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•• Training material: purpose of external audit and its role
•• The external audit has a long history that derives largely from the separation of the
ownership and management of assets. Those who own assets wish to ensure that
those to whom they have entrusted control are using those assets wisely. This is known
as the ‘stewardship’ function.
•• The requirement for an independent audit helps to ensure that financial statements are
free of bias and manipulation for the benefit of users of financial information.
•• Companies are owned by shareholders but they are managed by directors (in very
small companies, owners and managers are the same, but many such companies are
not subject to statutory audit requirements).
•• The requirement for a statutory audit is a public interest issue: the public is invited to
invest in enterprises, it is in the interests of the capital markets (and society as a whole)
that those investing do so in the knowledge that they will be provided with ‘true and fair’
information about the enterprise. This should result in the efficient allocation of capital
as investors are able to make rational decisions on the basis of transparent financial
information.
•• The requirement for an audit can help prevent investors from being defrauded, although
there is no guarantee of this because the external audit has inherent limitations.
Reducing the possibility of false information being provided by managers to owners is
achieved by the requirement for external auditors to be independent of the managers
upon whose financial statements they are reporting.
•• The purpose of the external audit under International Standards on Auditing is for the
auditor to obtain sufficient appropriate audit evidence on which to base the audit opinion.
This opinion is to the effect that the financial statements give a ‘true and fair view’ (or
‘present fairly in all material respects’) of the position, performance (and cash flows) of
the entity. This opinion is prepared for the benefit of shareholders.
Wilfykil answered the question on April 12, 2019 at 08:00
- List and describe SIX financial statement assertions, other than completeness, used by auditors
in the audit of financial statements.(Solved)
List and describe SIX financial statement assertions, other than completeness, used by auditors
in the audit of financial statements.
Date posted: April 12, 2019. Answers (1)
- Your firm is the newly appointed external auditor to a large company that sells, maintains and
leases office equipment and furniture to its customers and you...(Solved)
Your firm is the newly appointed external auditor to a large company that sells, maintains and
leases office equipment and furniture to its customers and you have been asked to co-operate
with internal audit to keep total audit costs down. The company wants the external auditors to rely
on some of the work already performed by internal audit.
The internal auditors provide the following services to the company:
(i) A cyclical audit of the operation of internal controls in the company’s major functions
(operations, finance, customer support and information services)
(ii) A review of the structure of internal controls in each major function every four years;
(iii) A n annual review of the effectiveness of measures put in place by management to
minimise the major risks facing the company.
During the current year, the company has gone through a major internal restructuring in its
information services function and the internal auditors have been closely involved in the
preparation of plans for restructuring, and in the related post-implementation review.
Required:
(a) Explain the extent to which your firm will seek to rely on the work of the internal auditors
in each of the areas noted above.
(b) Describe the information your firm will seek from the internal auditors in order for you to
determine the extent of your reliance.
(c) Describe the circumstances in which it would not be possible to rely on the work of the
internal auditors.
(d) Explain why it will be necessary for your firm to perform its own work in certain audit
areas in addition to relying on the work performed by internal audit.
Date posted: April 12, 2019. Answers (1)
- Restmount Kenya Ltd. was formed on 1 October 2006 in order to export tea and coffee to
European markets. The Directors are unsure as to their...(Solved)
Restmount Kenya Ltd. was formed on 1 October 2006 in order to export tea and coffee to
European markets. The Directors are unsure as to their responsibilities and the nature of their
relationship with the external auditors. The audit partner has asked you to visit the client and
explain to the directors, the fundamental aspects of the accountability of the directors and their
relationship with the auditor.
Required:
Explain to the directors of Restmount Kenya Ltd.
a. The need for an audit
b. Procedures for the appointment of an auditor of a public company under the Companies Act.
c. Directors responsibilities in relation to the accounting function of the Company.
d. Auditors’ statutory responsibilities in relation to the audit of the company’s financial statements.
Date posted: April 12, 2019. Answers (1)
- List the factors that lead to the disqualification of an audit Report(Solved)
List the factors that lead to the disqualification of an audit Report
Date posted: April 12, 2019. Answers (1)
- List the different types of Audit opinions(Solved)
List the different types of Audit opinions
Date posted: April 12, 2019. Answers (1)
- What are the effects of limitation in scope on the auditor’s opinion?(Solved)
What are the effects of limitation in scope on the auditor’s opinion?
Date posted: April 12, 2019. Answers (1)
- Give uses of computer audit programs(Solved)
Give uses of computer audit programs
Date posted: April 12, 2019. Answers (1)
- Necessary precautions have to be made to ensure that terminals in a computer information system are used in a controlled way by authorized personnel only....(Solved)
Necessary precautions have to be made to ensure that terminals in a computer information system are used in a controlled way by authorized personnel only. Which are the security techniques used?
Date posted: April 12, 2019. Answers (1)
- What is the audit approach in computerized information systems?(Solved)
What is the audit approach in computerized information systems?
Date posted: April 12, 2019. Answers (1)
- Which are the auditors interest in post balance sheet events?(Solved)
Which are the auditors interest in post balance sheet events?
Date posted: April 12, 2019. Answers (1)
- Discuss on verification of Share Capital(Solved)
Discuss on verification of Share Capital
Date posted: April 12, 2019. Answers (1)
- Discuss on Verification of contingencies e.g. Pending Litigation(Solved)
Discuss on Verification of contingencies e.g. Pending Litigation
Date posted: April 12, 2019. Answers (1)
- Discuss on verification of Long-term liabilities during auditing(Solved)
Discuss on verification of Long-term liabilities during auditing
Date posted: April 12, 2019. Answers (1)
- Define Provisions and Reserves(Solved)
Define Provisions and Reserves
Date posted: April 12, 2019. Answers (1)
- What is the general verification procedures for liabilities?(Solved)
What is the general verification procedures for liabilities?
Date posted: April 12, 2019. Answers (1)
- How do you Select the debtors for circularization?(Solved)
How do you Select the debtors for circularization?
Date posted: April 12, 2019. Answers (1)
- What is Debtors’ circularization and what are it's purposes?(Solved)
What is Debtors’ circularization and what are it's purposes?
Date posted: April 12, 2019. Answers (1)
- Discuss on the types of circularization during auditing(Solved)
Discuss on the types of circularization during auditing
Date posted: April 12, 2019. Answers (1)
- What is the problem encountered in the verification of stock during auditing?(Solved)
What is the problem encountered in the verification of stock during auditing?
Date posted: April 12, 2019. Answers (1)
- Discuss on verification of Cash in hand and Cash in bank during auditing(Solved)
Discuss on verification of Cash in hand and Cash in bank during auditing
Date posted: April 12, 2019. Answers (1)