Fundamentals and Principles of Audit

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FUNDAMENTALS FUNDAMENTALS AND PRINCIPLES OF AUDIT
1.0 LEARNING OBJECTIVES After studying this chapter, readers will be able to: ! ! ! ! Appreciate fundamental principles of auditing. Develop auditing skills and applicable techniques. Understand the concepts of audit independence, objectivity, integrity, confidentiality, due care and competence. Understand the concept of true and fair view associated with expressing an audit opinion.

1.1

INTRODUCTION This chapter covers fundamentals and principles of auditing. Readers will be acquainted with the various concepts of auditing, develop auditing skills and explore various techniques required for effective financial statement audit. The auditor may be engaged to perform statutory and non-statutory roles of auditing. In this regard, the professional body to which an accountant belongs sets out the fundamental principles expected to guide his conduct in rendering services to his varied clients. The guidance is contained in a set of rules usually referred to as “Code of Ethics for Members.” The Code when taken with the ethical guidance issued by the professional bodies, for example, the “Rules of Professional Conduct for Members” issued by The Institute of Chartered Accountants of Nigeria, ensure that the professional accountant maintains the highest quality of performance and public confidence in the profession. The auditor also needs to ensure compliance with the accounting and auditing standards in the discharge of his professional duties. There are sanctions for erring members, ranging from loss of membership status in grievous cases, to reprimands and fines on non-grievous cases. The auditor should have good knowledge of auditing techniques, their limitations, audit evidence and documentation. The use of auditing techniques, audit evidence and proper documentation enable the auditor to accomplish his or her statutory (or other) roles in a manner that leaves other professionals who may need to review or evaluate his working papers in no doubt as to the nature of work done, actually meeting professional standards and really supporting the audit opinion. 1

AUDIT AND ASSURANCE

The need for strict adherence to ethical rules and guidance on independence, objectivity, integrity, confidentiality, skills, due care and competence enable the auditor to act in a professional manner and earns the auditor the respect of the investing public and entrepreneurship. It also enables the auditor to moderate his or her conduct, on regular basis, so as not to run foul of the regulations of his professional bodies, as well as the law. A recent development is the passing of a law under which a professional accountant, whether in practice or in business, who fails to see to proper compliance with accounting standards in Nigeria, may, on conviction, be fined or jailed. The concepts of true and fair view, materiality and judgement guide the auditor in the conduct of his assignment. The concepts help the auditor to know the level and quantum of the transactions and balances to which he should pay attention, and matters which need to be considered in the expression of opinion. 1.2 DEVELOPMENT AND OBJECTIVES OF AUDIT Auditing Auditing is broadly defined as a systematic process of objectively obtaining and evaluating evidence in respect of certain assertions about economic actions and events, to ascertain the degree of correspondence between those assertions and established criteria and reporting the results to interested parties. Auditing usually covers a particular period of time. Auditing may be narrowly defined as a written report on the examination of financial statements for a particular period of time. Independent auditing The International Federation of Accountants (IFAC), recognising the responsibilities of the accountancy profession and considering its own role to be that of providing guidance, encouraging continuity of efforts and promoting harmonisation, has deemed it necessary...
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