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    Chapter 1 Auditing and Internal Control PDF

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    Denmarc John Aragos
    This document discusses different types of audits including external, internal, and fraud audits. It provides details on: - External audits being required for public companies and regulated by various standards organizations. - Internal audits examining activities within an organization and representing its interests. - Fraud audits investigating anomalies and gathering evidence of fraud. The roles of audit committees and standards that auditors must follow are also summarized.

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    Chapter 1 Auditing and Internal Control PDF

    Uploaded by

    Denmarc John Aragos
    561 views21 pages
    This document discusses different types of audits including external, internal, and fraud audits. It provides details on: - External audits being required for public companies and regulated by various standards organizations. - Internal audits examining activities within an organization and representing its interests. - Fraud audits investigating anomalies and gathering evidence of fraud. The roles of audit committees and standards that auditors must follow are also summarized.

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    This document discusses different types of audits including external, internal, and fraud audits. It provides details on: - External audits being required for public companies and regulated by various standards organizations. - Internal audits examining activities within an organization and representing its interests. - Fraud audits investigating anomalies and gathering evidence of fraud. The roles of audit committees and standards that auditors must follow are also summarized.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    561 views21 pages

    Chapter 1 Auditing and Internal Control PDF

    Uploaded by

    Denmarc John Aragos
    This document discusses different types of audits including external, internal, and fraud audits. It provides details on: - External audits being required for public companies and regulated by various standards organizations. - Internal audits examining activities within an organization and representing its interests. - Fraud audits investigating anomalies and gathering evidence of fraud. The roles of audit committees and standards that auditors must follow are also summarized.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    The key takeaways are that there are different types of audits like external, internal and fraud audits. External audits are required for public companies while internal audits examine activities within an organization. A strong internal control system is important.

    The different types of audits discussed are external audits, internal audits, and fraud audits. External audits are performed by CPAs and required for public companies. Internal audits examine activities within an organization and fraud audits investigate anomalies and gather evidence of fraud.

    The objectives of an internal control system are to safeguard assets, ensure accuracy and reliability of accounting records, promote operational efficiency, and measure compliance with policies and procedures.

    AUDITING &

    INTERNAL CONTROL
    PIQUERO|MAGATAO|COMPENDIO
    • Information Technology (IT) developments
    have had a tremendous impact on auditing.
    • Business organizations undergo different
    types of audits for different purposes.
    • Most common are external (financial) audits,
    internal audits and fraud audits.

    AUDITING
    • Independent attestation performed by and expert
    (i.e., CPA) who expresses and opinion regarding
    the fair presentation of financial statements.
    • Required by SEC for ALL public companies.
    • Basis of public confidence in financial
    statements.
    • Strict rules must be followed.
    – Defined by SEC, FASB, AICPA and SOX.

    EXTERNAL AUDITS
    • SOX greatly restricts the types of non-audit
    services auditors may render to audit clients.
    – Unlawful to provide many accounting,
    financial, internal audit, management, human
    resource or legal services unrelated to the
    audit.

    ATTEST SERVICE VS. ADVISORY


    SERVICE
    • Internal auditing is an independent appraisal function to
    examine and evaluate activities within, and as a service
    to, an organization. (Institute of Internal Auditors)
    • Internal auditors perform a wide variety of activities
    including financial, operational, compliance and fraud
    audits.
    • Auditors may work for the organization or task may be
    outsourced.
    – Independence is self-imposed, but auditors represent
    the interests of the organization

    INTERNAL AUDITS
    • External auditors represent outsiders while internal
    auditors represent organization’s interests.
    • Internal auditors often cooperate with and assist external
    auditors in some aspects of financial audits.
    – Extent of cooperation depends upon the independence
    and competence of the internal audit staff.
    • External auditors can rely in part on evidence gathered by
    internal audit departments that are organizationally
    independent and report to the board of director’s audit
    committee.

    EXTERNAL VS. INTERNAL


    AUDITORS
    • Recent increase in popularity as a corporate
    governance tool.
    • Objective to investigate anomalies and gather
    evidence of fraud that may lead to criminal
    convictions.
    • May be initiated by management who
    suspect employee fraud or the board of
    directors who suspect executive fraud

    FRAUD AUDITS
    • Subcommittee of the board of directors
    – Usually three members who are outsiders.
    – SOX requires at least one member must be a
    “financial expert”
    • Serves as independent “check and balance” for the
    internal audit function.
    • SOX mandates that external auditors report to the
    audit committee;
    – Committee hires and fires auditors and resolve
    disputes.

    ROLE OF THE AUDIT COMMITTEE


    (I)GENERAL QUALIFICATION
    (II)FIELD WORK
    (III)REPORTING.
    • Specific guidance provided by AICPA
    Statements on Auditing Standards (SASs)as authoritative
    interpretations of GAAS.
    – First one issued in 1972.
    – If recommendations are not followed, auditor must be able to
    show why a SAS does not apply to a given situation.
    • Conducting and audit is a systematic and logical process that
    applies to all forms of information systems.

    AUDITING STANDARDS
    GENERALLY ACCEPTED AUDITING
    STANDARDS (TIPPIEGIDO)
    • Auditors develop audit objectives and design audit
    procedures based on these assertions.
    • Auditors seek evidential matter that corroborates
    assertions.
    • Auditor must determine whether internal control
    weaknesses and misstatements are material.
    • Auditors must communicate the results of
    their tests, including an audit opinion.

    AUDITING STANDARDS
    AUDIT OBJECTIVES AND AUDIT
    PROCEDURES BASED ON MANAGEMENT
    ASSERTIONS
    AUDIT RISK MODEL: AR = IR x CR x DR
    • The stronger the internal control structure, the
    lower the control risk and the less substantive
    testing the auditor must do.
    • Substantive tests are labor intensive and time
    consuming, which drives up audit costs and cause
    disruption.
    – Management’s best interests are served by a strong
    internal control structure.

    AUDIT RISK
    THE IT AUDIT
    • Management required by law to establish and maintain
    adequate system of internal controls.

    INTERNAL CONTROL
    • Sarbanes-Oxley Act of 2002 (SOX) requires
    management of public companies to implement adequate
    internal control system over their financial reporting
    process.
    • Under Section 302:
    – Managers must certify organization’s internal controls
    quarterly and annually.
    – External auditors must perform certain procedures
    quarterly to identify any material modifications that may
    impact financial reporting
    • Section 404 requires management of public companies
    to access the effectiveness of their internal control in an
    annual report
    • Internal control system comprises policies, practices,
    and procedures to achieve four broad objectives:
    Safeguard assets of the firm.
    Ensure accuracy and reliability of accounting records
    and information.
     Promote efficiency in the firm’s operations. –
    Measure compliance with management’s prescribed
    policies and procedures.

    INTERNAL CONTROL SYSTEM


    THE PDC MODEL
    • The control environment is the foundation for the other four
    control components and includes:
     Management integrity and ethical values, organizational
    structure, board of director participation and management’s
    philosophy and operation style.
    • A risk assessment must be performed to identify, analyze and
    manage financial reporting risks.

    COSO INTERNAL CONTROL


    FRAMEWORK
    • An effective accounting information system will:
    Identify and record all valid financial
    transactions, provide timely information and
    adequately measure and record transactions.
    • Monitoring is the process by which the quality of
    internal control design and operation can be assessed.
    • Control activities are policies and procedures to ensure
    actions to deal with identified risk.
    Physical controls relate primarily to human activities
    employed in accounting systems.
    Information technology controls

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