8 Postulates for the Professional Accountant
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CHAPTER 1 Audit and Review
1 WHAT IS AN AUDIT
An audit has been defined as “an independent examination of, and expression of opinion on, the financial statements of an enterprise by a duly appointed auditor in pursuance of a relevant statutory or professional obligation”. Independent – an auditor is remote from the enterprise that he/she is reporting on. This independence is defined by law and professional practice. Opinion – an auditor gives an opinion. He does not certify or guarantee the financial statements as accurate or free from error or irregularity. Financial statements are themselves imprecise because they are based on judgements and conventions. It is a common misconception that auditors are employed primarily to detect or prevent fraud and error. Duly appointed auditor – an external auditor holds office because of legal rules contained in CA 85 and 89.
2
AUDIT THEORIES
Postulates of auditing Academics have attempted to codify certain underlying principles or postulates, which serve as the basis of auditing theory. A postulate is a concept that can be observed to be relevant to some course of study. Certain postulates that underlie the practice of auditing have been identified: ♦ Truth and fairness – the auditor is concerned that the financial statements under examination conform to law and best practice. ♦ Independence – the auditor is independent through status and is truly objective in expression of opinion. ♦ Evidence – an auditor arrives at his opinion through the systematic collection of evidential data on which his judgement is based. ♦ Responsibility – the auditor does not prepare financial statements or guarantee their accuracy nor is he a business valuer. He is not responsible for the prevention or detection of immaterial fraud. Mautz and Sharaf in their seminal work The Philosophy of Auditing define various concepts which can be seen to be relevant to the present day. Eight further postulates were laid down by
CHAPTER 1 Audit and Review
1 WHAT IS AN AUDIT
An audit has been defined as “an independent examination of, and expression of opinion on, the financial statements of an enterprise by a duly appointed auditor in pursuance of a relevant statutory or professional obligation”. Independent – an auditor is remote from the enterprise that he/she is reporting on. This independence is defined by law and professional practice. Opinion – an auditor gives an opinion. He does not certify or guarantee the financial statements as accurate or free from error or irregularity. Financial statements are themselves imprecise because they are based on judgements and conventions. It is a common misconception that auditors are employed primarily to detect or prevent fraud and error. Duly appointed auditor – an external auditor holds office because of legal rules contained in CA 85 and 89.
2
AUDIT THEORIES
Postulates of auditing Academics have attempted to codify certain underlying principles or postulates, which serve as the basis of auditing theory. A postulate is a concept that can be observed to be relevant to some course of study. Certain postulates that underlie the practice of auditing have been identified: ♦ Truth and fairness – the auditor is concerned that the financial statements under examination conform to law and best practice. ♦ Independence – the auditor is independent through status and is truly objective in expression of opinion. ♦ Evidence – an auditor arrives at his opinion through the systematic collection of evidential data on which his judgement is based. ♦ Responsibility – the auditor does not prepare financial statements or guarantee their accuracy nor is he a business valuer. He is not responsible for the prevention or detection of immaterial fraud. Mautz and Sharaf in their seminal work The Philosophy of Auditing define various concepts which can be seen to be relevant to the present day. Eight further postulates were laid down by