PROFESSIONAL RESPONSIBILITY AND LIABILITY
The imprecision in accounting leads to an imprecision in the ability to verify financial statement presentations. Accounting and auditing require the application of significant professional judgment. Hence, the auditor seeks only a reasonable basis for expressing an opinion on the fairness of the financial statements. In making an examination, the auditor obtains evidence for sound and well-grounded conclusions about the fairness and representational faithfulness of the accounting treatment of transactions, balances, and disclosures in the financial statements.
There may be a material difference in the valuation of inventory based on the choice of inventory
methods. Furthermore, should variances from standard costs be included in inventory or directly expensed as part of cost of sales. Such questions must be answered to determine the cost of inventory, let alone considering the estimation involved in evaluating the net realizable value of inventory.
RESPONSIBILITY OF AUDITOR
1. Measure and record transaction data
2. Assess the risk of material misstatement in management’s financial statements
3. Classify and summarize recorded data
4. Obtain and evaluate evidence to respond to risks of material misstatement in the financial statements
5. Evaluate reasonableness of accounting estimates
6. Obtain reasonable assurance that financial statements are presented fairly in conformity
7. Prepare financial statements per GAAP
8. Express opinion through auditor’s report and other communications
9. Distribute financial statements and auditor’s report to stockholders in annual report
10. Communicate findings to management and the board of directors through other required
communications and assurance services method.
In June 1999, the Institute of Internal Auditors (IIA) adopted a new definition of internal auditing. Internal Auditing is an independent, objective assurance and consulting activating designed to add valve and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.
An independent auditor ordinarily has a close working relationship with the entity’s internal auditors. Management, for example, may ask the independent auditor to review the internal auditors’ planned activities for the year and report on the quality of their work. The independent auditor also has a direct interest in the work of internal auditors that pertains to the entity’s system of internal control.
It is also permissible for the internal auditor to provide direct assistance to the independent auditor in performing a financial statement audit. The internal auditor’s work cannot be used as a substitute for the independent auditor’s work, but it can be an important complement. In determining the effect of such work on the audit, the independent auditor should:
❖ consider the competence and objectivity of the internal auditor and
❖ evaluate the quality of the internal auditor’s
DUTIES OF INTERNAL AUDITORS
❖ Due skill and care
▪ Internal Auditors should be independence of the activities they audit.
▪ Internal audit departments should be granted sufficient status to achieve independence from various company functions.
▪ Internal audit reports should be considered appropriately by directors and recommendations acted upon.
▪ Internal auditor must have a reporting line that is independent of the function they are auditing- highest level of management/ audit committee.