Distinguish Between Accounting And Auditing Accounting Essay

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Moreover, the audit is independent inspection for the accounts, supervision of revenues and expenditures real, legitimate and effective behavior. Audit of the main classification, can be divided into the national audit, internal audit and social audit.

Furthermore, the nature of audit is give the financial statement to the national authority or entrusted allied institutions and personnel, in accordance with national laws and regulations, auditing standards and accounting theory, use at specialized company to check its fiscal, financial revenue and expenditure, management activities and related information the authenticity, correctness, compliance, effectiveness with review and oversight, appraise of economic responsibility, forensic economic business to maintain financial law and order, improve management, improve the economic benefits of an independent economic oversight activities.

According to the content of the audit, it can be divided into the fiscal revenue and expenditure audit, income audit and economic efficiency audit these three categories. Fiscal revenue and expenditure audit refers to the audit and supervision of the national audit institutions the corresponding levels of budget implementation and lower levels of government budget implementation and final accounts, as well as management and the use of extra-budgetary funds, the authenticity and legality. Income audit is special for the financial institution or enterprises to check their financial account and related economic activity is it authenticity and legality.

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Economic audit can effectively control the revenues, expenditure and other related economic activities. Graham Holt and Peter Moizer said "audit report is interpreted by both accountants and users of audited financial statement, the result indicate that both accountants and users distinguish between the various audit reports, although users found less difference than accountants". (Graham Holt and Peter Moizer, 1990)

B. Distinguish between accounting and auditing.

Accounting and auditing are the processes of financial. However, both of these process are different and having different functionality.

Definition

Most of the people define accounting as the process of recording, measuring, classifying and summarizing of the business transactions and events. Moreover, accounting process is used to record the daily business transactions and events for the purpose to prepare financial statements at the end of every accounting period. The accounting process is done by accountants.

On the other hand, auditing is the process of checking for frauds and errors and reviews the system of accounting and internal control critically. Audit is also an authentication of the results presented by profit and loss account and the state of affairs as presented in the Financial Position. Moreover, auditing process also used to indicate the true and fair view of financial statement prepared during accounting process. The auditing process is done by auditors but not accountants.

Beginning

The accounting begins when the process of book keeping ends. Conversely, the auditing begins while the accounting process ends.

Purpose

The main purpose of accounting is to provide accurate, clear and reliable financial information through accounting reports such as income statement, statement of financial position (balance sheet, and also cash flow statement for external and internal review such as investors and managers for making a good decision. Besides, the other function of accounting process is to indicate the performance of the company or organization.

On the other hand, the purpose of auditing is to determine whether recorded transactions or events are match with the business events that occurred during the accounting process. Its main function is to observe and provide recommendation on the financial statement to the firm.

Conclusion

In short, accounting process is the process is used to record financial information, however auditing is the process of evaluating according to the accounting standard, but both of them play a very important role for every company to ensure that the financial information is always accurate.

 

 

 

 

 

 

 

 

 

C. Discuss the objective of auditing and why auditing is needed.

The objective of auditing is to determine the consistency and reliability of the financial statement. Also, the main purpose of audit is to determine the reliability of the supporting accounting records of a specific financial period. An audit is to obtain the "true and fair view" of the companies activities and provide opinion, he may check thorough all the business transactions and also all of the relevant documents of the organization or company that was made during the audited period. When examining the books, auditors detect some errors in accounting. Beside, audit also produced an annual plan of work based on the strategic plan and subject to consultation with departments, which is soundly based and achievable.

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Audit is needed this is because it is especially internal audit and defined as an independent. Audit assurance and consulting activity designed by the increase value and improve the operations of a company or an organization. It also helps an organization accomplish its objectives by using a systematic approach to estimate and improve the efficiency of the risk management and control. Beside, audit also helps to detect an error and fraud at early stage.

Moreover, it also helps management to improve or come up with better strategies to quality management system. Besides, audit can help investors to increase their confidence, enabling this investor to attract additional investment. It can set of accounts is very useful to improve the cash flow. It is also allow a better access to asset finance, or other credit lines. Furthermore, auditing process provides an independent level of investigation to the systems and record keeping, to help investor to reduce the risk of investment in the future.

