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Financial Systems and Auditing - Term Paper Example

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Summary
The main objective of the present paper is to justify the importance of financial auditing as a main technique for controlling the budget within the organization. Additionally, the paper "Financial Systems and Auditing" discusses the concept of business risk in terms of finance. …
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Financial Systems and Auditing
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Extract of sample "Financial Systems and Auditing"

Financial Systems and Auditing Running Head: FINANCIAL SYSTEMS AND AUDITING Financial Systems and Auditing In APA Style Financial Systems and Auditing 2 An audit is also called an engagement of assurance with five important elements such as three-party relationship that involves the accountant who are professional including the responsible party and the user's intention. The other elements that may be considered are subject matter, suitable criteria, engagement process and the conclusion. Auditing is the process that is systematic being objective to obtain and evaluate the evidence pertaining to the assertions as well as the criteria to be established and at the same time communicates the results to the users with interest. Financial auditing is one of the aspects that may be considered to the audit process, wherein the said audit objective pertains to the financial statements for the auditor to be able to express the opinion on the preparation of financial statements and in all material respects according to the financial reporting framework as identified. The auditor's responsibility is to form and express an opinion on the company's financial statements, while the entity's management is responsible for the preparation and presentation of financial statements. Audit in general may include the entire examination of the unit's organization, the system as well as the function including the evaluation if the audit complied with significant laws, its rules and regulations. The audit must also be in compliance to the applicable policies of University, there should be internal controls' adequacy and the operations' efficiency and its effectiveness. The focus of the audit is to determine the adequacy of procedures and the company's internal control. The adequacy in procedures is indeed a great help for the purpose of ensuring the system's objectives, the function of the company and to achieve the unit's effectiveness and efficiency. The adequacy of control is also preventing the outcome of occurrence and therefore unwanted. Financial Systems and Auditing 3 The available financial records in an audit are audit statements, bond issues, budget, the annual comprehensive financial reports and other financial reports. The audit statements should be selective in terms of the statement's type, not just only with the objects of specific schema where the company operates but the options must be broad in terms of the use of auditing and the consideration with the options of related actions. The audit statement must be for users' selection for the purpose of tracking several statements. Bond issues maybe through underwriting which is usually the common process. The underwriting of bonds includes one or more securities of firms and banks forming the syndicate buying the bonds' entire issue coming from the issuer then reselling to the investors. The bonds of government are said to be auctioned. Another record of the company that needs to be audited is the budget. Budget is the detailed plan, expressed in quantitative terms that specify how resources will be acquired and used during a specified period of time. Budget should be audited in order to find the most profitable direction which the operations can take and in order for the company to develop in detail the balanced and coordinated program in direction and to assist in controlling the operations in the execution of the said programs. Budget must have the complete support of top management and it must be realistic and the goals must also be attainable. The Financial Report is the statutory basis that must be prepared for audit purposes wherein this can be meeting the requirements of state finance law in order to present fairly the results for computing and certifying the Stabilization Fund' balance and the fund for Tax Reduction to report and disclose the aspects pertaining to the financial performance. The importance of other financial report should also be accounted in an audit according to the US Generally Accepted Accounting Principle. Financial Systems and Auditing 4 In order to complete the audit the individual functions that may be done are direction, supervision and review. Direction specifically involves the responsibilities to inform the assistants including the procedural objectives needed to be performed and the matters affecting the nature, timing and the extent of the procedures in audit to which they are said to be involved. Supervision is related very closely to the so-called direction and review. This may involve the monitoring for the audit' progress and definitely informed of to address the important questions in accounting and auditing during the performance of the audit. Supervision may resolve the differences pertaining to the judgment in professional aspect between the personnel and the level of consideration that is deemed appropriate. Another function that may take into consideration is the review wherein the work of every assistant must be reviewed by the personnel with equal competence at least. The consideration of the performance of work according to the audit program must be reviewed. Upon review, the work that must be performed and the results must be obtained in order to be documented in adequate manner. In addition all the matters in audit are said to be significant which were resolved and yet reflected in concluding the audit. It is also important that the audit procedures' objectives must be achieved and the expression of conclusions needed to be consistent with the said results regarding the performance of work in support for the audit opinion. The implementation of quality control is important to have an