NATURE Of Audit
NATURE, PURPOSE AND SCOPE OF AUDIT AND REVIEW
NATURE, PURPOSE AND SCOPE OF AUDIT AND REVIEW
1 “AUDITING”
In independent examination
2 NATURE AND DEVELOPMENT
The word “audit” comes form the Latin word audire which means “to hear” because, in the middle Ages, accounts or revenue and expenditure were “heard” by the auditor.
Statutory audits (i.e. carried out in accordance with statutory provisions) become mandatory for companies in 1900. At this time the purpose of an audit was to detect fraud, technical errors and errors of principle.
However, the recognition in case law that it is unreasonable to expect auditors to detect all aspects of fraud, even though they exercised reasonable skill and care, means that this is not now a primary purpose.
Over the last 20 years or so the auditing profession has sought to broaden its role (e.g. with value for money, operational audits, etc – see later)
Wiley CPAexcel Exam Review 2014 Study Guide: Auditing and Attestation (Wiley Cpa Exam Review) Buy Now
3 CONCEPTS
Stewardship
Directors or other managers of an enterprise have the responsibility of stewardship for the property of that enterprise.
Responsibilities, which may be duties embodied in statute, may include:
Keeping books of accounts and proper accounting records;
Producing a balance sheet and income statement that show a true and fair view;
Producing a directors’ report which is consistent with the financial statements and contains certain specified information.
Agency
A director can be described as an agent having a fiduciary relationship with a principal (i.e. the company that employs him).
(A fiduciary relationship is one of trust.)
In meeting their responsibilities of stewardship, managers have fiduciary duties to safeguard assets and implement and operate an adequate accounting and internal control system.
Accountability
Auditors act in the interest of the primary stakeholders whilst having regard to the wider public interest.
The identity of the primary
NATURE, PURPOSE AND SCOPE OF AUDIT AND REVIEW
1 “AUDITING”
In independent examination
2 NATURE AND DEVELOPMENT
The word “audit” comes form the Latin word audire which means “to hear” because, in the middle Ages, accounts or revenue and expenditure were “heard” by the auditor.
Statutory audits (i.e. carried out in accordance with statutory provisions) become mandatory for companies in 1900. At this time the purpose of an audit was to detect fraud, technical errors and errors of principle.
However, the recognition in case law that it is unreasonable to expect auditors to detect all aspects of fraud, even though they exercised reasonable skill and care, means that this is not now a primary purpose.
Over the last 20 years or so the auditing profession has sought to broaden its role (e.g. with value for money, operational audits, etc – see later)
Wiley CPAexcel Exam Review 2014 Study Guide: Auditing and Attestation (Wiley Cpa Exam Review) Buy Now
3 CONCEPTS
Stewardship
Directors or other managers of an enterprise have the responsibility of stewardship for the property of that enterprise.
Responsibilities, which may be duties embodied in statute, may include:
Keeping books of accounts and proper accounting records;
Producing a balance sheet and income statement that show a true and fair view;
Producing a directors’ report which is consistent with the financial statements and contains certain specified information.
Agency
A director can be described as an agent having a fiduciary relationship with a principal (i.e. the company that employs him).
(A fiduciary relationship is one of trust.)
In meeting their responsibilities of stewardship, managers have fiduciary duties to safeguard assets and implement and operate an adequate accounting and internal control system.
Accountability
Auditors act in the interest of the primary stakeholders whilst having regard to the wider public interest.
The identity of the primary