D. Distinguish the role of internal auditor from external auditor.

Almost all of the companies or organizations need auditors to carry out the auditing process. There are two types of auditors which are internal auditor and external auditors. However, both of them play a very vital role in the company.

Objective of auditor

The main objective of internal auditors is to manage and control the risk of a company or an organization. Since every company must have their own risk, therefore, internal auditors are risk management. In contrast, the basic objective of external auditors is "True and Fair view" to prepare an unbiased audits report.

Size of audit

Normally, most of the larger companies and organization needs internal auditors to carry out the process of auditing. Therefore, internal audit will be carry out in a larger companies or organizations. However, all registered companies including big or small and all public sectors needs external auditors. It is because registered companies need the investment from external users. Therefore they need an independent audits report by external audits to indicate the unbiased performance to external users. External users such as investors will have more confident to invest the company by investigating the external audits report.

Role of auditors

First and foremost, the function of internal auditing is to provide an independent supervision of the effectiveness of a company. Internal auditors who are members of a professional organization would be focus to the same regulations of moral principles and qualified code of conduct as valid to external auditors. However, external auditors are a professional of auditing. An external auditor must have independence that cannot have any close relatives with stocks and management positions with the company.

Evaluating controls and advising managers

Internal auditing needs to evaluate the controls and provide information and advices to all the managers of different level. Besides that, provide an internal audit report to the audit committee is one the roles of internal auditors.  However, external auditors have the responsibility to advice management trough recommendations on weaknesses in the accounting system, records, and controls in the audit to the company and organization. They provide an arithmetical analysis on the effectiveness and fairly presentable of the accounting policies and comment to management become alert of evidence that may affect future audits.

Risk and control

The role of internal auditors is to manage the risk of a company or an organization. Moreover, internal auditors need to evaluate the performance of company's management policies. In other words, internal auditors need to evaluate the risks of company as well as analyze the risks. However, external auditors categorize risks and appraise controls over financial reporting. External auditors also need to ensure the financial statements and annual report of the company show is fair and true view by getting enough audit evidences.

Driving result

Furthermore, role of internal auditors is to recommend on how to improve the internal control as a whole. Internal auditors also need to improve the overall operational performance of the company. However, external auditors have the duty to comment and improve the financial control environment. External auditors have a constitutional and legal duty to shareholders of company and also public on the accurateness and reliability of the company's annual report including the financial statements. Besides that, allocate private interests of the shareholders of the organization is one of the roles of external auditors.

Compliance review

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Reviewing compliance is also one of the responsibilities of internal auditors. Internal auditors can make sure the company or organization is following the laws, rules, regulations, principles, guidelines and codes of practice as they apply individually or apply together to all parts of their organization and company. External auditors have the responsibility to detect the fraud and scam and inform it to the management. However, if management does not take any proper actions, external auditor have the duty to consider withdraw from the engagement. Moreover, external auditors need to analysis the overall's information technology control procedures.

Conclusion

As a conclusion, external auditors are appointed by an independent government body in many countries. However, internal auditors are part of company but free of administration. Besides that, external auditors focus more on finance and accounting. However internal auditors are more focusing on the overall company or organization, all departments, functions and operations. In short, the area for internal auditors within a company or an organization is wider than external auditors.

E. Explain the importance of audit to the users of financial statement.

           

Most of the company and organization need to carry out auditing process it is because this process plays a very important role to the users of financial statement. In short, the audit is important to internal users and external users such as investors, shareholders, employees, suppliers, lenders, customers, government, and also public.

Investment Protection

First and foremost, the audit is important to investors because the audit report provide a higher reliability and protection to them. Since the external auditors will provide an unbiased audit report of the company to users. The audited statement also will indicate that no fraud or no corruption has been detected. Therefore, it provides investment protection to the existing shareholder. In other word, this audit report provided by auditor is important to the users of financial information.

Decision Making

Most of the investors will investigate the company through the financial report and audit report. However, since the company provides the financial statement therefore the users need to consider about the problem of how much reliability for users can trust. Besides what if the users investigate the financial statement that is not independent and not unbiased to make a wrong decision. (Newmana, Pattersonb & Smithc, 2003) Therefore, audit is considered as very important to the users such as investors because the audit report is fair and unbiased so that the investors can make a better decision by investigate the independent audit report. In short, audit is important to users because provide a better decision making for users.

