会计英语part 5

1、Prepared by Xin He,Accounting School, ZhongNan University of Economics and Law4By Xin He, Zhongnan University of Economics and Law5By Xin He, Zhongnan University of Economics and Law17.1.1 Need for AuditinglModern auditing has developed since the concept of a company as a separate legal entity came

2、into existence.lThe separation of ownership (shareholder) from control (directors) raises agency problem.6By Xin He, Zhongnan University of Economics and Law17.1.1 Need for Auditinglthe separation of ownership (shareholder) from control (directors) needs to safeguard the interests of the owners.lThe

3、 need for an audit centers on the requirement of the users of the accounts, the stakeholders. lThe financial statements account annually to the shareholders for the stewardship of the directors and the management.7By Xin He, Zhongnan University of Economics and Law17.1.2 The nature of Audit lAccordi

4、ng to IAS 200, the purpose of an audit is to enhance the degree of confidence of intended users in the financial statements. lThis is achieved by the expression of an opinion by the auditor on whether the financial statements are prepared, in all material respects, in accordance with an applicable f

5、inancial reporting framework.8By Xin He, Zhongnan University of Economics and Law9By Xin He, Zhongnan University of Economics and Law17.1.3 Agency theory and auditinglAgency relationships occur when one party, the principal, employs another party, the agent, to perform a task on their behalf.Shareho

6、ldersAuditorsDirectors10By Xin He, Zhongnan University of Economics and LawOwners: ShareholdersManagers: DirectorsUse financeProvide financePrepare accountsAudited financial statementReportAudited by independent auditors11By Xin He, Zhongnan University of Economics and Law17.1.4 Advantages of an aud

7、itl Disputes between management may be more easily settled. l Major changes in ownership may be facilitated if past accounts contains an unqualified audit report.l Application to third parties for finance may be enhanced by audited accounts. l the auditor may enable to give constructive advice to ma

8、nagement on improving the efficiency of the business.12By Xin He, Zhongnan University of Economics and Law17.1.5 Disadvantages of an auditlThe audit fee! lTime! - The audit involves the clients staff and management in giving time to providing information to the auditor.13By Xin He, Zhongnan Universi

9、ty of Economics and Law17.1.6 Stages of the auditlPlanning staffing, timing and the audit procedures to be employed are the key decisions made at this stage of the audit.lInterim audit It is carried out during the period of review. Work tends to focus on risk assessment, documenting and testing inte

10、rnal controls, and some limited substantive procedures. lFinal audit It is taken place after the year end. It focuses on the audit of the financial statements and concludes with the auditor issuing a report.lReporting the final stage when the auditor expresses an opinion on the financial statements.

11、14By Xin He, Zhongnan University of Economics and Law15By Xin He, Zhongnan University of Economics and Law16By Xin He, Zhongnan University of Economics and LawFive fundamental principles of professional ethics:l integrityl Objectivityl Professional competence and due carel Confidentiality l Professi

12、onal behavior 17By Xin He, Zhongnan University of Economics and LawIntegritylStraightforward and honest in all business and professional relationshipslImplies fair dealing and truthfulnessObjectivitylNo bias, conflicts interest or undue influence of others to override professional or business judgme

13、nts18By Xin He, Zhongnan University of Economics and LawProfessional competence and due carelMaintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional service based on current developments on practice, legislation and techniqu

14、es andlact diligently and in accordance with applicable technical and professional standards19By Xin He, Zhongnan University of Economics and LawConfidentiality lRespect the confidentiality of information acquired as a result of professional and business relationshipslNot disclose any such informati

15、on to third parties without proper and specific authority unless there is a legal or professional right or duty to disclose.lNor use the information for the personal advantage of the professional accountant or third parties.20By Xin He, Zhongnan University of Economics and Lawprofessional behavior l

16、Comply with relevant laws and regulationslAvoid any action that discredits the profession.21By Xin He, Zhongnan University of Economics and Law22By Xin He, Zhongnan University of Economics and LawCircumstances where professional accountants are or may be required to disclose confidential information

17、 or when such disclosure may be appropriate:l Disclosure is permitted by law and is authorized by the client or the employer;l Disclosure is required by law,l There is a professional duty or right to disclose, when not prohibited by law23By Xin He, Zhongnan University of Economics and LawIn deciding

18、 whether to disclose confidential information, professional accountants should consider the following points:l Whether the interests of all parties could be harmed if the client or employer consents to the disclosure of information by the professional accountant;l Whether all the relevant informatio

