ACCOUNTANCY FORM 6 – AUDITING

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SIMILARITIES BETWEEN INTERNAL AND EXTERNAL AUDIT

1. Both ensure the operation of an effective system of Internal control system
   
2. Both use almost similar techniques to conduct audit
   
3. Both safeguard the assets of the company
   
4. Both follow the professional ethics in the conduct of Audit.
   

   DIFFERENCES BETWEEN INTERNAL AND EXTERNAL AUDIT
   

 

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AUDITOR’S  WORKING PAPER

Nature and definition

Introduction – The efficiency of the Audit work is enhanced through the careful compilation and maintenance of audit work performed documentation of audit work is done through preparation of Audit working papers. Working papers

Meaning;

Working papers – are the records kept by auditor of procedures applied, tests performed, evidence (information) gathered and the pertinent conclusions reached in the audit engagement

→Audit working papers should be prepared as the audit proceeds so that the details and problems are not omitted.

→Each audit working paper should be properly identified with information such as client’s name, period covered, description of contents, initials of the person who prepared it, date and an index code.

FORMS/TYPES OF AUDITOR’S WORKING PAPER

Audit working papers are classified into two categories and each category assembled in a separate file. This division into the two types is a matter of convenience to the auditor and there is no guideline on it. These are as follows;

1. Permanent Audit.}   For the same client
   
2. Current Audit file.}
   

 

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A.PERMANENT AUDIT FILE                                                                                 

A permanent Audit file is essential to the auditor in a continuous nature and which will be of value to each successive audit

→The file acts as a constant source of reference and helps avoid asking the client the same questions every time the auditor commences the annual audit. The permanent audit file typically contains the following;

• Memoranda and Articles of association and other appropriate statutory or legal regulations
  
• Copies of evidencing important agreements entered by the client e.g. leases, debenture deeds and other major contracts
  
• Brief description of the type of business
  
• Details of physical location of a business e.g. Factories, offices, shops etc.
  
• Details of the client’s accounting system and internal audit procedures
  
• An organization chart of the client’s staff.
  
• Name and address of client’s Advisers, including bankers, stock brokers and management statement showing important accounting matters such as history and reserves, adopted basis of accounting e.g. stock valuation department
  
• Lists of accounting records and responsible officials
  

 

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Note; Permanent Audit files should be updated at appropriate

B. CURRENT AUDIT FILE

The current audit file is used to hold all the working papers applicable to the year under audit. It should normally contain the following;

1. A copy of the statement on which the auditors are reporting authenticated by the directors signatures
   
2. An index covering all working papers unless they are cross-referenced to the relevant items in the accounts.
   
3. Audit program
   
4. An internal control questionnaire and other records including flow chart if designed to record and ascertain the adequacy of the internal control system
   
5. A schedule for each item on the balance sheet including comparative figures, showing its makeup, existence ownership
   
6. A schedule supporting each item in the statutory profit and loss account including comparative figures.
   
7. Checklist concerning compliance with statutory disclosure provisions
   
8. Record of queries and their manner of disposal including notes for future attention if necessary
   
9. A schedule of the important statistic or working ratios, comparative figures included where appropriate.
   
10. A record or extract of minutes of meetings of the directors and shareholders. These should be cross- retraced where relevant to the other working papers
    
11. Copies of letters to clients setting out any material weaknesses or matters with which the auditors are dissatisfied regarding the accounts or control procedures.
    
12. Letter representation
    

    Note; matters not of permanent importance, but which will require attention during the subsequent year’s audit should be listed with references to the relevant working paper and a note transferred to the next current file while opened.
    

 

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AUDIT REPORT AND OPINION
Audit report: Is a report prepared by an independent auditor to the management after examining the company’s financial statements. It includes the auditors opinion regarding the true and fair view of the company’s financial statement representation.
Audit opinion: This is the view given as a recommendation by an auditor after auditing the company’s financial statement.

TYPES OF AUDIT OPINION
1.Unqualified opinion
This is given when the auditor is satisfied with the presentation of the company’s financial statement, i.e the company’s financial statement shows the true and fair view. The company’s financial statement is prepared with the compliance of international accounting standards.

2.Qualified opinion
Given when an auditor fail to give out his or her opinion regarding the true and fair view of company’s financial statement. Some of the items in the financial statement are not presented in the way in which they are supposed to be presented.

3. Disclaimer opinion
Given when there is the limitation of scope i.e If the management limit an auditor to audit some of the documents or to do physical stock of the company’s assets as a part of audit sampling.

 

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