The Basics of Auditing
This an introduction to the concepts of Auditing. There are several books covering this large subject in great detail. Have a look in our books section. Auditing is about collecting evidence and providing an opinion. For instance that the Financial Statements are presented in a true and fair way.
- Different types of Audits.
- Internal audits vs External audits.
- CPA = Certified Public Auditor.
- Financial statements includes for instance the balance sheet.
- Providing an independent opinion.
- The subject of Audit Evidence.
U understandability & Classification
P presentation & disclosure
E existence or occurrence
R rights and obligations
C completeness and cutoff
V valuation, allocation & accuracy
Quick-map of an Financial Statement Audit
- Deciding to accept a client.
- Making sure there is independence in fact and appearance.
- Assessing Audit Risk: Inherent Risk, Control Risk, Detection Risk.
- Consider materiality – what’s important and what is not.
- Ratio Analyses
- Analytical Procedures
- Nature of the Engagement
R Review of Audit Documentation
A Ask about Recent Developments
I Interim Information
N Non-Audit Personnel
O Outside Assistance
S Scheduling with the Client
C Control Environment
R Risk Assessment
A Control Activities
I Info and communication
- Collecting Audit Evidence
- Nature of evidence: the source, the form, relevant, reliable.
- Professional skepticism.
- Final Due Diligence.
- Issuing the Report.
- Stakeholders of the audit.
- Different types of Bonds.
- Borrowing agreement (Debt=Bonds, Equity=Stocks).
- Government or Corporate.
- The concept of Present Value.
- Market value.
Profit and Loss Statement – Example
Balance Sheet Statement – Example
Assets are resources owned by the company. Some examples of assets are cash, accounts receivable. property and equipment.
Liabilities are claims against the company from other parties. This means that it shows what a company owns. Examples of liabilities are accounts payable or technical provisions.
represents the difference between assets and liabilities. This is the company’s own capital, what would be left if they stopped the business and sold everything. Examples of Equity is share capital and retained earnings.
Assets – Liabilities = Equity
A company may have a lot of assets but if they are the wrong types of assets for their business they may face a liquidity problem.