@audit CW1
@audit CW1
@audit CW1
b) Objectives of an audit.
This is to express an opinion on financial statements The objectives of the audit can be
categorized into;
The main objectives of the audit are known as the primary objectives of the audit.They
are as follows:
These are such objectives that are set up to help in attaining primary objectives. They
are as follows:
c)Types of audit
1. Internal Audits
Internal audits assess internal controls, processes, legal compliance, and the protection
of assets. The internal audit process can be a helpful tool for businesses to evaluate risk
and identify actionable ways to improve performance.Internal audits are performed by
individuals within the organization. While these individuals aren’t independent of the
organization, they should be independent of the activities they’re auditing.
On going Review
They do not have to wait for the end of the year to review the company’s performance.
This also means that if they are not on the correct path, this will help them change
course and correct their mistakes immediately.
Ignorance of Management
Their findings are only forwarded to the management. internal audit reports points out
to the shortcomings of the company or the errors in the financial statements, the
management may not take corrective action.
2. External Audits
A third party – such as an independent CPA firm – conducts external audits. Once the
audit is complete, a report is distributed to shareholders and stakeholders outside of the
organization. While external audits may vary in what they audit (financial statements,
usage of federal funds, etc.), the main benefit is the independence and objectivity of
the audit team. This gives shareholders and external stakeholders more confidence in
the audit process and report. Example: A manufacturer of car parts is a publicly-traded
company. Publicly traded companies and corporations that sell their shares to the public
are required to have an external auditor audit their financial statements.
3.Financial Statement Audits. These involve independent auditors who will report on
whether a company’s financial statements align with the applicable financial reporting
standards. Auditors are required to accomplish three things:
1. Identify and assess risks of material misstatement, whether due to fraud or error
2. Obtain sufficient audit evidence about whether material misstatements exist
3. Form an opinion on the financial statements or determine that an opinion can’t
be formed
According to the AICPA, these audits are “typically appropriate and often required when
seeking high levels of financing or outside investors, or when selling a business.” The
report can help other businesses, investors, stakeholders, etc., make informed decisions
about the company.Example: If a small business holds a loan or line of credit with a
bank, the bank may require the business to undergo a financial statement audit
4. Performance Audits
Example: A business may have an auditor review its human resources department.
The auditor will investigate department procedures and how efficiently it uses
resources. The final report should include a full department review and identify
opportunities for improvement.
6. Employee Benefit Plan Audits
These analyze and evaluate your benefit plan’s financial statements. This type of audit
can highlight opportunities for improvement within plan operations, efficiencies,
controls, and how well the plan complies with select regulations. Independent public
accountants are the only professionals qualified to perform employee benefit plan
audits.
Example: If your company offers a benefit plan (including 401(k), 403(b), and
employee stock ownership plans), a defined benefit pension plan, or a health plan to
more than 100 eligible participants, you may need an audit.
7.Compliance Audits A compliance audit is when an entity is audited to determine if
it complies with a government’s rules, standards, and requirements. A government sets
the requirements and hires an auditor to evaluate the entity’s compliance with them.
This type of audit determines whether the entity is complying with local laws,
regulations, rules, and provisions of contracts or grant agreements.
Example: A compliance audit can determine if a mill is following the Environmental
Protection Agency (EPA) guidelines for waste disposal. The EPA would send their
internal auditor or hire an audit firm to assess the business and report their findings.
Computer fraud is a cybercrime and the act of using a computer to take or alter
electronic data, or to gain unlawful use of a computer or system.
Computer abuse is the legal term for the use of a computer to carry out improper or
illegal activities, but which do not constitute financial crimes that would be classified as
wire fraud.
The following are the common incidences of computer fraud and abuse.
2.Engaging in data mining via spyware and malware. Data mining is the process
of extracting and discovering patterns in large dat sets involving methods at the
intersection of machine learning, statistics, and data base systems.
3.Hacking into computer systems. To illegally access personal information, such
as credit cards or Social Security Numbers. A security hacker is someone who explores
methods for breaching defenses and exploiting weaknesses in a compute system or
network.
4.Sending compute viruses with the intent to destroy or ruin another party's
computer or system. A computer virus is a type of computer program that, when
executed, replicates itself by modifying other computer programs and inserting its
own code.
6. Identity theft.This is a crime that involves one person appropriating the personal
information of another in order to commit fraud. Identity thieves wrongfully obtain the
names, addresses, birth dates, Social Security numbers, and bank account numbers of
their victims and use this information to open credit card accounts, apply for loans, or
open bank accounts
7.White collar crime.This is a non-violent act involving deception, typically
committed by a business person or public official. Evidence in a white collar crime
usually involves a "paper trail," of evidence that investigators use to prosecute the case.
References
Auditing and Assurance Services 16th Edition
The Internal Auditing Pocket Guide: Preparing, Performing, Reporting and
Follow-up
Simplified Approach to Advanced Auditing and Professional Ethics.