BOOK KEEPING FORM FOUR – ELEMENTS OF AUDITING

 AUDIT AND INVESTIGATION

 Definition

AUDIT

 – Is the formal examination, correction, and official endorsing of financial account, especially   those   of a business undertaken annually   by an accountant

– Inspection and verification of the accuracy of financial records and statements. Also involves systematic check   or assessment especially efficient or effectiveness of an organization

AUDITING

 –  Is the examination   of certain   statement covering the transaction over certain   period and   financial   position   of an organization  

–  Is the examination financial statement   covering   over a period   and   ascertaining the financial   position of organization   on a certain date

 
 

AUDITOR

 Is the an independent person appointed   by   company   or   an enterprise   to examine   its   books   of account

QUALITIES OF AN AUDITOR

 I. Accounting knowledge.

 An auditor should necessary    have   an academic qualification   in accounting. This enable him   to   make    evaluation   and passing   judgment   of the financial records

II. Business knowledge.

 An auditor   should   acquire   a reasonable   good knowledge   in business   e.g.   world   economic trend   importing   and exporting   procedures business   transaction   marketing   technique   etc.

III. Independent to give out his opinion.

 An auditor   should   act an independently   he should   not be   subjected   to the   management   supervision .  

 IV. Tactful.

 An auditor should maximize maximum   care   and   skills   in his/her   daily   activities

 V.  Common sense.

 An auditor   should   have   a good common sense   and experience   to   conduct   his/her work efficiently

 
 

OBJECTIVE OF AUDITING

 Can categorized into two groups;
I. Primary objective.
II. Secondary objective.

 I. Primary objective

• To review/examine the financial statement of the business and form an “independent opinion” as to whether they show true and fair view of the business.
• They are prepared according to the G.A.A.P and the auditor express his opinion by issuing what is called an audit report.
• To report if their any materials inconsistency between direct report and financial statement.

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 II. Secondary objective

1.          Detection of errors and frauds
2. Prevention of errors and frauds
3. Reporting on the strength and/or weakness of the internal control system of the firm.
4. Providing constructive advice to the management for instance on how to handle and discharge various accounting responsibilities

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  TYPES OF AUDIT

1. CONTINUOUS AUDIT

 Is the kind of an audit which involves details examination of the books of accounts at interval during the financial year. The auditor visits his client at regular or irregular intervals of the year and at the end of the year, he checks only profit and loss account and balance sheet

 2. FINAL AUDIT/COMPLETED   AUDIT

 Is the kind of audit which is conducted at the end of the financial or trading period when all the account have been balanced and the trading and profit and loss account and balance sheet have been prepared.

3.INTERIM AUDIT

 Is the kind of an audit which is conducted at the particular date within the accounting period to ascertain the profit or loss as to enable the company is declared an interim dividend.

 4.PROCEDURAL AUDIT

 Is the type of audit which involves examining and reviewing the procedures used to process and record transactions in an organization. It also include the examination of the records from which financial statement were prepared. It help in revealing whether or not the procedure as prescribed by the management are being followed.

 5.MANAGEMENT AUDIT

 Is the comprehensive examination of an organization structure of a firm of its division, plans and objectives, its means of operation and its uses of human and non-human resources. management audit can reveal the strength and weakness of the management

 6.STANDARD AUDIT

 Is the types of audit which is conducted to ascertain whether the clients account system complies with the requirement /required level of standard set by the professional bodies.

 7.BALANCE SHEET AUDIT

 It refer to the verification of the value of an asset, liabilities, the balance of reserve and provision and the amount profit earned or loss incurred by a firm during a financial year by an auditor.

8.VOUCHING AUDIT

 It refer to the kind audit where the auditor checks each and every transaction right from the origin in the books of prime entry till they are posted

 9.INTERNAL AUDIT

 
This is describe as   a review of   operation   and   records   sometimes continuous   undertaken   within   a business   by assigned staff.

• The   person who perform   this   type of audit   is   known   as internal   auditor

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 10.EXTERNAL AUDIT

• This is an   independent person   appointed by the shareholders (owner) outside   the organization   whose   object is only   to give a report   about   account   prepared   by directors   or managers
• This is carried   out   by   independent   auditor(external auditor)

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11.PRIVATE AUDIT

 Under this     type   of audit the auditor   will conduct an   agreed limit of work

12.STATUTORY   AUDIT

 This is   carried   out   under the provision of the law of the country i.e. all limited   company   are required   to get   their   account   audited

Example   cooperative   societies, banks , insurance,   companies   are required   to get   their   account     according   to requirement   of companies   act.

