unitAuditing.docx

1、unit Auditingunit 13 AuditingUnit 13Auditing An audit is an exercise whose objective is to enable auditors to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework4.Audit provides high, but not absol

2、ute level of assurance, expressed in the audit report as reasonable assurance.Reasonable assurance is not a guarantee of correctness, but an assurance of truth and fairness within a reasonable margin of error. Content . Auditing Standard and Professional Ethics. Types of Auditing. Auditing Procedure

3、s. Audit Report. Types of Audit Report. A sample of audit report (CSAC)General StandardsFieldwork Standards Reporting Standards1.Auditing Standard. Auditing Standard and Professional EthicsGeneral Standards1.The auditor must have adequate technical training and proficiency to perform the audit. 2.Th

4、e auditor must maintain independence in mental attitude in all matters related to the audit. 3.The auditor must use due professional care during the performance of the audit and the preparation of the report. Fieldwork Standards1. The auditor must adequately plan the work and must properly supervise

5、 any assistants.2. The auditor must obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement of the financial statements whether due to error or fraud, and to design the nature, timing, and extent of further audi

6、t procedures. 3. The auditor must obtain sufficient appropriate audit evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit. Reporting Standards1.The auditor must state in the auditor's report whether the financial sta

7、tements are presented in accordance with generally accepted accounting principles. 2.The auditor must identify in the auditor's report those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period. 3.When the auditor d

8、etermines that informative disclosures are not reasonably adequate, the auditor must so state in the auditor's report. 4.The auditor must either express an opinion regarding the financial statements, taken as a whole, or state that an opinion cannot be expressed, in the auditor's report. W

9、hen the auditor cannot express an overall opinion, the auditor should state the reasons therefore in the auditor's report. In all cases where an auditor's name is associated with financial statements, the auditor should clearly indicate the character of the auditor's work, if any, and

10、 the degree of responsibility the auditor is taking, in the auditor's report. 2. Professional Ethics(a) Integrity A professional accountant should be straightforward and honest in all professional and business relationships.(b) Objectivity A professional accountant should not allow bias, confli

11、ct of interest or undue influence of others to override professional or business judgments.(c) Professional Competence and Due Care A professional accountant has a continuing duty to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competen

12、t professional service based on current developments in practice, legislation and techniques.(d) Confidentiality A professional accountant should respect the confidentiality of information acquired as a result of professional and business relationships and should not disclose any such information to

13、 third parties without proper and specific authority unless there is a legal or professional right or duty to disclose.(e) Professional Behavior A professional accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession.ExternalInternalGover

14、nmentalThree groups of auditing . Types of Auditing External auditing refers to the evaluation of financial statements prepared by the management for the use of external users including stockholder, creditors, bankers, potential investors and regulatory agencies, etc.Internal auditing is the indepen

15、dent evaluation and appraisal function established within an organization to assess its own activities. Internal auditors are employees of company rather than independent outsiders.Government auditing evaluates a wide range of organizations and institutions: agencies owned by the government and the

16、agencies the government is responsible for.Auditing Procedures The purpose of audit procedures is to provide detailed audit steps to be performed during the audit fieldwork that will achieve the specific audit objectives. In conjunction with the risk assessment, audit procedures will be developed by

17、 the auditor and approved by audit management prior to performance of the audit procedures. .Auditing Procedures 1. Engagement letter Its purpose is to set down the contractual relationship in written form between the client and the accounting firm. Issues like objectives of the engagement, the scop

18、e of the audit, responsibilities and duties of both parties are set forth in the letter. 2. Risk assessment and audit planning. Auditors should understand the business of the company, the environment in which it operates , including relevant industry, other external factors, the nature, etc.3. Inter

19、nal control testing Evaluate the effectiveness of internal control to determine the extent to which they can rely on the clients internal control4.Substantive procedures Conduct comprehensive test to collect sufficient and appropriate evidence supporting audit conclusion.5. Audit reportNote:During t

20、he course of the audit, conditions may arise which warrant revising the audit procedures, scope, or budgeted hours. The auditor should evaluate the situation, make timely recommendations to audit management, and obtain approval before incorporating any changes. . Audit ReportAudit report refers to t

21、he written document which expresses CPAs audit opinion on the clients financial statement.Title The Addressee(收件人)The Scope ParagraphThe Opinion ParagraphSignature, stamps and accounting firms addressThe date of the audit reportThe Scope ParagraphThe scope paragraph of the audit report should specif

22、y the following matters: The name of the audited financial statements and the date of each statement;The accounting responsibility and the audit responsibility, and The major audit procedures performed. The Opinion ParagraphThe opinion paragraph of the audit report should specify the following matte

23、rs:Whether the preparation of the financial statements complies with the requirements of both the GAAP and other relevant financial and accounting laws and regulations.Whether the financial statements present fairly, in all material aspects, the financial position of the audited company, and its ope

24、rating results and cash flows for the audited period.Whether the accounting treatments are consistently applied.Types of Audit ReportAudit ReportStandard reportNon-standard reportAdverse reportQualified reportUnqualified opinion with explanatory paragraphNon-unqualified reportDisclaimer reportUnqual

25、ified reportThe following criteria should be satisfied with:(1) The financial statements are fairly prepared on the basis of GAAP and other acceptable accounting bases and policies.(2) The statements comply with statutory requirements and relevant regulations.(3) the 6view presented by the financial

26、 statements is consistent with the auditors knowledge of the audited company.(4) There is adequate disclosure of all material relevant to the financial statements.Unqualified opinion with explanatory paragraphIf the financial statements have been prepared fairly but there has been doubt on one mater

27、ial matter, the auditor will add explanatory language to it. An unqualified opinion is issued when:(1) The scope of the auditing is restricted by the auditors knowledge, the companys records or other reasons. (2) There is an inconsistency in the application of accounting principles.(3) A matter is p

28、ut in highlight.(4) Theres a justified departure from officially recognized accounting principles. (5) Theres an uncertainty about a matter that could have a material impact on the financial statements.Qualified reportA qualified opinion is expressed when:(1) The audited company refuse to adjust the

29、 treatment of an individual material accounting transaction, or to adjust the presentation of an individual material item in the financial statements which is not accordance with GAAP and other relevant financial and accounting laws and regulation.(2) Audit evidence cannot be obtained as required in

30、 the Independent Auditing Standards, due to a significant limitation on the audit scope on certain aspects.(3) The application of individual material accounting treatments is not consistent.Adverse opinionAn adverse opinion is expressed when:(1) The application of accounting treatments seriously vio

31、lates the requirements of GAAP or other relevant financial and accounting laws and regulations and the audited company refuses to make adjustments.(2) The financial statements seriously distort the financial position, operating results and changes in the funds of the audited company, and the audited

32、 company refuses to make adjustments. Disclaimer of opinion A disclaimer of opinion should be expressed when the CPA cannot obtain the necessary audit evidence due to a severely limited audit scope imposed by the client and its so pervasive that the auditor is unable to form an audit opinion on the financial statements as a whole.