Audtheory Concepts
AUDITINGSystematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of the correspondence between assertions and established criteria and communicating result to intended usersSystematic process: consist of structured, logical, and organized series of steps and procedures.Objectively obtaining and evaluating evidence: gathered appropriate audit evidence and evaluate it for affirmation of opinion. Assertion about economic action and events: representation of the economic result of operation by entity.(FS, internal operating reports etc….)Degrees of confidence: closeness or proximity of assertions with the established criteria.Established criteria: benchmark used use to evaluate or measure the subject matter.Communicating results : presentation of audit findings to the users.Intended users: individuals or entities that use or rely on audit findings.** The responsibility for the preparation and presentation of FS ultimately rest with management. The task of the auditor is to test the fairness or reasonableness of these assertions and determine whether they comply with the provision of the PFRS.
Forms of FS assertions ExistenceOccurrenceCompletenessRight and valuationAccuracy Cut offClassificationPresentation and disclosureTransaction cycle in an Audit Financing cyclePersonnel/payroll cycleConversion cycleExpenditure cycleRevenue/receipt cycleObjective of an audit of FS: Enable the auditor to express an opinion whether the FS are prepared, in all material respects, in accordance with an applicable financial reporting framework. Elaborated phrases:Expression of an opinion: opinion as to the fairness and reasonableness of FS sand issue written reports.In all material respects: concept of materiality recognized in the conduct of the audit.Applicable financial reporting framework: PFRSTaken as a whole: entirety of all the information contained in a complete set of FS.4 conditions that create demand for FS Audit (AAA-American Accounting Association)Potential conflict between management and users of FS Information can have economic consequence for decision makersExpertise is often required for preparation and verifying informationUsers are prevented from directly assessing the quality of information Information risksRisks that information is misstated and misleading.Factors contribute to information riskRemoteness of information users from the provider. ( lackness of information about day-day transaction to the users)Potential bias and motives of information providerVoluminous data (errors may exist due to the large number of transaction)Complex exchange transaction (complicated transaction more difficult to record)Approaches that reduce information risks.