User's Satisfaction

In fact, all of the users need to review the audits report of the company. The audit reports are important because, the users can rely on the report and increase their satisfaction about the company or organization. The users of financial statement such as the owner of the company or the investors will be satisfied about the overall business operations between various departments after reviewing the reports.

Frauds and Errors Prevention

Besides that, the audit report is important for users because it can help users to determine which frauds of the financial statement are. In other word, audit can detect fraud and errors of the company financial statement and also help users to conclude the illegal acts of employees that can affects the reliability of financial reports. Therefore, users can examine on the audit report to check for fraud. By detecting the fraud of company, it can indirectly increase the reliability to users of financial information.

Loan

An audit is important to the users to obtain loan from bank. In general, the bankers need to review the statement of financial position of a company to check the liquidity of asset. However, since the audits report provide an unbiased and independent review of the company and organization; therefore, the bankers need to check with audits report to make sure the performance of the company or organization is true and unbiased. The loan can be issued to the company after the bankers confirm with the audited balance sheet of the company. In short, the auditor report is important for users to obtain loan easily.

Dependence of users

The users such as new partner need to evaluate the goodwill through the audited balance sheet before joining the business Moreover, the independent audits reports will decrease the problem of misunderstanding and miscommunication among the partners. Furthermore, shareholders also need audits report to know the true performance of the company. Since the shareholders did not manage the company, therefore they need to rely on the audit report to identify the performance of company.

Conclusion

As a conclusion, audit is important to users because they provide an independent angle for users to look into the accounting operations of an organization and a company. It will provide an overall financial health of a company to users. Moreover, users will trust on the audited statements such as audit report to decide whether the company is a worthwhile investment or not.

F. Discuss the types of audit and provide ONE (1) example for each type.

Most of the companies need auditors it is because auditors investigate the financial records carefully to help them estimate the financial position of a company and the truthfulness of data. Basically, there are different types of auditors with different objectives. There are 6 types of audits which are external audits, internal audits, financial audits, performance audits, compliance audits and follow up audits.

External Audits

First and foremost, external auditors perform the purpose of checking and analysis, nevertheless the companies only hire them for some specific project. Besides that, external audits are used to verify the reliability as well as the correctness of financial statements of a company or organization. Mostly, they will not involve any actual accounting of the financial accounts. However, the external audit is an independent review of financial documents.

For instance, a private-sector business need external audit because an external audit usually used to review the monthly financial reports and also revenues and expenditures statement to ensure they are correctly presented.

For example, governments need external audits because the external audit is always used to review the budget, the allocation of funds as well as the expenses to make sure the budgeted revenues and expenses of government were properly collected and spent.

Internal Audits

Internal auditors will examine the internal financial documents which is relating to the company. Therefore, internal auditors can help the company increase the accuracy of their financial data. They usually help to control the quality of the financial processes. There are a several professional guidelines that the internal auditors must follow.

Moreover, internal audit included financial audit, performance audit, operational and compliance audit, follow up audit, information system audit and investigation audit. (Maire Loughran, 2012)

Financial Audits

Financial Audits also known as an audit on the financial statement. Financial Audits are used to determine whether the financial information is presented according to the established financial requirements. In other word, the financial audits are to provide a protection of assets in order to achieve the control objectives. In short, the main purpose of financial audit is to reduce the information risk

For example, if one of the company or organization wants to apply loan from the bank, for sure the bank need to review audited financial statements as a basis for making a decision of whether or not to issue the loan to the company.

Performance Audits

Performance audits in other word which is value for money audits. It is an objective and systematic investigation of a program. It also considered as the management systems and procedures of a governmental organization or a non-profit organization to judge whether how efficiency and effectively achieving economy goal with a limited resources. The purposes to carry out performance audits are to detect the fraud, waste and abuse. Before carry out the performance audit, the auditor should prepare well with a scope and plan guide the process of performance audit.

For illustration, this type of audit includes economy and efficiency and program audits. A performance audit is used in company to determine whether the division is acquiring, protecting or using the resources efficiently. Moreover, a performance audit is used to determine the reasons and the cause of inefficiencies practices. Furthermore, it is used to find out whether the company or organization has obeyed with the laws or the rules and regulations that concerning matters.

