 Research Title : Auditing

resbonsibilities and objectives

 Subject : Auditing
 Course professor : Bahaa El-kady &
Iman Saad El-dein

Id number : 29809052402878
Band: third
Department : English Commerce
Group : A
Introduction
Auditing is developing as a substantial element of management in both the public
and the private sectors. It has become so important that the major public
accounting firms are entering the field through what is being known as``
outsourcing'' and go sourcing. Because of its importance and because of its
continuo use Scalation into the management process, it is essential that action be
taken to ensure that the performance of Auditing conforms to high quality
standards.

it is also vital to decide that it's far a effective manner that enhances its desires and
objectives .there is a giant frame of expertise being advanced inside the place of
auditing productiveness, ordinarily via the efforts of the worldwide organisation,
The Institute of internal Auditors. these efforts are offering vast progress in
achieving better nice overall performance within the auditing hobby.

it is the objective of this studies to describe performance measures that relate to:.
the identification of auditee dreams and targets ;.the identification of criteria that
signify the achievement of these dreams and targets;. the quantification of these
criteria; and .the observation, evaluation and reporting of these standards; and the
dimension of the effectiveness of the auditing operation in helping to assure the
success of the auditee' s goals and goals .

Audit productivity is also a part of the research because of the close relationship
between performance and productivity. It is possible to conform to operational
standards and yet not to be productive.

Productivity Is related to outcome as well as to output and the measures of

performance should relate to effectiveness as well as to efficiency .Traditionally the
evaluation of internal auditing performance has been based on the standards of the
Institute.

The standards are currently divided into five groups conforming to the five present
general standards.
They are:

1 - Independence.

2 -Professional proficiency.

3 -Scope of work.

4 - Performance of audit work.

5 -Management of the internal auditing department.

However, it is believed more appropriate to also consider aspects that relate more
closely to the intended outcome of the auditing process. Thus, it is important to
develop measurement processes of the auditor's assistance to the achievement by
the auditee of its objectives and goals.
Objectives of an Audit:
The objective of an audit is to explicit an opinion on financial statements, to offer
the opinion about the monetary statements, the auditor examines the monetary
statements to fulfill himself about the truth and fairness of the monetary position
and operating results of the organization. There are sure inherent boundaries of
audit exam .it might now not be possible for any type auditor to discover all
mistakes and frauds, in the monetary statements due to the restrictions of his
checking.

The objectives of the audit can be categorized into:

1. primary objectives, and
2. subsidiary objectives

Primary Objectives of Audit

The main objectives of the audit are known as the primary objectives of the
audit. They are as follows:

1. Examining the system of internal check.

2. Checking arithmetical accuracy of books of accounts, verifying posting,
casting, balancing, etc.
3. Verifying the authenticity and validity of transactions.
4. Checking the right distinction among capital and sales nature of
transactions.
5. Confirming the existence and value of assets and liabilities.

Verifying whether all the statutory requirements are fulfilled or not.

Proving true and fairness of operating results presented by income statement and
financial position presented by the balance sheet.

Subsidiary Objectives of Audit:

Detection and prevention of errors

Errors are those mistakes that are committed due to carelessness or negligence or
lack of knowledge or without having vested interest.

Errors may be committed without or with any vested interest.

So, they are to be checked carefully. Errors are of various types. Some of them
are:

 Errors of principle.
 Errors of omission.
 Errors of commission.
 Compensating errors.

Detection and prevention of frauds

Frauds are those mistakes that are committed knowingly with some vested
interest in the direction of top-level management.

Management commits frauds to deceive tax, to show the effectiveness of

management, to get more commission, to sell a share in the market or to maintain
the market price of share, etc.

Detection of fraud is the main job of an auditor.

Such frauds are as follows:

.Misappropriation of cash

Misappropriation of goods.

Manipulation of accounts or falsification of accounts without any

misappropriation.

Under-or over-valuation of stock

Normally such frauds are committed by the top-level executives of the business.
So, the explanation is given to the auditor also remains false.

So, an auditor should detect such frauds using skill, knowledge, and facts.
Also ,
Before the 1950s, audit activities in many organizations focused on financial
audit, and internal audit departments were heavily involved in the review of
financial statements. At present, however, audit takes on a much broader and
deeper perspective, just as suggested in the IIA’s Statement of Responsibilities of
Auditors:

The objective of auditing is to assist all members of management in the effective

discharge of their responsibilities by furnishing them with analyses, appraisals,
recommendations and pertinent comments concerning activities reviewed.
Internal auditors are concerned with any phase of business activity in which they
may be of service to management. This involves going beyond the accounting and
financial records to obtain a full understanding of the operations under review.

But because the objective of audit must be consistent with the function of
internal audit itself, it should also be to ensure and promote the effective
performance of accountability of management. And I think that it is much more
exact, comprehensive and understandable so to describe the objective.

