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5 views

RG

solutions for questions

Uploaded by

Rejal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Audit

ARSI UNIVERSITY ADAMA CUMPUS

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

COURSE: AUDITING PRINCIPLE I

ASSIGMNMENT I

Name Of The Students . ID.NO.

1. Rejal Husein……………………...0755/13

2.Gudeta Gemeda…………………..0741/13

Summation date:01/01/2025

Page. 1
Audit

1. Relationship of Auditing to Accounting

 Auditing and accounting are closely related but distinct disciplines:

 Accounting is concerned with the preparation and presentation of financial


statements based on established principles and standards.
 Auditing involves the examination and evaluation of financial statements to
provide an independent opinion on their accuracy and compliance with
standards.
 Auditors rely on accounting records to verify that the information presented
fairly represents the organization's financial position.

2. Internal Control

 Meaning of Internal Control

 Internal control refers to processes and mechanisms implemented by an


organization to ensure the reliability of :

 Financial reporting
 Compliance with laws and regulations, and
 Effective operations.

b. Objectives of Internal Control

 Safeguard assets.
 Ensure accurate and reliable financial reporting.
 Promote operational efficiency.
 Encourage adherence to policies and regulations.

c. Components of Internal Control.

 According to the COSO framework, the components include:

1. Control Environment: The organizational culture and tone set by management.


2. Risk Assessment: Identifying and evaluating risks to achieving objectives.
3. Control Activities: Policies and procedures to mitigate risks.
4. Information and Communication: Ensuring relevant information flows within
the organization.
5. Monitoring: On-going evaluations to assess the performance of controls.

d. Internal Control and its Relation with Audit Procedure

 Internal controls significantly influence audit procedures. Auditors


assess these controls to determine the extent of substantive testing
required.
 Weak internal controls may necessitate more extensive testing, while
strong controls may reduce audit risk.

Page. 1
Audit

3. International Standards for Auditing (ISA)

 Auditor Independence

 ISA emphasizes the need for auditors to remain objective and free from
conflicts of interest.
 Independence can be safeguarded through:

 professional ethics
 organizational policies and external oversight.

b. Internal Control

 ISA requires auditors to understand and evaluate internal controls as part of


the audit planning process.
 This helps identify risks of material misstatement and design effective audit
procedures.

c. Audit Evidence

 ISA outlines the types and quality of evidence required to support audit
findings.
 Evidence must be:

 Sufficient
 Reliable, and relevant to form an opinion on the financial
statements.

4. Importance of Auditor Independence and How to Ensure It

 Why Independence Is Required:


Independence ensures the credibility of the audit opinion, enhances public
confidence, and avoids bias in the audit process.

 Ensuring Independence:

 Adhering to ethical standards.


 Avoiding conflicts of interest (e.g., financial ties to the client).
 Implementing policies for rotation of audit partners.
 Being subject to external regulatory oversight.

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Audit

5. Types of Audit Reports

a. Client-imposed restriction significantly limits the scope

 Opinion: Denial of opinion or Qualified opinion (depending on severity).


 Explanation: A significant limitation prevents the auditor from gathering sufficient
evidence, impairing their ability to express an opinion.

b. Reference to another public accounting firm

 Opinion: Unqualified opinion with a reference to the other auditor.


 Explanation: The principal auditor takes responsibility for their work but
acknowledges the involvement of a secondary auditor.

c. Material uncertainty not disclosed in financial statements

 Opinion: Qualified opinion or Adverse opinion (based on materiality).


 Explanation: If a material uncertainty is not adequately disclosed, it violates fair
presentation requirements, requiring qualification or adverse reporting.

Page. 3

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