What Is Auditing

Practica ciclo

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Lesson 2. What is auditing?

1.1.1 Definition

Auditing is the process of gathering sufficient and competent evidence to allow the auditor to express an opinion that the financial statements are properly drawn up and the information shown is a true and fair view of the state of the company. SMITH, GALLARDO AND SANCHIS, Accounting.

The auditor’s role in the financial reporting process:

1. The auditor examines the entity’s financial statements to verify information asserted by management (assertions) in those statements. 2. The auditor is responsible for determining whether the company’s financial statements are prepared in conformity with criteria specified by users. In most cases, these criteria are International Accounting Standards.

3.

The auditor communicates his or her conclusion to users through an audit report (audit opinion).

HERMANSON, STRAWSER AND STRAWSER, Auditing, theory and practice.

1.1.2 Objectives Primary objective Is to determine if the financial statements give a true and fair view of the financial position and working results of a company and also to make sure that the systems are functioning properly.

Secondary objectives

I. Detection and prevention of Frauds. II. Detection and prevention of Errors and mistakes.

1.1.3 Advantages and Limitations

ADVANTAGES LIMITATIONS Detection and prevention of error and frauds become easier.

Audit may not be in a position to identify all types of manipulation of the information. Acceptability by the authorities. Company may not give true and correct

information to the auditor. Speedy processing of loans. Management could manipulate the information in order to not to show shareholders the real information. Useful to compare the financial performance. Corrupt practices to influence the auditors. Keeps accounts department vigilant. Effect of inflation. Identifies the weak areas.

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RAVINDER KUMAR, VIRENDER SHARMA, Auditing: Principles and Practice.

Lesson 2. What is auditing?

Answer the following questions according to this text:

1) What is Auditing? Inspection or verification of the accounting of a company or

entity 2) What are the auditor’s roles in the financial reporting process? 3) What are the primary objectives of Auditing? ______________________________ 4) What are the secondary objectives of Auditing?