1.1 Back ground of the study.
An audit is the examination and checking of financial statements by a professional auditor or accountant who has had no part in its preparation. The process involves an examination of the evidence from which the final revenue accounts and balance sheet, or other statements of an organization have been prepared, in order to ascertain that they present a true reflection of the summarized transactions for the period under review and of the financial state of the organization at the end date, so enabling the auditor to report thereon. The objective of the ordinary audit of financial statements by the independent auditor is the expression of an opinion as to the fairness with which they present fairly, in all material respects, financial position, results of operations, and its cash flows in conformity with generally accepted accounting principles.
The auditor expresses his opinion or disclaims an opinion in his audit report. The report states whether his audit has been made in accordance with generally accepted auditing standards, which require him to state whether, in his opinion, the financial statements are presented in conformity with generally accepted accounting principles. The auditor is also to identify those circumstances in which the generally accepted accounting principles have not been consistently observed in the preparation of financial statements of the current period in relation to those of the preceding period.
It is necessary for the auditor to ascertain whether the transactions themselves are supported by proper authority. Primarily, an audit is to detect technical errors, errors of principle etc in the preparation of accounts, and to discover fraud, either in connection with the accounts themselves or in handling the money belonging to the undertaking. It is only indirectly that it becomes the auditor’s duty to consider in detail the legality of the acts of those responsible for the conduct of business and the disclaims they desire to influence the policy of the undertaking coming under audit. According to Okai (1996), an audit generally can be defined as an independent examination of records, documents, accounts etc with the view to enable the auditor to express his opinion on the financial statements of an entity.
Spiecer and Pegal (1997) also define an audit as an examination of the books, accounts and vouchers of a business as will enable the auditor to satisfy himself that the balance sheet is properly drawn up so as to give a true and fair view of the state of affairs of the business and whether the profit and loss accounts give a true reflection of the profit and loss for the period, according to the best of his information and the explanations given to him as shown by the books and if not in what respect he is not satisfied . The owners accept the financial reports as credible. The errors, not disclose fraud, be inadvertently misleading, be deliberately misleading, and fail to disclose relevant information or fail to conform to regulations. There is therefore the need for an independent person to express an opinion on the reports. To be able to give audit assurance, in reporting as an independent person, there are benchmarks in the form of standards and guidelines to direct both accountants and auditors in the performance of their duties. These standards have been codified in documents such as the 1963 companies’ code of Ghana. These are in conjunction with international accounting standards and international auditing standards.
It is therefore essential that financial statements be subjected to audits in order to ensure their conformity to statutory and other requirements. The ‘lending of credibility’ to the financial report is known as “attestation” and the independent auditing of financial statements is described as an “attest function”.
Auditing can also be defined as a process of reducing to a sociably...
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