Compliance Audits

Compliance audits usually are used to review the financial and operating controls and transactions ensure they obey to procedures, laws, standards, rules and also regulations. Moreover, compliance audits used to recognize the breaches between regulations and university procedures. Therefore, after reorganization has been made, training or follow-up programs will be suggested to ensure employees are effectively informed about the compliance requirements.

The scope of Compliance audits includes the anticipated results or benefits established by the authorized body such are being accomplished. Moreover, the effectiveness of organizations, programs, activities, or functions, has complied with laws and regulations that will be apply to the programs.

Example of compliance audits include audits conducted by the Inland Revenue and by the customer and excise Department which are designed to ascertain whether individuals or organization.

Follow -Up Audits

Follow-up audits will be carrying out after the internal and external audit report carried out. Normally, there will be 6 months after the internal and external audit. Follow-up audit usually used to evaluate the action that is corrective and helpful which has been taken on the original audit issues reported. After the follow-up audits are completed on the report of external audits, the results of follow-up audits will be stated to the external auditors. Besides, it is on an annual basis.

For instance, the auditor will inform the appropriate management representative in writing of his outstanding suggestion about the problem that the company faced. At the same time, the management representative will send a report back to the auditor regarding with the recommendations that have been applied. At last, the auditor will feel satisfy because the recommendations have been used and applied.

Information Systems Audits

Information Systems audit or ISA is used to reviews the internal control environment of computerized information processing systems. Also, it used to review how the people practice the systems. Moreover, ISA has been established to allow a company to achieve goals effectively and efficiently by evaluating the computer systems protection assets and maintain data reliability of a company. Besides that, information systems audit also used to evaluate the computer facilities, backup, the security of the system and also the input and output of processing system controls

For Example, most of the companies need to carry out ISA to protect the asset. It is because, nowadays, most of the companies will use computer to manage the company. During the process, there must be some problem such as cost overruns, exaggerated budgets and systems fail to meet the minimum specification in several cases. Therefore, companies carry out ISA to minimize this kind of problem.

Investigation Audits

Investigation audit is resulting from findings during a routine audit of from information received from personnel. This type of audits is specifically design to match the circumstances such as the investigation of alleged violation of laws or regulations.

Investigative Audits are performed when it is needed. It normally focuses on suspected violations of laws and also of the University rules and regulations. This may effect in disciplinary action.

For instance, the investigation audits are needed when there is a misuse of University assets, internal theft and the conflicts of interest. In other word, investigation audit is more focused on a precise and specific part of the work of a company.

G. Explain the meaning of 'true and fair view'

The root of an audit opinion is given by an auditor with a "true and fair view". It means that user used the financial statements under review (audit) to make informed decisions and it is materially accurate; that is not to say same as the statements are accurate. It means that a user would cause to make an improper decision or a user will render the statements which are useless when there are no errors or misstatements of such magnitude.

Not EVERY error can be uncovered by the audit procedures. Its function is not designed to uncover error. The customers would probably bankrupt and that would take too long; as we know, auditors are not economical. Therefore standard auditing practice as set by Statements of Auditing Standards involve that audit tests be performed and designed with such thoroughness so as to expose any significant errors or misstatements. In summary, the accounts are "fairly accurate" by a true and fair view.

In addition, 'true and fair view' remains a keystone of auditing and financial reporting in the UK despite the acceptance of international financial reporting standards said by the Financial Reporting Council. Auditors of the distributed accounts of companies are compulsory to come out an opinion as to make sure they have shown a 'true and fair view' in the accounts of the organization's affairs. In UK, this is an important concept and used as supersede even a company has obeyed with all non-illegal requirements. There is no legal definition of the countenance although that its importance. 'True and fair view' is an accounting standards that developed over time are issued and fresh accounting issues are discussed.

For instance, the external users can rely on the accounts if the auditor reports that the accounts are true and fair. The accounts are assumed to be true and fair when the profit and loss presented in the Income Statement is true and fair and also when the true value of assets and liabilities shown in the Financial Position is true and fair.