Accountability is the everlasting subject of auditing and accounting. Although it

is somewhat difficult to define accountability scientifically, the basic meaning of it
should be a kind of obligation or responsibility of management in an organization
(i.e. managers or agents) that they operate and take custody of the economic
resources entrusted by beneficial owners or principals (such as properties, funds,
capital and so on) and report to them the position of the operation and custody,
in accordance with special requirements and principles.

Based on the understanding above, we may divide accountability into two big
parts ‐ behavioural responsibility and report responsibility. The former points to
the responsibility of operating and managing the entrusted economic resources in
accordance with such requirements and principles as:

 maintenance

 compliance

 economy

 efficiency

 effectiveness

 social benefit
 control

This correspondingly forms maintenance responsibility, compliance

responsibility, economic responsibility; the rest can be deduced by analogy.

The latter is concerned with the responsibility of reporting the position of the
operations and managements in line with such requirements and principles as
truth, fairness and credibility. For example, to prepare financial statements truly
and fairly is to apply to the specific contents of the report “responsibility in
accountability”.

The first condition for audit as a whole is that there is a relationship of

accountability. The same is true of internal audit. Internal audit is an integrated
part of the process of accountability within an organization, the objective of
which is just to ensure and promote the effective performance of accountability
assumed by the management.

ROLE AND RESPONSIBILITIES OF THE AUDITOR:

The auditor has a responsibility to plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement, whether caused by error or fraud.

Because of the nature of audit evidence and the characteristics of fraud, the
auditor is able to obtain reasonable, but not absolute, assurance that material
misstatements are detected.

The auditor has no responsibility to plan and perform the audit to obtain
reasonable assurance that misstatements, whether caused by errors or fraud, that
are not material to the financial statements are detected.

[Paragraph added, effective for audits of financial statements for periods ending
on or after December 15, 1997, by Statement on Auditing Standards No. 82.]The
financial statements are management's responsibility.

The auditor's responsibility is to express an opinion on the financial statements.

Management is responsible for adopting sound accounting policies and for
establishing and maintaining internal control that will, among other things,
initiate, record, process, and report transactions (as well as events and
conditions) consistent with management's assertions embodied in the financial
statements. The entity's transactions and the related assets, liabilities, and equity
are within the direct knowledge and control of management.

The auditor's knowledge of these matters and internal control is limited to that
acquired through the audit. Thus, the fair presentation of financial statements in
conformity with generally accepted accounting principles is an implicit and
integral part of management's responsibility.

The independent auditor may make suggestions about the form or content of the
financial statements or draft them, in whole or in part, based on information
from management during the performance of the audit.

However, the auditor's responsibility for the financial statements he or she has
audited is confined to the expression of his or her opinion on them.

[Revised, April 1989, to reflect conforming changes necessary due to the issuance
of Statement on Auditing Standards Nos. 53 through 62.

Capital market participants make investment decisions based on information

disclosed in a firm’s financial statements. Transparency of financial statements
and reliable accounting and financial reporting are essential to the efficient
allocation of resources in the economy.

The role of the independent auditor is to provide credibility to the

information disclosed in a firm’s financial statements. Auditors are expected to
help reduce the risk that the information contained in the firm’s financial
statements is materially misstated.

In a financial statement audit, auditors gather evidence and provide investors

with ‘a high level of assurance that the financial statements follow generally
accepted accounting principles’ (Whittington and Pany, 2001). The evolution of
auditing responsibilities closely follows the evolution of the modern
corporation.

As firms grew in size, firm owners increasingly became dependent on hired

managers to run the firm. Owners then hired auditors to protect themselves
against unintentional errors in accounting as well as managerial fraud. Initially,
the primary objective of auditing was to detect errors and fraud.

As capital markets evolved, auditor responsibility has included the

determination of whether financial statements give a full and fair picture of
financial position, operating results and changes in the financial position of
the firm. Auditors are appointed by the firm’s board of directors and are
primarily responsible to the client firm’s board and its shareholders; however,
they are increasingly being held responsible to governmental agencies, stock
exchanges and the investing public at large.

AUDITOR INDEPENDENCE
For the auditor to effectively perform his or her function the auditor must remain
independent, objective, and unbiased. Rule 101 of the AICPA( The American
Institute of Certified Public Accountants) ) Code of Professional Conduct relates to
auditor independence. Auditor independence refers to the auditors’ ability to
maintain an objective and impartial mental attitude throughout the audit.

The auditors are not merely required to be independent but the client-
auditor relationship should be such that the auditor should also appear to be
independent to third parties. This is extremely important if the financial
statement information attested to by auditors is to be credible to the users of
that information.

