Auditing refers to a methodical course of accurately obtaining and assessing proof concerning assertions on financial events and actions to ensure the extent of communication between assertions and proven methods while sharing the outcomes to interested parties. Auditing is intended to strengthen the extent of assurance that the supposed users can employ in the financial statements. There are several different types of audits (Cheng et al., 2014). However, this essay will only look at the five which are an operational audit, compliance audits, financial statements audit, value-for-money audit as well as forensic audit.
First, the operational audit is intended to appraise the efficacy and productivity of a given section of the organization’s operating methods and procedures. The activity entails the systematic operations of an organization or part of an organization's operations in relation to the effective and efficient use of the resources. The operational audit aims to evaluate performance, find out areas for improvement while developing recommendations for the organization. The audit is as well referred to as management audit or performance audit (Cheng et al. 2014). Operational audits are characteristically problematic to carry out as opposed to financial statements audit or compliance audit as it is challenging to find out objective, measurable process that can be employed to evaluate the efficiency and effectiveness. Secondly, there is compliance audit which is carried out to establish whether the person audited is adhering to particular procedures, government regulations, rules and policies set by the specific higher authority. The corporates rules and regulations are the methods for measuring compliance of a department. It also involves the assessment of a company and individual's tax returns. Thirdly, there is the financial statements audit whose purpose is to establish whether the general financial statements are presented the IAW specific standards of GAAP. Usually, it is carried out by GAO, CPA, and internal auditors and it covers the fundamental set of financial statements such as income statements, statements of cash flows, statements of retained earnings and balance sheets. Fourth, there is the forensic audit whose aim is to detect or deter different huge fraudulent activities (Cheng et al. 2014). Last but not least, the value-for-money audit is the same as operational audit though it regards economy and efficiency and effectiveness; a compliance audit and financial statement audit.
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The relationship among attestation, auditing and assurance services can be seen when auditing services are the subset of attest services and in turn the subset of assurance services. An assurance service engagement is a relationship where, under accountability relations between at least two parties, the practitioner is engaged to present written communication showing a conclusion regarding a matter for which the accountable party is responsible. On the other hand, attest relationships are a subset of assurance engagements, and the principles of attest engagements are included in the principles for assurance engagements (Tschopp, & Nastanski, 2014). The auditor presents a written communication showing conclusions about a written assertion documented by a party responsible for the assertion.
Fundamental or basic or fundamental accounting assumptions are the accounting principles that have been acknowledged and adhered to when recording any financial facts. Since information needs vary from entity to entity, individual to individual or situation to situation, there are expected different assumptions. Different scholars have defined basic accounting assumptions differently. The fundamental accounting assumptions include the going concern concept, the accrual concept, and consistency.
The five components of auditing planning include researching the audit area. It is important to understand the process of a business or the function to be audited. In case one is not familiar with the processes, it is advisable for them to research the process to comprehend the subject matter. The activities can be conducted by searching the internet for sources, reviewing internal procedures and seeking assistance from the experts on the matter. Another component of the audit process is to maintain open communications throughout auditing. The audit team should reach out to the auditee as soon as possible. Working with the auditee before the audit assists in easing problems the auditee may experience. Thus, it is preferred that the auditor communicates in person. Also, carrying out process walk-throughs is essential. The process involves face-to-face walkthrough with an auditee to establish main business objectives, procedures used to meet objectives as well as applicable regulations (Rezaee, Abernathy, Causholli, Michas, Roush, Rowe & Velury, 2015). Walk through incorporate touring facilities and gathering background information linked to nature, volume, purpose, size and the complexity of processes, automated systems, or structure of the organization. The fourth component includes mapping risks to the company, function or process. Based on research as well as interviews, the auditor identifies risks to meet the objectives of a business and the controls put in place to regulate the risks. The risks are further rated with the auditee based possibility of occurrence and conceivable impact. Lastly, auditing process incorporates obtaining information before getting to the fieldwork. Data analytics should be carried out before starting fieldwork by establishing anomalies to prove a condition (Rezaee et al. 2015).
The accepted audit standards include the materiality principle which is the degree of significance of a misstatement in records of accounting. For instance, in case a price of a given commodity is understated by $15, will the misstatement be sufficiently effective on the financial statements to the issue? Thus, it is a gray field of accounting principles and needs a professional conclusion to be applied (Louwers et al., 2015). The economic entity assumption means that a given activity of a business must be separately kept from the activity of owner of a business. The cost principle is the past cost of a given commodity, and it is stated in the financial statements. Also, it is the sum of money that was rewarded for a given commodity when bought and is not altered to justify for inflation. The monetary unit assumption can be described as those activities that can be articulated in dollar sums and can be incorporated in histories of accounting. The full disclosure principle is all data that is associated with the business. It is stated either in the notes to the statements of finance or in the content of the statements finance. The period assumption refers to the activities of a business that can be stated at different time intervals such months, weeks, quarters, and in a financial year. Regardless of the period, it has to be acknowledged in the dates of financial statements (Louwers et al. 2015).
The going concern principle is the determination of a corporate to remain operating into the conceivable prospect without liquidating the business. The revenue recognition principle reports the method in which income is documented. The principle necessitates that income be stated in the statement of income in the timeframe in which it is made. The matching principle is the method where a business states revenues and expenditures. The standard necessitates that companies apply the accrual procedure of accounting and cup tie business revenue to trade expenditures in any timeframe. For instance, a sales expenditure must be stated in the same timeframe of accounting that sales revenue was made. Lastly, conservatism is the standard that requires that possible spending and liabilities to be acknowledged as soon as possible in case one is not sure whether they will occur or not, though possible income should not be recognized till it is received (Louwers et al. 2015).
Businesses are instrumental in the society as it is a force to any good society. There is the complete acknowledgment of the importance of engagement of business in the society to recapture the moral strength position which is founded on environmental and sustainability support. Also, it is found on the adverse impacts on consumers and society. Businesses are supposed to invest in their relationships with the community and to be responsible for their uses of natural resources (Sastry, 2014). Thus, CSR is an attempt by businesses to voluntarily integrate social and environmental issues into their business activities with their stakeholders. Further, there is the need for sustainability and environment.
References
Cheng, M., Green, W., Conradie, P., Konishi, N., & Romi, A. (2014). The international integrated reporting framework: key issues and future research opportunities. Journal of International Financial Management & Accounting , 25 (1), 90-119.
Louwers, T. J., Ramsay, R. J., Sinason, D. H., Strawser, J. R., & Thibodeau, J. C. (2015). Auditing & assurance services . McGraw-Hill Education.
Rezaee, Z., Abernathy, J., Causholli, M., Michas, P. N., Roush, P. B., Rowe, S., & Velury, U. K. (2015). Comments of the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Concept Release on Audit Quality Indicators, No. 2015-005, July 1, 2015: Participating Committee Members. Current Issues in Auditing , 10 (1), C11-C27.
Sastry, T. (2014). Exploring the role of business in society. IIMB Management Review , 23 (4), 246-256.
Tschopp, D., & Nastanski, M. (2014). The harmonization and convergence of corporate social responsibility reporting standards. Journal of Business Ethics , 125 (1), 147-162.