19、n is known and substantiated, to the extent it is practicable; andl The type of communication that is expected and to whom it is addressed.24By Xin He, Zhongnan University of Economics and LawlIndependence is the cornerstone of the auditing profession.lMembers behave with integrity in all profession

20、al and business relationships and they strive for objectivity in all their professional and business judgments. lObjectivity is a state of mind but in certain roles the preservation of objectivity has to be shown by the maintenance of independence from those influences which could impair objectivity

21、.lIndependence enhances the auditors ability to act with integrity, to be objective and to maintain an attitude of professional skepticism.25By Xin He, Zhongnan University of Economics and LawlIndependence of mind is the state of mind that permits the expression of an opinion without being affected

22、by influences that compromise professional judgment, allowing an individual to act with integrity, and exercise objectivity and professional skepticism. lIndependence in appearance is the avoidance of facts and circumstances that are so significant that a reasonable and informed third party would be

23、 likely to conclude, weighing all the specific facts and circumstances, that a firms, or a member of the audit teams, integrity, objectivity or professional skepticism has been compromised.26By Xin He, Zhongnan University of Economics and Law27By Xin He, Zhongnan University of Economics and Law29By

24、Xin He, Zhongnan University of Economics and Law30By Xin He, Zhongnan University of Economics and Law31By Xin He, Zhongnan University of Economics and Law32By Xin He, Zhongnan University of Economics and Law18.1.1 Alternative Approaches to AuditlIn order to achieve the audit objectives, there are so

25、me main ways to collect evidence: l Direct verification approachl System approachl Risk-based audit33By Xin He, Zhongnan University of Economics and LawDirect verification approachlthe audit opinion is supported by detailed testing of the entitys books and records. lThis is the most costly approach

26、but not necessarily more reliable than the risk-based and system-based approaches.34By Xin He, Zhongnan University of Economics and LawSystem approachlthe evaluation of the system of internal control forms the basis of the audit. Detailed testing of items in the financial statements is tailored to t

27、he level of control built into the system.lThe auditor needs to understand the system and verify that controls are effective throughout the period under review if they want to rely on the system.35By Xin He, Zhongnan University of Economics and LawRisk-based auditlBefore Enron scandal, the systems-b

28、ased approach was used as treated as the most efficient method of arriving at an audit opinion. But now risk-based audit is recommended by IFAC.lThis approach involves analyzing overall risk and regards the substantive testing stage of the audit as the balancing factor in achieving the acceptance le

29、vel of risk.36By Xin He, Zhongnan University of Economics and Law18.1.2 Audit RisklAudit risk is the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated.riskDetection ntmisstatemematerial ofrisk risk Audit 37By Xin He, Zhongnan Univer

30、sity of Economics and Law38By Xin He, Zhongnan University of Economics and Law39By Xin He, Zhongnan University of Economics and Law40By Xin He, Zhongnan University of Economics and Law41By Xin He, Zhongnan University of Economics and Law42By Xin He, Zhongnan University of Economics and Law43By Xin H

31、e, Zhongnan University of Economics and Law44By Xin He, Zhongnan University of Economics and Law45By Xin He, Zhongnan University of Economics and Law46By Xin He, Zhongnan University of Economics and Law47By Xin He, Zhongnan University of Economics and Law18.2.1 Definition of internal control systeml

32、The process designed and effected by those charged with governance, management, and other personnel to provide reasonable assurance about the achievement of the entitys objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations and compliance with applic

33、able laws and regulations.48By Xin He, Zhongnan University of Economics and LawElements of internal control systemlcontrol environmentlrisk assessment linformation (system) and communicationlcontrol activitieslmonitoring49By Xin He, Zhongnan University of Economics and LawSpecific control procedures

34、:lAuthorisationlPerformance reviewslInformation processinglPhysical controlslSegregation of duties and so on.50By Xin He, Zhongnan University of Economics and LawPreventative controlscontrols that prevent risks occurring.Detective controlscontrols that detect if any problems have occurred.Corrective

35、 controlscontrols that address any problems that have occurred.It is more effective to have a control that stops problems occurring rather than to detect or correct them once they have occurred.51By Xin He, Zhongnan University of Economics and LawExamples:lPreventative controlsl authorization contro

36、ls, segregation of duties, recruiting and training the right staff and having an effective control culturelDetective controlsl by-exception reports, reconciliations, supervision and internal checkslCorrective controlsl follow-up procedures52By Xin He, Zhongnan University of Economics and LawlA preve