It appears that this rule of independence was violated in the Enron- Andersen
relationship. Andersen auditors had permanent office space at Enron
headquarters in Houston, Texas. They dressed like Enron employees including
wearing golf shirts with the Enron logo.

They socialized with Enron employees sharing office birthdays, attending lunch
parties at a nearby park and going with Enron employees on ski-trips to
Colorado. ‘People just thought they were Enron employees’ (Herrick and
Barrionuevo , 2002)). Since 1989, eighty-six Andersen employees left the firm to
work for Enron including Enron’s chief accounting officer Richard Causey and
chief financial officer Jeffrey McMahon who filled the position vacated by
Enron’s former CFO Andrew Fastow. Enron employees spoke of Andersen as being
Enron Prep School (Behr and Witt, 2002-2)

Andersen employees bragged about pioneering ‘the integrated audit’ for Enron
and the term was frequently used by Andersen in road-show presentations to

other potential and current clients. Auditors and investors recognize the
importance of effective internal controls within the client firm.

The stronger and better a firm’s internal control procedures are, the lower the
likelihood of fraud and accounting irregularities. There are obvious conflicts of
interest when the same auditing firm performs the internal and external audit
of a company. Nevertheless, in 1993, Andersen took over Enron’s internal
audit operations and 40 Andersen employees joined Enron to run the
operation. Around the same time, Thomas Chambers, Enron’s former vice-
president of internal audit left Enron to join the Andersen group that was
assigned to perform Enron’s internal audit. Even though Andersen always
maintained that these matters did not compromise its independence in its
role of Enron’s external auditor, it clearly did violate the AICPA’s Code of
Professional Conduct requirement that auditors are to preserve ‘the
appearance of independence’ to lend greater credibility to their work.
Auditor's Responsibilities Regarding Illegal Acts by
Clients :

it is fitting that the Expectation Gap Roundtable includes the topic of illegal acts.
Attempts to reduce the perceived gap between users’ expectations and
professional guidance on auditors’ responsibilities have been the catalyst for the
origination and evolution of Statements on Auditing Standards (SASs) related to
illegal acts.

A separate SAS on illegal acts by clients was first issued in response to users’
concerns with corporate accountability . These concerns in the mid-1970s followed
investigations that lead to disclosures by large corporations of illegal political
contributions and questionable payments to domestic and foreign government
officials (Neebes, Guy, and Whittington 1991).

In turn, after a period in the early 1980s of major business failures, where some
failed businesses also had illegal acts, auditors’ responsibilities were revised as part
of the expectation gap SASs .The existence of an expectations gap and an inability
to eliminate the gap is not surprising.

As the Cohen Commission stated, “ the expectations of users of financial

information with respect to the auditor’s detection and disclosure of illegal or
questionable acts are unclear” (The Commission on Auditors’ Responsibilities
1978). In addition to being unclear, users’ expectations lack consensus at any point
in time and change over time.

Furthermore, as the Cohen Commission recognized, legislative initiatives play a

significant role in clarifying users’ expectations (e.g., The Foreign Corrupt Practices
Act of 1977). These legislative initiatives continue.
1- Finally, assessing users’ expectations becomes complicated when considering the
international environment, where there is likewise concern with auditors’
responsibilities regarding illegal acts. The International Auditing Practices
Committee (IAPC) recently issued an exposure draft titled IllegalActs (December 1,
1991).

2-This background provides a context for our charge, which is to communicate the
implications of existing research for establishing and implementing auditing
standards related to illegal acts by clients and to propose topics for future research.

3- We assume that readers are familiar with past, present, and proposed
professional standards. Although we do not review the provisions of these
standards, we include in the Appendix the practice and implementation issues
identified by the SAS No. 54 Guidance Task Force of the Auditing Standards Board
(ASB) and reported by practitioners to the Auditing Standards Division as input for
the Roundtable.

Requirements Reading Other Information :

The auditor shall read the other information to identify material inconsistencies, if
any, with the audited financial statements.

The auditor shall make appropriate arrangements with management or those

charged with governance to obtain the other information prior to the date of the
auditor’s report.

If it is not possible to obtain all the other information prior to the date of the
auditor’s report, the auditor shall read such other information as soon as
practicable. (Ref: Para. A5) Material Inconsistencies .

If, on reading the other information, the auditor identifies a material inconsistency,
the auditor shall determine whether the audited financial statements or the other
information needs to be revised. Material Inconsistencies Identified in Other
Information Obtained Prior to the Date of the Auditor’s Report.
If revision of the audited financial statements is necessary and management
refuses to make the revision, the auditor shall modify the opinion in the auditor’s
report in accordance with ISA 705.2.

If revision of the other information is necessary and management refuses to make

the revision, the auditor shall communicate this matter to those charged with
governance, unless all of those charged with governance are involved in managing
the entity;3 and (a)Include in the auditor’s report an Other Matter paragraph
describing the material inconsistency in accordance with ISA 706;4(b)Withhold the
auditor’s report; or

Withdraw from the engagement, where withdrawal is possible under applicable

law or regulation.

