Auditing is the process by which a competent independent person accumulates and evaluates evidence about quantifiable information related to a specific economic entity for the purpose of determining and reporting on the degree of correspondence between the quantifiable information and established criteria.
Quantifiable information and established criteria. To do an audit, there must be in a verifiable form and some standards (criteria) by which the auditor can evaluate the information.
Quantifiable information can and does take many forms. It is possible to audit such items as a company ‘s financial statements, the amount of time is takes an employee to complete an assigned task, the total cost of a government construction contract, and an individual’s tax return.
The criteria for evaluating quantitative information can also vary considerably. For example, in auditing a vendor’s invoice for the acquisition of raw materials, it is possible to determine whether materials of the quantity and stated description were actually received whether the proper raw material was acquired the production needs of the company, or whether the price charged for the goods was reasonable. The criteria used depend upon the objective of the audit.
Economic entity. Whenever an audit is conducted, the scope of the auditor’s responsibility must be made clear. The primary method involves defining the economic entity and the time period. In the most on stances the economic entity is also a legal entity, such as a corporation, unit of government, partnership, or proprietorship. In some cases, however, the entity is defined as a division, a department, or even an individual. The period for conducting an audit is typically one year, but there are also audits for a month, a quarter, several years, and in some cases the lifetime of an entity.
Accumulating and Evaluating Evidence. Evidence is defined as any information used by the auditor to determine whether the quantifiable information being audited is stated in accordance with the established criteria. Evidence takes many different forms, including oral testimony of the auditee (client), written communication with outsiders, and observations by me auditor. It is important to obtain an appropriate quality and volume of evidence to satisfy the audit objectives. The process of determining the amount of evidence that is necessary and evaluating w whether the quantifiable information corresponds to the established criteria is a critical part of every audit. It is the primary subject of this book.
Competent Independent Person. The auditor must be qualified to understand the criteria used and competent to know the types and amount of evidence to accumulate to reach the proper conclusion after the evidence has been examined. The auditor also must have an independent mental attitude. It does little good to have a competent person who biased performing the evidence accumulation when unbiased information and objective thinking is needed for the judgments and decisions to be made.
Independence cannot be absolute by any means, but it must be a goal that is worked toward; and it can be achieved to certain degree. For example, even though an auditor is paid a fee by a company, the auditor may still be sufficiently independent to conduct audits that can be relied upon by users. The auditor who is a company employee mot not be sufficiently independent.
Reporting. The final major stage in the audit process is the audit report-the communication of the findings to users. Report differ in nature, but in all cases they must inform readers of the degree of correspondence between quantifiable information and established criteria. Report also differ in form and can vary from the highly technical type usually associated statements to a simple oral report in the case of an audit conducted for a particular individual.
Types of audits
Three types of audits are operational audits, compliance audits, and audits of financial statements.
Operational audits. An operational audit is the review of any part of an organization’s operating procedures and method for purpose of evaluating efficiency and effectiveness. At the completion of an operational audit, recommendations to management for improving operations are normally expected. Because of the many different areas in which operational effectiveness can be evaluated, it is impossible to characterize the conduct of typical operational audit. In one organization, the auditor may evaluate the relevancy and sufficiency of information used by management in making decisions to acquire new fixes assets, while in a different organization the auditor might evaluate the efficiency of the paper flow in processing sales. In operational auditing, the reviews are not limited to accounting. They can include the evaluation of organizational structure, computer operations, production methods, marketing, and any other area in which the auditor is qualified. In practice, operational auditors are usually more concerned with making recommendations for improving performance than with reporting on the effectiveness of existing performance.
Compliance audits. The purpose of a compliance audit is to determine whether the auditee is following specific procedures or rules set down by some higher authority. In the audit of governmental units such as school boards, there is increased compliance auditing due to extensive regulation by higher government authorities. In virtually every private and non-for-profit organization, there are prescribed policies, contractual agreements, and legal requirements that may call for compliance auditing. When an organization wants to determine whether individuals or organizations that are obligated to follow its requirements are actually complying, the auditor is employed by organization issuing the requirements. An example is the auditing of taxpayers for compliance with the federal tax laws – the auditor is employed by the government to audit the taxpayers’ tax returns.
Audits of financial statements. An audit of financial statements is conducted to determine whether the overall financial statements – the quantifiable information being verified – are stated in accordance with specified criteria. Normally, criteria are generally accepted accounting principles, although it is also possible to conduct audit of financial statements prepared using some other basis of accounting appropriate for the organization. The financial statements most commonly included are the statement of financial position or balance sheet, income statement, and statement of changes of financial position, including accompanying footnotes. The assumption underlying an audit of financial statements is that they will be used by different groups for different purposes. Foe example, e general audit of a business may provide sufficient financial information for a banker considering a loan to the company, but a corporation considering a merge with that business may also wish to know the replacement cost of fixed assets and other information relevant to the decision. The corporation may use its own auditors to get the additional information.
Types of auditors.
The four most widely known types of auditors are government auditors, Revenue Canada auditors, internal auditors, and public accountants.
Government auditors. The governments have Auditor Generals who are responsible for auditing the agencies who report to that government. These government auditors may be appointed by a bi-partisan committee or by the government or party in power in the jurisdiction. They report to their respective legislatures and are responsible to the body appointing them. The primary responsibility of the government audit staff is to perform the audit function for the government. The extent and scope of the audits performed are determine by legislation in various jurisdictions. As a result of their great responsibility for auditing the expenditure of the government, their use of advanced auditing concepts, their eligibility to be professional accountants, and their opportunities for performing comprehensive audits, government auditors are highly regarded in the auditing profession.
