2. Definition of auditing
Distinction between auditing & accounting
Demand for auditing
Types of audits & auditors
Profile of the auditing profession
Stewardship, accountability and agency
Malaysian approved standards on auditing
AUD390 2011
3. Auditing is the accumulation and evaluation of
evidence about information to determine and
report on the degree of correspondence between
the information and established criteria.
(Arens, 2008)
Information and established criteria
Accumulation and evaluating evidence
Competent, independent person (Auditor)
Reporting (Audit Report)
AUD390 2011
4. To obtain reasonable assurance about whether the
financial report as a whole is free from material
misstatement, whether due to fraud or error,
thereby enabling the auditor to express an
opinion on whether the financial report is
prepared, in all material respects, in accordance
with an applicable financial reporting framework;
(Gay & Simnett, 2012)
AUD390 2011
5. AUD390 2011
Audits Reviews
Internal Controls over
Financial Reporting
Other Attestation Services
Other Assurance Services
NONASSURANCE SERVICESASSURANCE SERVICES
Other Management
Consulting
Accounting &
Bookkeeping
Tax Services
Certain
Management
Consulting
ATTESTATION SERVICES
6. An independent professional service that
improves the quality of information for decision-
makers
Can be performed by auditors or a variety of
other professionals
E.g. the Consumers Association of Penang (CAP)
provides the information to help consumers make
intelligent decisions about the product they buy
AUD390 2011
7. Category of assurance services provided by CA
firms:-
Attestation services
Assurance services on Information Technology
Assurance services on:
Controls over and risk related to investments, including
policies and related to derivatives
Mysery shopping
Assess risks of accumulation, distribution and storage of
digital information
Fraud and illegal acts risk assessment
ISO 9000 certifications, etc.
AUD390 2011
8. The CA firm issue a report about the reliability of
an assertion that is made by another party
4 categories of attestation:
Audit of historical financial statements
Effectiveness of internal controls over financial
reporting
Review of historical financial statements
Other attestation services that may be applied to a
broad range of subject matter
AUD390 2011
9. Other services provided by CA firms that fall
outside the scope of assurance services. E.g.
Accounting and bookkeeping services
Tax services
Management consulting services
AUD390 2011
10. ACCOUNTING is the recording, classifying, and
summarizing of economic events in a logical
manner for the purpose of providing financial
information for decision making. Person in-
change known as ACCOUNTANT
The difference… AUDITOR focus on determining
whether recoded information properly reflects
the economic events that occurred during the
accounting period
AUD390 2011
12. AUD390 2011
Is conducted to determine whether the auditee
is following specific procedures, rules or
regulations set by higher authority
E.g. Determining whether accounting personnel
are following the procedures prescribed by
company controller
Results of the audit – Findings are reported to
higher management of the unit being audited for
necessary improvements
Performed by the internal auditor, external
auditor & government auditor
13. AUD390 2011
Also known as ‘Value For Money Auditing’,
‘Operational Auditing’, ‘Efficiency Auditing’ or
‘Program Results Auditing’
Evaluate the efficiency & effectiveness of any
part of an organization's operating procedures &
methods
E.g. evaluate the efficiency & accuracy of
processing payroll transactions in a newly
installed computer system
Results of the audit - recommendation for
improving the operations are propose to the
management
Performed by the internal auditor of a company
or management consultancy works by external
auditor
14. AUD390 2011
Is conducted to determine whether the overall
FS (the information being verified) are stated in
accordance with specific criteria i.e. an
approved accounting standards
Results of the audit – draw conclusions on the FS
that can be relied upon by different group of
users for the different purposes
Performed by the external auditor on the
frequent interval e.g. quarterly, half yearly or
yearly basis
16. AUD390 2011
S8 of the Company Act (CA) 1965 …requires a
company to appoint an “Approved Company
Auditor” to audit every company incorporated
under the Act
External auditor work in the CPA firm i.e. public
accounting firm ranges from sole proprietorship
to partnership providing services such as
attestation services, accounting or tax services
and management advisory services
17. AUD390 2011
Employed by individual companies to audit for
management
Involved in operational auditing or have
expertise in evaluating computer systems
18. AUD390 2011
Working for the Auditor General Department,
headed by the Auditor General and reports to &
is responsible solely to Yang Dipertuan Agong
Responsible to evaluate the operational
efficiency & effectiveness for all federal &
states as well as statutory bodies & public
authorities
19. AUD390 2011
Staff of Inland Revenue Board (IRB), which
responsible for enforcing the Income Tax Act as
being defined by Parliament and interpreted by
Courts
Responsible to audit the taxpayers’ returns to
determine whether they have complied with the
tax laws
20. AUD390 2011
PRINCIPAL
(Absentee
Owner)
AUDITOR
AGENT
(Manager)
Information
assymmetry &
conflicts of interest
lead to information
risk for the principal
Principal provides capital & hires agent to manage it
Agent is accountable to principal;
provides financial reports
Auditor gathers evidence to
evaluate fairness of agents
financial report. Auditor issues
audit opinion to accompany
agent’s financial reports.
Adding credibility to the
reports and reduce principal’s
information risk
Agent hires auditor to
report on the fairness of
agent’s financial reports.
Agent pays auditor to
reduce principal’s
information risk
21. AUD390 2011
A general guidelines to aid auditors in fulfilling
their professional responsibilities in the audit of
historical financial statements
22. AUD390 2011
1. Development of Auditing.
2. Distinction between Auditing & Accounting.
3. Types of Audits and Auditors.
4. Difference between External Auditor & Internal
Auditor on appointment, responsibility, scope
of works and objective.
5. Common objectives to both External and
Internal Auditors
6. To be able to use work undertaken by internal
audit, external auditor must be satisfied as the
standard and reliability of the information.
Explain the criteria that the external auditor
should consider in deciding the use of
internal’s auditor work.