assurance being reasonable to the firms of public accounting in order to comply with the standards professionally. The policies and procedures of quality control should then be implemented for the audit firm as well as individual audit level which may also be noted and taken into considerations. Financial Systems and Auditing 5 The fundamental accounting concepts to prepare the audit need to have the assurance services and assurance engagement. Assurance services are professional services that are independent improving the information's quality for the makers of decision. This is referring to the satisfaction of the auditor to the assertion's reliable as made by one party in order to use by another party. Assurance engagement is the engagement where the expression of practitioner to a conclusion was designed enhancing the confidence degree for the intended users other than the party responsible with regards to the evaluation of outcome and measurement regarding the subject matter and not complying with the criteria. The assurance engagement's objective is the evaluation and measurement of CPA with regards to subject matter and the responsibility of another party against the criteria suitably identified and expressing the conclusion in order to provide the intended user with assurance level pertaining to the subject matter. The elements of an assurance engagement need to exhibit all of the following: a) The three party relationship that involves the practitioner with responsible party including the intended users like for instance the practitioner is referring to the CPA performing the engagement. The person who is responsible for the subject matter is the one who is the responsible party or the so-called assertion which is the information of the subject matter. The person, class of persons or simply persons are the intended users for the purpose of preparing the assurance report. The party who is responsible and the intended users may come from the different entities or even the same entity wherein the practitioner may be possibly engaged through the party responsible and the user as intended. Due to practicability, the report is said to be assured and addressed to most of the intended users, but in such other cases the other intended Financial Systems and Auditing 6 users may be present. There are instances that the CPA may not be identifying the intended users which are limited to the significant and common interest of major stakeholders. b) The subject matter which is appropriate may come from many forms like the conditions of financial performance wherein the information of the subject matter may e recognizing, measuring presenting and disclosing the financial statements. The non-financial conditions or performance for the information in subject matters may be the absolute efficiency and effectiveness' indicators such as entity's performance. The characteristics categorically physical regarding the subject matter may be the document specification such as the capacity of a facility. The systems and processes such as the IT system or the internal control of the entity is for the information in subject matter for the effectiveness' assertion. The behavior pertaining to the information of subject matter may be the compliance statement or the effectiveness' statement. The appropriate subject matter is said to be identifiable and yet capable of evaluation considerably consistent including the measurement regarding the criteria as identified. The information about the subjected procedures to gather the appropriate evidence sufficient for the support of the reasonable assurance or the assurance limited conclusion and yet appropriate. Suitable criteria is the benchmarks for evaluating and measuring the subject matter that includes the relevant benchmarks for the purpose of disclosure and presentation. The criteria can be formal like for instance the financial statements' preparation and the criteria may develop internally the code of conduct. Upon evaluating and measuring the subject matter basically from owns expectations of practitioner; the judgment and individual experience does not constitute the suitable criteria. Financial Systems and Auditing 7 Business Risk is the risk for the company that may have the cash flow which is enough for the expenses in operations. The risk of the company is composing of the risk in financial aspect that linked to debt, the risk more often linked to the climate in economy. If the company is said to be financed by equity this is posing no risk in the financial areas but yet susceptible to the risk in business and the changes in the overall climate in the economy. The uncertainties in most business risk are lying to the business heart in the making of decision for corporations of different kinds. The business risk may suggest that the risk must be thought of the shift destructively that may be shift in the assumptions, the parameters and the target that may be underpinning the initiative of business. Credit risk must also be assessed by the company because most of the investments are involving the credit risk with one degree and at the same time another, like for example incase of bonds, the issuer may fail to meet the interest including the payments of principal amount when the due date has come. Another risk that may be considered is the market risk rising from the whole markets' possibility that may even decline. The investor may be buying the company's stock wherein the earnings including the good financial position by the dropping of market price due to the negative sentiment. The rate of interest rate may create the major effect in terms of the so-called investments of fixed-income. The prices of bond may be typically falling when the rise of interest rates increase and the declining rates also increase. The rise of interest rates is depressing the value of bonds which is existent due to the investors may even be buying the bonds that could even pay the higher yields that is prevailing at the market. Financial Systems and Auditing 8 Reference Gilburne, J. (1998). Five Kinds of Investment Risks and How to cope with each. Retrieved June 7, 2007, from http://www.erisk.com/Learning/JigSaw/BusinessRisk.asp Read More
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