Analysis of the Auditing Report Purpose - Essay Example

AUDITING REPORT By and Definition Auditing is an examination of accounting books and any other relative documentary evidence that gives the auditor the ability to find out accuracy of figures and so that they can make reports on balance sheets and/or any other financial statements that have been prepared from there. Task 1 There are several objectives and principles of accounting. The general objectives will be classified into i.) primary objectives and ii) secondary objectives to ease understanding. The primary objective is to determine and question the reliability of the financial statement and supporting accountant records during a particular fiscal period. The auditor has thoroughly to check all the transactions and relevant documents of the company during a given period. This is so as they can get a fair and, of course, a true view of the companies’ affairs and then be able to express his/her opinion. It helps an auditor in reporting the financial condition and working result of the organization. During auditing, the auditor may come across some errors and frauds although that is not the primary objective of the auditor. The auditor can also disclose whether the accounting system adopted by the company is efficient enough, during which time he may mention some several glitches in the system. In secondary objective, the auditor has to examine books of accounts and any other relevant document so that they can report the financial condition of the firm. During the process, the auditor may come across some errors or frauds which can be in the form of clerical errors or errors of principle. Clerical errors can be divided into three. They are errors of commission, errors of omission, and compensating errors. Some frauds can be so damaging that they lead to bankruptcy of a company. A good example is The Enron scandal that led to the bankruptcy of the corporation. The problem was a result of audit failure (Earley & Kelly 2004). Task 1 There are about ten principles of auditing; the seven most important are given below 1. Planning The auditor has to plan before starting their work. The auditor decides accounting about the internal control procedure and the accounting 1. Honesty Honesty and sincerity are the second most important principles of auditing. In this case, the auditor should exhibit a high degree of loyalty and professionalism that should be without any doubts (Whittington & Pany 2006). 2. Impartiality The attitude of any auditor needs to be imperial, and their personal views not included in the audit report. 3. Secrecy Under no circumstance should the information the auditor deals with be disclosed to a third party. 4. Evidence During the auditing process, the auditor can acquire working papers for collecting evidence. The auditor can frame his/her opinion based on the audit evidence they have of which the nature and the source of proof need to be kept in view by the auditor (Li et al. 2013). 5. Consistency This is an imperative aspect of auditing. Changes are not acceptable in auditing, so the rates of depreciation and valuation of stock selected by the accountant need to be used in the coming years. 6. Legal framework Rules governing the area a business operates in need to be always applied. CareWorks is an example of a company using this process of auditing. Recently, it streamlined Audit Process for Healthcare Compliance Using ServiceNow. Task 2 The process of audit involves several steps (Griffith, Hammersley, & Kadous 2013). 1. Establishing priority areas Choosing which organization areas are supposed to be audited should always be an integral part of the internal annual plan and a part of the company’s risk management program. 1. Monitoring and continuous audit rules This step entails determining the rules or analytics that are supposed to guide the ongoing audit activity. They need to be programmed, frequently repeated and reconfigured whenever needed. 2. Determining the process’ frequency The term continuous process does not primarily mean that the audit process has to be continuous. The auditors are supposed to consider the natural rhythm of the process being audited which includes timing of both computer and business process. 3. Configuring continuous audit parameters Setting of rules used in each audit area needs to be done before the continuous audit procedure (CAP) is implemented. It should also be carried out according to the activity’s monitoring results. 4. Following Up This stage entails treatment of alarms and detected errors whereby questions such as who receives the warning first and the following process are completed. Cross-checking on the evidence used should be made to ensure accuracy reliability. 5. Communicating results This is the final step in the auditing process. It involves considering how to communicate with the auditees. When the results of the audit activity are ready to be presented to the firm, it is crucial that the exchange is consistent and independent. The development of implementation of the communication guideline and the follow-up procedures, also, have to consider the risks of collusion involved. Much of the fraud that occurs in a firm shows that there was collusion between either internal or external parties. Task 3 There are several ethics that an auditor needs to exhibit. The auditor has to be neutral, third party verifiable, use processes that are easy to understand, measure, report on, and be readily applicable to the improvement the firm’s social and environmental performance. Auditors should not be biased and should be accurate enough in the process so that whatever they present as results are something verifiable by any other independent editors. Independent auditors are said to have some added advantages. Independent auditors are commended for as they are ‘independent’ from the client company. In this regard, their audit opinion is not swayed or influenced by any relationship they have with the customer. This contributes a lot to their principle, the fact that they should give unbiased and honest professional opinion on the shareholder’s financial statement. However, there are expressed doubts on the independence of external auditors. Some argue that there has to be proper corporate governance measure in place so that the firm of auditors do not reach audit opinions or judgments that are heavily influenced by their wish to maintain good working relations with a client company (Schmidt 2012). In other words, if such a situation occurs, then the independent auditors cannot be said to be independent at all. If the auditor’s stick to their principles and ethics as had been mentioned above, then the independent auditors are the easiest and the best to deal with. In some instance, a company may have internal auditors that had conspired in helping out other members of the enterprise to carry out fraud. In such a situation, the auditors would doctor the statements so that they avoid incriminating themselves. It is very unlikely that an external auditor had conspired in carrying out any fraud in a company that they will be asked to audit. It is because of this reason Apple Inc. was insisting on using internal audotors to cover paying workers poorly (Council 2012). References List Council, W. C. (2012). External Audit. Earley, C. E., & Kelly, P. T. (2004). A note on ethics educational interventions in an undergraduate auditing course: Is there an “Enron effect”?. Issues in Accounting Education, 19(1), 53-71. Griffith, Emily E., Jacqueline S. Hammersley, and Kathryn Kadous. "Auditing complex estimates: Understanding the process used and problems encountered." (2013). Li, Shing-Han, et al. "Investigation on auditing principles and rules for PDM/PLM system implementation." Computers in Industry 64.6 (2013): 741-753. Schmidt, Jaime J. "Perceived auditor independence and audit litigation: The role of nonaudit services fees." The Accounting Review 87.3 (2012): 1033-1065. Whittington, Ray, and Kurt Pany. Principles of auditing and other assurance services. Boston, MA: McGraw-Hill/Irwin, 2006. Read More