H. Explain the categories of audit report.

The report of auditing is an evaluation of company's financial status and information. Auditors will combine their views and collected documents on the entity's financial transactions. Companies will use this common process when investigative their records and discharging the financial information to investors.

Besides, the auditor's report issued by either is independent external auditor or an internal auditor as a result of internal or external audit or assessment performed on a legal entity or subdivision with a formal opinion, or disclaimer. The process of auditing may be carried out whether inside the company or outside of the company. An internal audit is accomplished by accountants who work within the company. These audits are usually easier to accomplish and do not need much time consumed, since the auditors have experience in making reports and familiar with company records. However, many companies do not have the sufficient resources to perform the same trust in internal audits between official agencies and also the investors; therefore, the external audits are also trained and practiced, in which a company or organization will hire a firm to carry out the process of auditing for them. Besides, there are 4 common types of auditor's reports, auditor will presents either which type of reports to their work based on different situation encountered. The four reports are as follows.

Unqualified Opinion

Clean opinion is another call of unqualified opinion. A clean opinion is an audit report that is delivered when an auditor decides that the minor business is free of any misrepresentations to provide each of the financial records. Furthermore, an unqualified opinion uses Generally Accepted Accounting Principles (GAAP) to specify that the financial records and information have been preserved according to the standards. Business can receive this type of best report. Naturally, the word "independent" is includes by an unqualified report consists of a title. An unbiased third party is done to show that it was ready organized and prepared. The title is accorded by the main body. Three paragraphs had been made up, the main body highlights the purpose of the audit, the auditor's findings and also the responsibilities of the auditor. The auditor dates and signs the document, including his address. (Example refer to Appendix 1)

Qualified Opinion

An auditor will issue a qualified opinion when in the situations that GAAP have not been keeping up in accordance with a company's financial records but no misrepresentations are identified. Unqualified opinion has the extremely similar writing compare with qualified opinion. The reason of why the audit report is not unqualified with an additional paragraph will highlights by a qualified opinion. (Example refer to Appendix 2)

Adverse Opinion

Adverse opinion is the poorest type of financial report that can be delivered to a business. The firm's financial records do not follow to the GAAP. Moreover, the financial records have been totally misrepresented that had been provided by the business. It is often an indication of fraud, although this may occur by error. A company must adjust the financial statement and have it audited again when this type of report is issued, as lenders, investors, and other demanding parties will not accept it. (Example refer to Appendix 3)

Disclaimer of Opinion

Sometimes, an auditor is unable to complete a precise audit report. An absence of appropriate financial records is one of the reasons that may cause the auditor unable to complete the audit report. When this occurs, the auditor will declaring that the firm's financial status's opinion could not be determined by issues a disclaimer of opinion. (KJ Henderson) (Example refer to Appendix 4)

I. Select TWO (2) companies' annual report for year 2011. Discuss what category of audit report that has been issued by auditor on the company's financial statement.

The two companies that we are selected are Sunway Bhd and LFE Corporation Berhad.

Unqualified Opinion

The category of audit report used by Sunway Bhd is an Unqualified Opinion. Unqualified Opinion is also known as complete audit. In other word, it was an audit that has been done and investigated so comprehensively that only possible left over discrepancies stem from the information that could not be achieved by auditor.

Moreover, unqualified audit is used to analyze both the internal systems of control, and also internal system of the details in the books of organization and company. Most of the ancillary documentation as well as all supporting relevant records are used to performed unqualified audit.

Furthermore, unqualified audit is essentially the contrary of an unaudited opinion such as gives opinion without any actual research is made. Unqualified audits are made according to the accepted accounting principles. Therefore, it will be more emphasis on detail and accuracy. However, if an audit cannot be categorized as unqualified, then a qualified opinion is given as an alternative that outlines the reservation of auditors that concerning the financial statements of company and organization. In the report, the companies clearly lists out the various needs of an unqualified audit report, for an example name of committee members, terms of ( membership, meetings, rights and authority, functions and duties and internal audit department).