Revenue Canada Auditors. Revenue Canada Taxation, under the direction of the Minister of National Revenue, has as its responsibility the enforcement of the federal tax law as they have been defined by Parliament and interpreted by the courts. The major responsibility of Revenue Canada is to audit the returns of taxpayers to determine whether they have complied with the tax law. The auditors, who perform these examinations, are reoffered to as Revenue Canada auditors. These audit can be regarded as solely compliance audits.
Internal Auditors. Internal auditors are employed by individual companies to audit for management, much as the Auditor General does for Parliament. The internal audit group in some large firms can include over a hundred persons and typically reports directly to the president, another high executive officer. Or even the audit committee of the board of directors.
Internal auditors’ responsibilities vary considerably, depending upon the employer. Some internal audit staffs consist of only one or two employees who may spen most of their time doing routine compliance auditing. Other internal audit staffs consist of numerous employees who have diverse responsibilities, including many outside the accounting area. In recent years, many internal auditors have become involved in operational auditing or have developed expertise in evaluating computer systems.
To operate effectively, an internal auditor must be independent of the line function in an organization, but will not be independent of the entity as long as an employer – employee relationship exists. Internal auditors provide management with business. Users from outside the entity, however, are unlikely to want to rely on information verified by internal auditors because of their lack of independence. This lack of independence is the major difference between internal auditors and public accounting firms.
Public Accountants. Public accounting firms have as the primary responsibility the performance of the audit function on published financial statements of all publicly traded companies and most other reasonably large companies. Such an audit is known as an attest audit because the auditor attests to the fair presentation in the financial statements. Because of the widespread use of audited financial statements in the Canadian economy, as well as businesses’ and other users’ familiarity with these statements, it is common to use the terms auditor and public accounting firm synonymously even though there are several different types of auditors. Another term frequently used to describe a public accounting firm is independent auditor.
What is the nature of auditing?
What is the quantifiable information?
What is the established criteria?
What does the term economic entity refer to?
What is the evidence?
What qualifications are needed to be an auditor?
What is audit report?
How many types of audit are there? What are they?
What is the function of each type?
Name the types of auditors? What is the responsibility of each type?
Read the text below and find the right word or phrase from the box to fill each of the gaps.
professional tax international standards qualifications
public National attorneys license
Independent public accounting firms are run by certified (1) ………… accountants called as (2) …………. auditors or as CPAs in the USA. The CPA or Audit certificate is a (3) ………… to practice granted by the Government in such a way that they license to practice granted by the Government in such a way that they license (4) ………… and physicians – to assure the public that the individuals offering these (5) …………. services have appropriate (6) ………………. services offered by them include auditing, (7) ………… consultancy, management advisory … and are based on the national auditing (8) ……………., such as GAAS stipulated by the Association of US Auditors, or on the (9) ……………. guides like the IAG published by IAPC on behalf of IFAC.
Translate the following text into English paying special attention to standard use of terms and clarify of expression.
Kiểm toán là quá trình do cá nhân độc lập có năng lực chuyên môn thu nhập và đánh giá bằng chứng về thông tin định lượng liên quan đến một đơn vị kinh tế cụ thể với mục đích là xác định và báo cáo về mức độ phù hợp giữa thông tin định lượng và tiêu chí đặt ra.
Đối với bên hữu quan và các người ngoài một doanh nghiệp, một hồ sơ tài chính phải đúng đắn hợp lý và hợp pháp. Họ muốn hồ sơ đó phải được kiểm toán. Công tác kiểm toán là công tác kiểm tra và xác nhận sự đúng cách hợp lý và sự đáng tin của hồ sơ tài chính trên cơ sở các chuẩn mực kế toán. Mỗi quốc gia có các chuẩn mực kiểm toán riêng. Chuẩn mực kiểm toán quốc tế nhằm vào sự phát triển mối điều hòa về công tác kế toán trên thế giới. Công tác kiểm toán được tiến hành ở ba cấp: kiểm toán Nhà nước hay kiểm toán luật định, sự thanh tra cưỡng bức; kiểm toán độc lập hay kế toán công chứng, dịch vụ tư vấn theo yêu cầu các doanh nghiệp; và kiểm toán nội bộ, thuộc hệ thống kiểm soát nội bộ nhằm bảo vệ tài sản công ty.
Một nghiệp vụ kiểm toán là cuộc điều tra từng hạng mục, tính trên giá trị tiền tệ, và sự ghi chép công khai thấy trên báo cáo tài chính. Qui trình kiểm toán gồm: lập kế hoạch kiểm toán (phân tích hệ thống kiểm soát nội bộ để đánh giá các rủi ro tiềm tang và rủi ro kiểm soát), thực hiện kiểm toán (kiểm toán viên phát hiện các sai phạm trọng yếu – gian lận, sai sót – nếu không các rủi ro phát hiện hay các rủi ro kiểm toán sẽ ảnh hưởng tới tên tuổi kiểm toán viên), hoàn thành kiểm toán (kiểm toán viên lập báo cáo và cho ý kiến).
Nghiệp vụ kiểm toán độc lập có thể là: kiểm toán hoạt động (hay hiệu quả) cho ý kiến về tính hiệu quả mà dự án; kiểm toán tuân thủ (hay quy tắc) báo cáo về sự chấp hành đúng đắn của doanh nghiệp; kiểm toán tài chính, gồm kiểm toán thường xuyên, định kỳ, quyết toán, hay đặc biệt.