Auditing

Auditing is the checking of financial or other records in order to issue an opinion thereon. There are different types of auditors including Internal auditors, Forensic auditors, External auditors. Auditing is not a new concept. If we see in history,in ancient Rome tax auditors were appoint to oversee the work of Tax collectors. An important type of audit is the financial audit. It is designed to determine whether financial statements are fairly presented in accordance with a specific accounting framework for example, the International Financial Reporting Standards (IFRS) or Generally_Accepted_Accounting_Principles(GAAP).

In addition, financial audits may be performed for retirement funds, medical aid funds, private companies, registered charities, and some governmental and public entities. Private companies typically request financial audits year after year because lenders may have required an audit or owners may want to have external unbiased eyes look at the financial statements to determine if the company is complying with all the required accounting principles. Charities would require a financial audit to show the financial status of the organization to potential donors. Governments and government businesses are usually required to be audited by statutes to determine if all the money budgeted has been properly spent. Government financial reports are not always audited by outside auditors. Some governments have elected or appointed auditors.

An audit report is issued to the members of the comapny or entity being audited, who appointed the auditor in terms of a legislated requirement to be audited, or for a specific purpose which is not necessarily legislated. The duties of the auditor and of the management of the entity being audited are set out, as well as the scope of the audit, which means the extent of the information that is being audited. It would be specified if the scope of the audit is limited by the appointment. Should the scope have been unlimited but management prevents access to certain information, this scope limitation may result in a qualified audit opinion, meaning that an opinion that the financial information is fairly presented can not be issued.

The key to issuing an audit opinion is to determine whether the financial position or the financial results for the period being reported on is materially misstated. To be materially misstated, it has to be stated at an amount which is material, meaning that it is likely that the amount would influence the decisions made by the users of the financial statements.

There are different types of opinions that can be issued in an audit report.

An unmodified opinion states that the financial information is a fair presentation of the financial position and the financial results of the entity.

An adverse opinion is the opposite of an unqualified opinion, therefore stating that the financial information is not a fair presentation of the financial position and the financial results of the entity.

A disclaimer of an opinion states that there is an uncertainty pertaining to the financial information which is so fundamental as to make the issuing of an unqualified opinion impossible.

A qualified opinion is an opinion which either relates to an uncertainty or a difference of opinion. Where an uncertainty is the issue, and it is considered material, but not fundamental to the whole set of financial information, the opinion would be worded as to being subject to any adjustments which would be necessary, should the uncertainty have been known. Where a difference of opinion ios the issue, the opinion would be issued on the financial information, except for those portions which the difference of opinion relates to. The circumstances and amounts involved when issuing a qaulifed opinion is stated in the body of the audit report.


Audit Steps

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Further readingEdit

  • Wiley Guide to Fair Value Under IFRS [1], John Wiley & Sons.