37、ntive control is better than a detective one.lHowever, if preventive controls fail, detective controls are needed to discover the problem, and corrective controls are needed to recover.lPreventive, Detective, and Corrective controls complement each other & all should be present in a control syst

38、ems.53By Xin He, Zhongnan University of Economics and Law54By Xin He, Zhongnan University of Economics and Law55By Xin He, Zhongnan University of Economics and Law56By Xin He, Zhongnan University of Economics and Law57By Xin He, Zhongnan University of Economics and Law58By Xin He, Zhongnan Universit

39、y of Economics and Law59By Xin He, Zhongnan University of Economics and Law60By Xin He, Zhongnan University of Economics and Law61By Xin He, Zhongnan University of Economics and Law62By Xin He, Zhongnan University of Economics and Law63By Xin He, Zhongnan University of Economics and Law64By Xin He,

40、Zhongnan University of Economics and LawControl objectives for all systems:lThat only authorized transactions are promptly recorded at the correct amount in the accordance accounts in the proper accounting period, lthat access to assets is only in accordance with proper authorization and that record

41、ed assets are compared with existing assets.65By Xin He, Zhongnan University of Economics and LawDetailed control procedures:lSequential numbering of documents with subsequent checking of the sequence for completenesslThe maintenance of batch and other control totals at the input stage with subseque

42、nt checking to output for completeness and accuracylThe maintenance of control accounts which are checked to ensure that they reconcile to the ledgerslAuthorization, evidenced by the signature of responsible officials for the raising, input and distribution of documents.66By Xin He, Zhongnan Univers

43、ity of Economics and Law67By Xin He, Zhongnan University of Economics and Law68By Xin He, Zhongnan University of Economics and Law69By Xin He, Zhongnan University of Economics and LawFS itemsFS AssertionAudit testDifferent items, different audit approaches; Different assertions, different audit appr

44、oaches70By Xin He, Zhongnan University of Economics and Law71By Xin He, Zhongnan University of Economics and Law72By Xin He, Zhongnan University of Economics and Law73By Xin He, Zhongnan University of Economics and Law74By Xin He, Zhongnan University of Economics and LawExamples:75By Xin He, Zhongna

45、n University of Economics and Law76By Xin He, Zhongnan University of Economics and Law77By Xin He, Zhongnan University of Economics and Law78By Xin He, Zhongnan University of Economics and Law79By Xin He, Zhongnan University of Economics and Law80By Xin He, Zhongnan University of Economics and Law81

46、By Xin He, Zhongnan University of Economics and Law82By Xin He, Zhongnan University of Economics and Law83By Xin He, Zhongnan University of Economics and Law84By Xin He, Zhongnan University of Economics and Law85By Xin He, Zhongnan University of Economics and Law86By Xin He, Zhongnan University of E

47、conomics and Law87By Xin He, Zhongnan University of Economics and Law88By Xin He, Zhongnan University of Economics and Law89By Xin He, Zhongnan University of Economics and Law90By Xin He, Zhongnan University of Economics and Law91By Xin He, Zhongnan University of Economics and LawIn all cases, tests

48、 should be performed on a sample basis. 92By Xin He, Zhongnan University of Economics and Law93By Xin He, Zhongnan University of Economics and Law94By Xin He, Zhongnan University of Economics and Law95By Xin He, Zhongnan University of Economics and Law97By Xin He, Zhongnan University of Economics an

49、d Law98By Xin He, Zhongnan University of Economics and LawUnmodifiedModifiedQualifiedDisclaimerTypes of external audit opinionAdverse99By Xin He, Zhongnan University of Economics and Law19.1.1 Unmodified Audit OpinionAn unmodified opinion is the opinion expressed by the auditor when the auditor conc

50、ludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. Emphasis of matter paragraphs and other matter paragraphs can be included in these auditors report under certain circumstances. 100By Xin He, Zhongnan Universi

51、ty of Economics and Law101By Xin He, Zhongnan University of Economics and LawlIf the auditor concludes that, based on the audit evidence obtained, the financial statements as a whole are not free from material misstatement; or is unable to obtain sufficient appropriate audit evidence to conclude tha

52、t the financial statements as a whole are free from material misstatement, the auditor shall modify the opinion in the auditors report in accordance with ISA 705.lA qualified opinionlAn adverse opinion, and lA disclaimer of opinion.102By Xin He, Zhongnan University of Economics and LawNature of Matter GivingRise to the ModificationAuditors Judgment about the Pervasiveness of the Effects or Possible Effects on the Financial StatementsMaterial bu