Question

16. In Chapter 2, the textbook authors list 11 AICPA principles underlying an audit conducted in accordance with GAAS. You will be required to explain the three principles on the personal responsibilities of the auditor, and 5 principles on auditor actions in performing the audit. You are required to identify and apply those standards in some simple real-life scenario

Answer 1

AUDITING

AUDITING IS THE PROCESS OF EXAMINING THE FINANCIAL RECORDS OF AN ORGANIZATION IN ORDER TO ENSURE ACCURACY AND ARE FOLLOWING THE PRINCIPLES OF ACCOUNTING.

AUDITOR

THE PERSON WHO CONDUCT THE EXAMINATION OF ACCOUNTING RECORDS OF THE BUSINESS ENTERPRISE IS TERMED AS AN AUDITOR.

PERSONAL RESPONSIBILITIES OF THE AUDITOR

    AS THE COMPANY APPROACHES THE AUDITOR TO GET THEIR ACCOUNTS ERROR FREE AND ACCURATE, THE PERSON WHO AUDIT THE WORK SHOULD HAVE THE FOLLOWING RESPONSIBILITIES .

               1.PROFESSIONAL QUALIFIED

IT IS ESSENTIAL AS PER AUDITING STANDARD THAT AN AUDITOR SHOULD HAVE PROFESSIONAL QUALIFICATION TO PRACTICE AS AN AUDITOR. HE SHOULD HAVE EDUCATION AND EXPERIENCE IN THE FIELD OF AUDIT. THE KNOWLEDGE OF ACCOUNTING, INVENTORY AND LAW RELATED TOPICS ARE ESSENTIAL TO HAVE A QUALIFIED AUDITOR.

FOR EXAMPLE . IN THE CASE OF AN INDEPENDENT AUDITOR WHO OBSERVE THE TAKING OF PHYSICAL INVENTORY DOES NOT MEAN THAT HE SHOULD CAPABLE OF VALUING AND APPRAISING THE MATERIAL OR AN EXPERT IN THIS FIELD. IF THE PERSON IS NOT FULLY QUALIFIED FOR AUDITING , HE NEEDS TO APPROACH LAWYERS AND QUALIFIED PERSONS FOR TAKING DECISIONS. SO IN ORDER TO AVOID THIS PROBLEM THE COMPANY SHOULD TAKE INTO CONSIDERATION ,THE QUALIFICATION OF THE AUDITOR.

             2.RESPONSIBILITY TO THE PROFESSION

THE AUDITOR SHOULD HAVE TO COMPLY WITH THE STANDARDS ACCEPTED BY THE FELLOW PRACTITIONERS AND PERFORM THE WORK ACCURATELY AND HONESTLY. BECAUSE THE COMPANY RELIES ON AUDITORS REPORTS AND FINDINGS. ANY FRAUD APPROACH MADE BY THE AUDITOR TO A GREAT EXTEND AFFECT THE COMPANY.

     3. DECISION MAKING CAPACITY

     A SUCCESSFUL AUDITOR IS ONE , WHO IS EFFICIENT IN MAKING DECISION BASED ON THE AUDIT RESULTS OR FINDINGS. SO HE SHOULD POSSESS THE QUALITY OF A GOOD DECISION MAKER. PROPER DECISION TAKEN AND COMMUNICATED BY THE AUDITOR TO TE COMPANY WILL HELP THE COMPANY TO MAKE CHANGES EFFECTIVELY AND EFFICIENTLY .

               PRINCIPLES ON AUDITOR ACTIONS IN PERFORMING THE AUDIT

FOLLOWING ARE SOME OF THE PRINCIPLES AN AUDITOR SHOULD FOLLOW IN PERFORMING THE AUDIT

                1. PLANNING AND SUPERVISION

             AN AUDITOR SHOULD PLAN HIS AUDIT WORK PROPERLY. PROPER PLANING OF WORK REDUCES THE TIME AND INCREASE EFFICIENCY. HE SHOULD DECIDE WHICH ASPECTS OF ACCOUNTS ARE BEING CHECKED, ANALISE THE CHARACTERISTICS OF THE COMPANY, ITS TARGETED CUSTOMERS, RAW MATERIALS, ACTIVITIES OF SIMILAR COMPANIES S IN THE INDUSTRY ETC .HE SHOULD STUDY ALL OF THIS MATTERS AND MAKE A PLAN ACCORDINGLY

        PROPER SUPERVISION OF HIS SUBORDINATE IS ALSO AN IMPORTANT POINT.BECAUSE THE ACCURACY OF ACCOUNTS ARE USUALLY CHECKED BY THEM.

                   2.UNDERSTANDING THE BUSINESS ENTITY

            AN AUDITOR MUST OBTAIN SUFFICIENT INFORMATION ABOUT THE ENTITY, ITS ENVIRONMENT , INTERNAL CONTROL SYSTEM E ETC.. IN ORDER TO ANALISE THE RISK OF MISSTATEMENT IN ACCOUNTS, FRAUD ACTIVITIES ETC....SO IT WILL HELP HIM TO PLAN FURTHER AUDITING WORKS ACCORDINGLY.

                 3.AUDIT EVIDENCES

            AN AUDITOR SHOULD OBTAIN SUFFICIENT EVIDENCE AND SUPPORTING DOCUMENTS IN ORDER TO MAKE THE AUDIT WORK ACCURATELY AND TO PROVIDE A REASONABLE OPINION REGARDING THE FINANCIAL STATEMENTS

                 4. DISCLOSURE ABOUT ACCOUNTING STANDARDS

                              IT IS THE RESPONSIBILITY OF THE AUDITOR TO CLEARLY STATE IN HIS REPORT WHETHER THE COMPANY FOLLOWING THE STANDARDS OF ACCOUNTING IN PREPARING ITS FINANCIAL STATEMENTS.

                5. OPINION OF THE AUDITOR

AFTER ALL ,THE AUDIT REPORT SHOULD CONTAIN CLEAR AND ACCURATE PICTURE OF THE ACCOUNTING STATEMENTS AND ALSO THE OPINION OF THE AUDITOR. HE SHOULD CLEARLY STATE HIS OPINION. IF HE IS NOT GIVING ANY OPINION , THE REASON THEREOF SHOULD BE SPECIFIED IN AUDIT REPORT.

                                                        

                                                   CONSIDER AN EXAMPLE IN REAL LIFE SITUATION..

                                     

                  IF YOU ARE INVITED BY ABC COMPANY TO AUDIT THEIR ACCOUNTS. FIRST OF ALL YOU SHOULD STUDY ABOUT ABC COMPANY. INFORMATION SUCH AS WHAT IS THE PRODUCT OF THAT COMPANY, WHAT ARE THE RAW MATERIALS USED, HOW MANY LABORS ARE THERE, WHAT ABOUT ITS STOCK MARKET CONTRIBUTION ETC....

AFTER THAT MAKE A PLAN OF YOURSELF AND START AUDITING. ACQUIRE MORE PEOPLE AS SUBORDINATES IF YOU REQUIRE HELP.     CAREFULLY EVALUATE EACH AND EVERY TRANSACTIONS. PREPARE AUDIT REPORTS BASED ON YOUR FINDING AND SUBMIT IT TO YOUR COMPANY.. THAT S ALL .

THANK YOU