The Nature and Purpose of Auditing

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The Nature and Purpose of Auditing

Content :

• Definition and objectives of auditing
• Types of audits
• Development of auditing
• Qualities of an auditor
• Auditing process

Objectives :

Students should be able to :

• Describe the definition and the objectives of auditing.

• Distinguish between different types of audits.

• Briefly describe the development of auditing.

• List and explain the qualities of an auditor.

• State the auditing process.

1.DEFINITION AND OBJECTIVES OF AUDITING

1.1Definition of auditing

a. An audit is an independent examination of companies financial statements by an auditor. He then gives his opinion on whether the financial statements give a true and fair view in an audit report.

b. Definition by the Hong Kong Institute of Certified Public Accountants (HKICPA): the objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared , in all material respects, in accordance with an identified financial reporting framework.

2. Objectives of auditing

a. Primary objective :

• to provide the readers, including the shareholders and creditors, the confidence that the financial statements are true and fair

b. Subsidiary objective

• to detect errors and fraud in the accounting records and/or financial statements • to give advice on the clients’ internal control system.

2.TYPES OF AUDITS

1. External or Statutory Audit

• Examination of the truth and fairness of financial statements by independent auditors. Hong Kong Companies Ordinance requires the financial statements of limited companies to be audited each year.

2. Internal or Operational Audit

• evaluate companies internal control system...
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