Auditing principle and objective
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The document outlines the objectives of conducting an audit of financial statements. The primary objective is to express an opinion on whether the financial statements are presented fairly and in accordance with generally accepted accounting principles. The secondary objective is to report on the financial condition of the business. The document also discusses transaction-related and balance-related audit objectives, the four phases of an audit, and the auditor's role in detecting errors and preventing fraud.
Auditing principle and objective
- 1. Audit Objectives GROUP MEMBERS : NOOR AMANINA ZAKARIA RATNA DEWI A/P PALANIAPPAN MOO ZIOW CHENG YONG YUE LING YEO SHU CHIN KANIMOLI A/P SEGARAN ©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 6-1
- 2. Objective of Conducting an Audit of Financial Statements The PRIMARY objective of the audit is to express an opinion on the financial statements. ©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 6-2
- 3. Objectives of an Audit of Financial Statements 1 Present Fairly 2 In all Material Respects Financial Position, Results of 3 Operations, & Cash Flows 4 In Conformity with GAAP ©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 6-3
- 4. Transaction-Related Audit Objectives Recorded Existence transactions exist. Existing transactions Completeness are recorded. Recorded transactions Accuracy are stated at the correct amount. ©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 6-4
- 5. Transaction-Related Audit Objectives Transactions are Classification properly classified. Transactions are recorded Timing on the correct dates. Transactions are included Posting and in the master files and summarization are correctly summarized. ©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 6-5
- 6. General Balance-Related Audit Objectives Amounts Existence included exist. Existing amounts Completeness are included. Amounts included Accuracy are stated at the correct amounts. ©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 6-6
- 7. General Balance-Related Audit Objectives Amounts are Classification properly classified. Transactions are recorded Cutoff in the proper period. Account balances agree Detail tie-in with master file amounts, and with the general ledger. ©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 6-7
- 8. General Balance-Related Audit Objectives Realizable Assets are included at value estimated realizable value. Rights and Assets must be owned. obligations Presentation Account balances and and disclosures are presented disclosure in financial statements. ©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 6-8
- 9. Four Phases of an Audit Perform analytical Plan and design procedures and Phase I Phase III an audit approach. tests of details of balances. Perform tests of Complete the controls and Phase II Phase IV audit and issue substantive tests an audit report. of transactions. ©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 6-9
- 10. SECONDARY OBJECTIVE The SECONDARY objective of the audit is to report the financial condition of the business. ©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 6 - 10
- 11. ERRORS & FRAUDS ©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 6 - 11
- 12. Detection and prevention of Errors ©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 6 - 12
- 13. Detection and prevention of Errors ERRORS OF PRINCIPLE: While recording a transaction, the fundamental principles of accounting is not properly observed, these types of errors could occur. Over valuation of closing stock or incorrect allocation of expenditure or receipt between capital and revenue are some of the examples of such errors. Such errors will not affect the trial balance but will affect the Profit and Loss account. It may occur due to lack of knowledge of sound principles of accounting or can be committed deliberately to falsify the accounts. To detect such errors, the auditor has to do a careful examination of the books of account. ©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 6 - 13
- 14. DETECTION & PREVENTION OF FRAUDS ©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 6 - 14
- 15. THANK YOU ©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 6 - 15