Financial Systems and Auditing

Topics: Auditing, Internal control, Audit Pages: 7 (1653 words) Published: November 2, 2010
Financial Systems and Auditing:
Contributing to the planning and conduct of an audit
assignment and preparing audit reports.

Q 1

Report on the auditing function
(i) Legal duties and status of auditors

1. A company’s auditor shall I preparing their report, carry out an investigation: - whether proper accounting records have been kept by the company and proper returns adequate for their audit have been received from brunches not visited by them - whether the company’s individual accounts are in agreement with the accounting records and returns. 2. If the auditor finds out that some of the conditions stated above had not been done, the auditor shall state that in his/her report. 3. If the auditors fail to obtain all the information and explanation which are necessary for the purpose of their audit, they shall state that in their report 4. If the disclosure of information is not complied with the annual accounts, the auditors shall include that fact in their report, so far as they are reasonably able to do so.

The auditors of the company have a right of access at all times to the company’s book , accounts and vouchers, and are entitled to require from the company’s officers such information and explanation as they think necessary for the performance of their duties as auditors. A company’s auditors are entitled:

To attend any general meetings
To be heard at any general meeting
To receive all notice about any general meeting

(ii) Liability of auditors
Negligence under the common law
➢ Under contract

➢ Third parties( case of Donoghue v Stevenson)
Physical Injury
Financial Injury
Liability under statute

➢ Civil liability under Companies Act 1985
Officer of the company may be liable for financial damages in respect of the civil offences of “misfeasance” and “breach of trust”

➢ Criminal liability under the Companies Act 1985
Theft Act 1968
Financial Services Act 1986

(iii) Auditing Standards and Guidelines
Auditing standards and guidelines are set, monitored and amended by the auditing profession itself. - Auditing Practice Board (APB) ➢ Statements of Auditing Standards (SASs)
Provide more specific guidelines to auditors on what is required of them when conducting an audit ➢ Practice notes
Assist auditors in applying Auditing Standards
➢ Bulletins
Provide auditors with timely guidance on new and emerging issues.


i) Internal and External Auditing
➢ Internal Auditors are employees of the company and are responsible to its management ➢ Internal auditors lack the independence with which the external auditor’s position is endowed ➢ The external auditors concern is whether the financial statements are free from material misstatements ( truth and fairness if the accounts) ➢ The internal audit function’s objectives vary according to the requirements of management and the directors and, generally less emphasis is placed on materiality considerations. The external auditor’s work is laid down by statute. ➢ The external auditors will pay particular attention to their activities. ➢ The external auditor has the sole responsibility for the audit opinion expressed in the audit report. All judgements relating to the audit of the financial statements are those of the external auditors. ➢ Internal audit work may serve to provide external auditors with audit evidence.

The auditors should not state his/her reliance on internal audit as the process of relying on the work of an internal auditor must be planned, controlled and recorded. The auditors should record the fact of independent reliance, its extent and the reason for the fact and extend in his working papers. The auditors should state their compliance with Auditing Standards.

Q 3

(a) Scope, materiality and risk

This means that extent of the audit to be actually carried out. “true and fair view scope” is used if auditors are carrying out an audit to form an opinion...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Financial System and Auditing Essay
  • Audit: Auditing and Financial Report Essay
  • Essay about Financial Systems and Auditing
  • Auditing and Financial Consultancy Innovation Project Essay
  • Auditing Essay
  • AUDITING Essay
  • Auditing Essay
  • internal auditing Essay

Become a StudyMode Member

Sign Up - It's Free