Auditing Tutorial Sheet 1
Auditing Tutorial Sheet 1
Auditing Tutorial Sheet 1
Independent
True and fair view
Professional
An audit is an example of a reasonable assurance engagement
Professional skepticism to add credibility
Our responsibility is to be independent and to adhere to the standards for auditing to obtain an
opinion on the financial statements.
External vs internal
The external auditor’s role is limited to the financial statements that he/she is auditing.
Role of internal auditor is someone who is there to help the entity/management to manage
the company by providing information needed for planning, control, development, etc.
The appointment of the external auditor is done by the shareholders (owners of the company).
This is also for the removal of the external auditor
The appointment of the external auditor is done y the management
An external audit is done normally closer to the end of the year. The reasons for which is that
the focus/role is different.
Internal auditing happens all year round
An external auditor is one who produces an external audit which is a type of assurance engagement
that is carried out by an auditor to give an independent opinion on a set of financial statements
Examples: The two types of assurance engagements that there are: reasonable assurance
engagement and limited review engagement. The level of assurance is different.
While an audit is meant to give some assurance that the financial statements are free of material
misstatements, a review engagement is only meant to ascertain whether or not the financial
statements are believable or plausible. Moreover, audit engagement may produce by-products
such as providing the directors with suggestions on how to improve internal controls.
Example: “In our opinion the financial statements: » give a true and fair view of the financial
position of the company as at 31 December 2021 and of its financial performance and cash flows
for the year then ended in accordance with IFRSs as adopted by the EU; and » have been properly
prepared in accordance with the requirements of the Maltese Companies Act, 1995.”
On the other hand, review engagements are known to be a limited engagement. These provide a
moderate level of assurance that the information reviewed is free of material misstatement
(negative assurance). The conclusion of the audit Is expressed in a negative form. The level of
assurance provided with a review engagement is moderate.
Example: “Based on our review, nothing has come to our attention that causes us to believe that
the accompanying interim financial information is not prepared, in all material respects, in
accordance with IAS 34 Interim Financial Reporting”
Accounting Tutorial 2
This case suggests an audit risk since it is indicated that the financial statements contain a
material misstatement. Specifically, this risk is identified as a Control risk since it is a risk that a
material misstatement could occur without being prevented or detected on a timely basis by the
entity’s internal control system.
This paragraph also hints at a detection risk since no audit procedure or test will help the auditor
in realising that the customer has gone bankrupt and therefore will have to have this
information disclosed to him prior to the audit conduction.
Control Risk