13.INTERNAL   CONTROL

 –  The whole system   of control   financial   and otherwise   established   by the   management   in order   to carry on the     business   of the   enterprise   in orderly manner. this cover not only   financial   and accounting   checks   but   even those control designed   to improve   operational   efficiency   ensure   adherence  to company   policies.

–  Is the system   established   by the management within   the   company     to check   the movement   of activities   in the company   of are going   accordingly.

 
 

ELEMENT   OF INTERNAL   CONTROL

 Is the   system   under   which   the   work   relating   to carrying   out   and   recording   of   transaction   of   transactions s   allocated   amongst various   persons   in such   a manner   that   the work   of   one   person   is   automatically   checked   by another   and thus possibilities   of fraud   or errors   or   irregularity   are minimized, if   not completed eliminated.

It is an important   tool   of internal   control   it means   the   checks on   day   to day   transactions which   operate   continuously   as   part   of the   routine   system   whereby the work   of one   person is checked by another employee.

 INTERNAL CHECK

 This is the check of day to day   transaction which operates   continuously   as   a part of routine   system   among other things

       Internal   check   should   contain   the   following

• Division of responsibilities aiming at detection of errors and getting   rid   of   misappropriation   of funds
• Limitation   of responsibilities   and   authority  
• Relation   of staff   in   various   jobs   so that no one deals   with   one   aspect.

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  VERIFICATION

  Is the examination   of assets   that they   are actually   held by the   body concerned

 INVESTIGATION

 An investigation   may be defined as an examination   of the account   and balance   sheet of   an organization   and the supporting   documents   for a specific   purpose   of   obtaining   information to be submitted to an interested   partly.

 
 

DIFFERENT   BETWEEN INTERNAL   CHECK AND INTERNAL   AUDIT

 INTERNAL   CHECK

 I. The entries   are passed in such a way that the work   of   one   clerk is automatically   checked   by   another at the   same time

II. The system   is so derived   that the chances of   committing theft error of fraud   are minimized

 INTERNAL   AUDIT        

 I. The work   of clerk is checked by another   after   the   former   had   finished   the work

 II. It is a device   by    which errors, frauds etc   which   have   already been   committed can be discovered.

  
 

 CONTROLLER AND AUDITOR GENERAL

 This is an officer in the public services of the united republic of Tanzania who is appointed by the president   and charged with the duties and the power of controlling payment from consolidation funds on behalf of the national assembly.

(three) duties of controller and auditor general.

I. Examine into the accounts of all accounting officers and receiver of revenue.

II. Examining   of other people instructed in the revenue   collection, receipts , custody, issue or payment of public money .
III. Controlling of payment from consolidated fund on behalf of the national assembly.

 
 

 What are the duties   of an auditor?

         He should   act with reasonable   skill and care  

• He is   required   to   show   in the report   whether   or not   the   financial   statement   of the   business   organization  property   reflect its   finished   position   and operating   results
• He is required   to act   according   to professional   ethics   as stated   in audit   ordinance
• He   must   check cash     in hand     and   the bank   balance   at  least   once per year.            

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AUDIT OPINION /REPORT

 Is the independent comment made by the auditor to show whether the financial statement examined by him /her show a true and fair view of financial position of an organization.

• Auditor should explain

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– Whether   the financial     statement   have been   audited    in accordance which approved   auditing standard

– Whether   the obtained all the information   and explanation required

– Whether in auditors   opinion   the financial   statement   give   a true and fair     view   of the   state affairs   profit and   loss and cash   flow statement.

– Any materials in consistencies   between   the   information   contained   in the directors report   and   the financial   statement

 
 

TYPES OF AUDIT REPORT /OPINION

types of audit report/opinion   that auditor   may express in his opinion.
I. Unqualified audit report /clean report

 Is the report presented by auditor after auditing financial   account of the firm to the management   that   every thing is alright in books of accounts.

II. Qualified audit report

 When the auditor is unable   to satisfy   himself   that   the financial   statements give   a true   and fair   of   the state of affairs     and its profit and loss   and cash   flow   statement he should   quality   the report   by   referring   to all   materials   matters   on which   the auditor   as reservation.