement.


As a conclusion, there are three different types of auditor but the most important auditor in preparing the final financial statement is an external auditor. The external auditor is needed to verify a financial statement, because external auditor is trained to maintain an independent and unbiased profile so that the auditor can examine the account truthfully. During the process of an audit, the auditor must abide the Generally Auditing and Assurance Standards set by the International national auditing standards boards. Nevertheless, an external auditor must validate if the book of account shows the true and fair value concept. A true and fair view is a concept to determine whether or not all the information in the statement is stated clearly and truthfully. Even though an external auditor's main job is not to detect errors or fraud, the auditor must clarify if the audited information that has been prepared shows this value. This is very important so that the company or the organization can see clearly their use of the company's funding and their main aims for the company's future purpose. The independent auditor will also detect misstatement to avoid misleading information that is also important in the company's future decision making. The final opinion is given by the external auditor and must not be influenced by outside factors of any parties with interests of the account.