According to the required for a unqualified opinion, they must have four type of statement. They are financial position, income statement, cash flow statement and shareholder's equity statement. In other way, Sunway Bhd also a well-known large companies in Malaysia and it can ensure the stable growth. In additional, the core business activities of Sunway Bhd including civil engineering & construction, building materials, trading & manufacturing, quarrying, information technology, property development & investment, leisure & entertainment and hospitality, healthcare and education. In such a wide range of business, we can clearly see the potential for the development of the company's.

Qualified opinion

Next, the category of audit report used by LFE Corporation Berhad is a Qualified Opinion. It was a type of statement that was written upon the front page of audit that was done by professional auditor. A qualified opinion recommends that the information given was limited in scope and at the same time, the company being audited has not maintained GAAP accounting principles. Opposing to its suggestion, the qualified opinion is not that good. It is because auditors that consider audits as qualified opinions are recommending whoever is reading the information of the document that the process of audit is not complete or in other word, the accounting approaches used by the company or organization do not follow on GAAP.

In fact, the qualified audit report actually is not as worst as the adverse opinion, but it may infrequently bring disadvantages to a corporation or company. For example, if investors do not recognize the extent of internal problems that already noted in qualified report, for sure the firm listed on a securities exchange may see a dramatically decrease in the stock value. Also, a lender or a supplier needs to review the financial guarantees of the company before engaging in future business transactions. In the report issued by the company, is also clear that the company faced financial and the problem of lack of information. At last, I will choose not to do more in the description.

Qualified Versus Unqualified Report

Firstly, the qualified audit reports is used to shows to senior management and let them know what internal control problems in financial reporting mechanisms of the company. Moreover, senior leaders will find out the corrective measures and at the same time to ensure the employees follow the established new measures. When the issues are resolved to the satisfaction of auditors, the unqualified opinion will be provide at the end of the audit.

Conlusion

As a conclusion, comprehensive the view of the above information. I think the healthy audit report there is a great impact, because the investors through the audit report to determine whether a company worth their investment. If an unqualified audit report, I believe that the investors are optimistic about the company's prospects in order to increase investment in the company, vice versa.

J. Discuss your personal views on unaudited financial statements and the circumstances or conditions that it can be used.

           The main purpose of audited financial statements is to clearly understand the operation of the company's flow of funds. An unaudited financial statement is an accounting report that corporate reviewers have not checked for accuracy. It complete with the data given by the company without any attempt to separately verify their accurateness. It can be prepared by anyone like accountants will complete it with certain standards and the process is referred to review only.

Unaudited financial statement is the statement mostly for those privately held business. They don't have much more capital to hired auditor to prepare the audited statement. Those companies usually let their properly trained accountant to summarizing the firm's financial position. Unaudited accounts have been prepared from books, record and explanations supplied by the company and haven't been subject to any verification procedures. An unaudited financial statement will prepare by an auditor but do not follow with the generally accepted auditing standards. And unaudited statements are prepared to less rigorous standards compare with audited statements.

Many smaller companies are not necessary to have an audit. Those companies which full fill the certain condition for the audit that set out in the Companies Act 1985. Businesses normally use unaudited financial statement for various initiatives, such as applying for loan or presenting interim operating results. The company prepares the unaudited financial statement for various reasons. For instance, the financial statement used to apply loan from bank or during the merger, acquisition or joint venture.

When the companies want to apply for the loans, normally the banker will require the companies to show their companies interim financial report that did not audit to check the companies' capital or cash flow is it got the ability to refund the interest of loans to the bank or not. Besides that, if there has a new partner wish to join or buyer wants to buy the share of the companies, they also will request for the unaudited financial statements, the purpose of this is to consider is it worth to acquisition or join their companies. Its means look into a business or a person before them signing a contract or buying a company. Business partners, like the suppliers or contractors, will also require the company to show the interim financial statements to grasp a company's financial stable or not. These reports can let commercial allies to decide a firm's should be focus on which products or services, and pay attention to risky processes that affect the company's operations. Lastly, unaudited financial statements also can act as a license shall, the director will requested it for good cause. The director want the companies to submit the unaudited financial statements, in the specific period prepared in accordance with generally accepted accounting principles and at least need to include a balance sheet and also statement of income as of the date. Pike, Byron J. said "Prior analytical procedure research has found that knowledge of clients' unaudited account balances biases auditors' expectations towards the current year figures".( Pike, Byron J, 1938)