(Material Inconsistencies Identified in Other Information Obtained Subsequent to

the Date of the Auditor’s Report.

If revision of the audited financial statements is necessary, the auditor shall follow
the relevant requirements in ISA 560.5.

If revision of the other information is necessary and management agrees to make

the revision, the auditor shall carry out the procedures necessary under the
circumstances.

If revision of the other information is necessary, but management refuses to make

the revision, the auditor shall notify those charged with governance, unless all of
those charged with governance are involved in managing the entity, of the
auditor’s concern regarding the other information and take any further appropriate
action.
Functions:
The function of audit is a vital and controversial problem in auditing theory and
practice worldwide. There has been a widespread view in the Western auditing
circle that internal audit is an independent appraisal function. This can be
identified by means of some main official definitions. Here, we can only cite three
examples:

1. 1Internal audit is an independent appraisal function within an organization,

for the review of activities as a service to all levels of management (Chartered
Institute of Public Finance and Accountancy 1979).

(This definition is for the use of the public sector as a whole.)

2-Internal audit is an independent appraisal within a department which operates

as a service to management by measuring and evaluating the effectiveness of the
internal control system. Thus, it is concerned with a department’s efficiency,
effectiveness and economy (HM Treasury 1983).

(The second definition is aimed at fulfilling the specific need in government

departments.)

3- Internal auditing is an independent appraisal function established within

an organization to examine and evaluate its activities as a service to the
organization. (Institute of Internal Auditors 1979).

(The third definition is of universal application, covering both public and private
sectors.)

In China, furthermore, a few scholars in auditing hold that the basic or main
function of internal audit is independent economic supervision. For example,
Professors Yan and Wang from the Chinese People’s University of China suggest
that internal audit should be a kind of management‐related, independent,
economic supervision function by which we can:

 conduct the pre‐ and post‐ examination of financial revenues and

disbursements;

 review the soundness, effectiveness and compliance of internal control

systems;

 provide audit information for improving operations and management,

upholding the regulations and disciplines in finance and economy;

 cause all management levels within an organization to discharge their

responsibilities and tasks to increase their performance and accelerate
economic development.
In my opinion,
however, the basic function of audit as a whole, in essence, should be a special
kind of economic control. Naturally, the same should be true of internal audit. In
other words, internal audit is a special economic control within an organization
whose objective is to ensure and promote the performance of accountability.
There are many authoritative and interesting statements demonstrating this
point.

meanwhile, I think that except for economic control that's its basic function,
internal audit nonetheless has a few sub‐functions consisting of financial
supervision, attestation and evaluation subordinated to and serving it. The
reasons why I can also say that the basic feature of inner audit is a unique form
of financial manipulate are that it's miles characterized by using independence,
indirectiveness and dual controllers. In short, the basic characteristic of internal
audit ought to be a unique monetary manage. simplest by recognizing this factor
are we able to better understand and grasp the character of audit.
References :
Brown, K. and Weil, J. 2002. How Andersen’s Embrace of Consulting Altered the
Culture of the Auditing firm. The Wall Street Journal, March 12, p. C1

Audit Planning Decisions. Journal of Accounting Research, Vol. 35, Supplement,

pp.75-97

J. Audit. 6: 277-286 (2002)

auditor's practice manual 3rd edn.2017 pg (25-39)

Solomon, Ira, and Michael D. Shields. "research in auditing." Judgment and

decision-making research in accounting and auditing (1995): 137.

SOLOMON, Ira; SHIELDS, Michael D. research in auditing. Judgment and decision-

making research in accounting and auditing, 1995, 137.

Blank, Ronald. The basics of quality auditing. CRC Press, 1999.

Sayana , S. Anantha , and CIA CISA. "Auditing general and application controls."
Information Systems Control Journal 5 (2002): 16-19

Flint, D., Philosophy and Principles of Auditing ‐ An Introduction, Macmillan

Education, Basingstoke, 1988.

Ricchiute, D.N., Auditing ‐ Concepts and Standards, Southwestern Publishing Co.,

Cincinnati, OH, 1982.

Ricchiute, D.N., Auditing ‐ Concepts and Standards, Southwestern Publishing Co.,

Cincinnati, OH, 1982.

Cai, C., The Research on the Structure of Auditing Theory, Southwestern

University of Finance and Economics Publishing House, Chengdu, China, 1994.

National Council on Governmental Accounting. (1968).

GovernmentalAccounting, Auditing and Financial Reporting. Chicago, IL:
Author
Expectation gap standards : progress,implementation issues, research
opportunitiesAmerican Institute of Certified Public Accountants. Private
Companies Practice Section page (227-229) .1992