Critical Analysis
In this assignment we are going to discuss in detail the concept of audit and its technologies and about the assurance. Audit means the inspection of the record of an organization about its financial or non financial transactions by a qualified team or an individual accountant. Audit is important for an organization because if the firms do not conduct an audit then it will not be able to produce correct financial reports for its employees and clients or for potential buyers (Joey 2014). Now if talk about assurance then it is a process or a service that is provided to firm by a certified accountant (C L 2017). In assurance service the chartered accountant provides financial information to the organization through which the firm makes better decisions. This information provided by the accountant helps the firm to access the risk that are on the way of the firm and the firm then avoid these risks by planning against them. Hence assurance is a service provided by a certified accountant in order to let firm know what risks they might face in the coming future.
- This part of the assignment contains deep discussion about the audit and assurance. Ethics play an important role whether in a business or in any other profession. Ethics means a belief of understanding that what is wrong and what is right, ethics are the moral standards, moral principles of a person. There is a very important role of ethics in auditing and assurance, No single activity or profession can work without ethics. In the business world business ethics are everything, they are the moral structure of the organization that how the business entity will deal with its client, suppliers etc. Ethics are put into things to make the things more transparent and genuine(Ajay 2013). When an organization wants to conduct auditing and assurance activities, they take the services of the certified chartered accountants, and these accountants then are required to prepare and submit their audit or assurance report with full honesty by keeping in mind their ethics. The ethical requirements in completing and submitting the audit and assurance report are as following (Accountant 2017):
- Integrity:An accountant must have the basic ethic of integrity. Integrity means being honest towards something. The certified accountant do not hide, anything whether it may result in a loss to the organization, he must disclose all the hidden and wrongly done transactions of the organization, so that the firm can use this information in order to make the operation of the business successful.
- Confidentiality: This is the most important ethic that an accountant must have. Confidentiality means keeping a secret. An accountant is a person that has all the important and confidential financial information of a company. This information, if used wrongly can adversely affect the public image of the organization. An accountant must keep the confidential information of the organization safe and secure and should respect the ethical requirement of confidentiality and must not use this information for personal benefits.
- Objectivity: The meaning of objectivity is being impartial or unbiased. A certified accountant must be unbiased towards the judgments. Any conflict of him with any organization must not affect the objectivity of his auditing and assurance report.
- Professional Competence: The responsibility of an accountant is to provide continuous financial services to his clients. It is his ethical duty to be up to date in terms of having knowledge about any new thing in accounts.
- Professional Behavior: An accountant must always behave with his client in a professional manner and must complies himself according to the laws and regulations that are formed by the associations of the accountants.
Above are the ethical requirements and responsibilities that must be fulfilled before submitting the audit and assurance report. An accountant with the understanding of all these ethical requirements will always make sure that the client organization achieves favorable results and the accountant will also help in assessing the risk and providing other useful information to the client (Singhania 2009).
- Now we will discuss about the purpose, content, format & methodologies that are necessary to provide assurance and audit services especially in the areas of risk assessment, audit planning, audit execution and formulations of opinions. The idea of risk assessment in audit planning is not a new concept, it is two decades old. It is a process of focusing on those parts of the organization that are most at risk of material misstatement. Material misstatement refers to those statements that if entered wrong in the financial information of the organization then it will affect the decision of the user of that financial information(Karkol 2011). This is the reason why auditing in risk assessment is important. An internal control system is a process in which it is ensures that the organization is compiling up with all the laws and regulations and which keeps the organization away from risks. If we now talk about the content that is necessary to provide an assurance and audit service are, the general ledger, trail balance, copies of loans, record of the purchase of fixed assets, depreciation schedule, payroll reports etc are the content that is audited at the time of audit and assurance (Brian 2000).
- General Ledger: General ledger or in simpler words the main accounts of the company, the organization in this advance era of technology can use various accounting information systems that will maintain their general ledger(Investopedia 2015), the general ledger then can be sent to the auditor, this main account will let know the auditor that how much to audit.
- Trail Balance: A book showing all the debit and credit entries of the transactions of an organization will be known as trail balance. Mostly it has been seen that auditors usually likes to audit trail balances as it is an important key that shows any mismatching or fraud or error in the financial report of the organization.
- Payroll reports:Payroll reports are those reports which are prepared to record the amount that is paid to the employees or to the workers of the firm. An audit will inspect these records to see if there is any liability that is not paid or wrongly recorded.
- Board meetings minutes: When an auditor conducts audit, he looks up for the board meetings minutes as these meetings of board of directors contains information about the financial condition of the organization(kallis 2003).
- Purchase of fixed assets: When a new fixed asset is purchased by an organization, all the details regarding it even its invoices should be given to the auditor so that he can include it in the financial reports. This will show a true and a right condition of the organization’s financial stand.
A certified accountant when provides audit services consider all these content to prepare a full fledge actual financial report of the organization. Below is a picture that will show an informal format of an internal audit, how it works and how many stages it involves (Lotich 2017):
Above picture shows the process of internal audit, it is usually a continuous process to find out any error activity.
- In section C of this assignment we will discuss the weakness that could or that occurs in internal control procedures and potential risk factors. Below are few weaknesses that occurs in internal control procedures(Canada 2004):
- Electronic security controls:Electronic control systems if are not in adequate or proper form then it can lead to unauthorized access by a person or any third party that might steal or fill any discrepancies with the actual financial statement.
- Monitoring controls: Monitoring controls means the control of the senior and the middle management over the different activities and operations of the organization. Poor monitoring controls will let the errors occur continuously, which will result in frauds and errors to make a room for themselves in the accounts of the organization.
- New financial systems:Many accounting firms are developing various new systems or software of financial nature that helps the firm in recording analyzing different monetary or non monetary transactions (Barbasor 2012). Sometimes the management is not that much train to practice such systems properly, which results in the occurrence of errors, which further leads to frauds and wrong recording of financial condition of the company.
- Manual control:When financial or non financial data of the organization is checked manually, the chances of errors increases as it the chances of un checking of few transactions increases because of the confusion or fatigue, which is another weakness that occurs in the internal control procedure.
- Here we will discuss the role of audit related technologies or tools. Before we discuss their role we will discuss different types of audit tools(Arif 2015):
- Audit Enquiry:Enquiry is usually done by the auditor to enquire about previous records or audits of the organization and these enquiries are generally helpful in other audit procedures. In enquiry audit, the auditor gains information financial or non financial from within or outside the firm.
- Management Representation: Management representation is a conformational letter by the organization to the auditor of the firm stating that the firm has provided the auditor with all the true and clear information for the audit (Winston 2000).
- Audit Sampling:Audit sampling is another tool that is used by the auditor in inspecting the organization. In audit sampling the auditor applies the process to all the units under 100% in way that all the units have an equal chance of getting selected. There are different methods of audit sampling, few of them are: 1) Haphazard sampling 2) Stratified sampling 3) Systematic sampling 4) Block sampling
Above are few tools that are being used in the process of auditing, the role of these tools are highly important in the process of auditing as without these tools an auditor will not be able to perform the inspection (Trinton 2017). Audit is done to prepare a true and clear financial report of an organization and in absence of these technologies or tools an organization and an auditor can’t prepare any financial report of the firm (Gurton 2000). These tools of auditing are widely accepted because of their reliability in the world of auditing. Results given these tools and techniques never disappoint anyone.
Conclusion
Above is all what the audience wants to know about auditing procedure and its tools. After observing all the relevant information about auditing process, tools etc, a thorough and a concise conclusion has been prepared here. Auditing is a process that is really important for a firm to conduct with a help of an auditor. Auditing is not possible, if proper tools of auditing are not available. An auditor inspects all the accounts, transactions whether financial or of non financial nature and after conducting a proper inspection, an auditor prepares a final true and clear financial report about the firm that can be used by its owners, clients, or potential customers to know the profitability of the organization.
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