Auditing and Audit Process in Organization

1. Auditing and Audit Process in Organization by Mohammed, Anas Taura (MBA) Programme and Studies Department Manpower Development Institute, Dutse Jigawa State. Wednesday, June 22, 2016 1

2. Outline of the Presentation Objective of the presentation An overview of audit, importance and its function. Types of Audit Audit process Audit report and recommendation Summary and conclusion Wednesday, June 22, 2016 2

3. Objective of the presentation At the end of this presentation the participants can be able to do the following:- Define the terms audit State clearly the importance of audit and the function of auditors in organizations List various types of audit Identify and list audit processes Differentiate between internal and external audit Identify various type of audit report. Wednesday, June 22, 2016 3

4. Definition of Auditing and Audit Process: Audit is defined as systematic and independent examination of data, statements, records, operations and performances (financial or otherwise) of an entity/organizations for stated purpose. While audit process are tasks the auditor undertake for collecting , analyzing, interpreting and documenting information during an audit. It involve planning , execution and reporting . Wednesday, June 22, 2016 4

5. An overview, Importance and Function of Audit . The concepts of Audit has undergone a set of changes and its earlier objective of “Fault findings” is no more relevant. Nowadays auditing can said to be a concept that is aimed to achieved a combination of both financial and operational efficiency. It is also aimed at reviewing financial plans for future to enhance organizational performance. Wednesday, June 22, 2016 5

6. Importance of Audit Audit plays an important role in raising the level of confidence of both public, management and staff as well as the remaining stakeholders of an entity/organizations. Depending on where you find your self, below is what audit and audit report means to these group of people and entity: Investors and shareholders (people): these are the owners of organization be it public or private enterprises, but in many cases are not involved closely in its day to day running. Therefore an independent audit is interesting to them, since it provide them with a trusted second opinion on the organizations financial statement and in turn, gives some, insight as to how well it is being run. Wednesday, June 22, 2016 6

7. Company accountants/finance directors: having an independent expert poring over your figures might be a little bit uncomfortable at times, but the reward is making sure that your numbers are true and fair. What’s more, audits now a days will look at ‘internal control systems’ as well as finances. These systems usually established through the specific design of computer systems and, for instance, ensure that the authorization of transaction is controlled according to clear rules and policies. Knowing these are sufficiently strong and are working properly is also very re-assuring. Wednesday, June 22, 2016 7 Importance of Audit (cont’)

8. Importance of Audit (Cont’) Financial Analysts: for financial analysts audited accounts are vital tool, since they provide unbiased and independently checked information on which to base their opinion on what future hold for particular firms or businesses. Regulators: these are organizations that are tasked with overseeing wide range of players in particular industries to ensure firms are operating fairly and legally. They make use of audited accounts as part of the ongoing monitoring of each firm or to help with more specific investigation. Other stakeholders: this are journalists, politicians and general public who may be interested in the information in one way or the other depending on the nature of organization. Wednesday, June 22, 2016 8

9. Functions of Audit. Study accounting system Analyses and test internal control system – to determine its effectiveness or otherwise. Assets verification – to make sure the existence of an assets in the business. Legal requirements – here audit must ensure that all legal obligation are fully observed in all organization/entity dealings e.g. company income tax. Wednesday, June 22, 2016 9

10. Functions of Audit (Cont’) Vouching - this is done to determine accuracy of accounting record. it help, to prove the business/government transactions since all entries in books are made on the basis of relevant vouchers and receipts. Reporting – one of the primary function of auditor is reporting. As an independent person auditor is expected to submit his report in writing. Valuation of assets and liabilities – both the value of assets and liabilities in the book of accounts, can be verified by the auditor. In each case auditor can seek help of expert if he so wishes. He can use the accounting principles to ascertain the value of assets and writing to the creditor to verified the liabilities of the organization, this of course with consent of the auditee . Wednesday, June 22, 2016 10

11. Types of Audit Types of audit depend on the nature & purpose of the audit: A) Nature : I) statutory – this is types of audit mandated by law and it must follow all the prevailing accounting standard. Company and Allied Matters Act 1990 provided that all public limited liabilities company should publish audited financial statement at the end of each financial year. II) private audit – when audit is not statutory but is conducted at the request of owners, that is called a private or optional audit. Wednesday, June 22, 2016 11

12. Types of Audit (Cont’) III) Internal Audit – this is an independent appraisal function established within an organization to examine and evaluate its activities as a service to organization. IV) External audit – this is audit process performed on organization by independent outsider who is engaged by the owners of the organization/entity. B) Purpose Based Audit : I) financial audit II) control and compliance audit – e.g. internal control system III) performance/operational/management audit – this include budget performance, testing of new technologies e.g. new machine employed like finacle used by banks or new internet service provider. Wednesday, June 22, 2016 12

13. Difference between external and internal Auditor Area Internal External Appointment By management By owners of organization/NASS/Board Reporting To management Owners /NASS/Board/partners Responsibility (Focus) Quality assurance (control & compliance audit ) Expression of opinion (financial Audit) Status Employee of an Organization Not an employee of an organization Wednesday, June 22, 2016 13

14. Audit process Although every audit is unique, the audit process is similar for most engagement and normally consist of three (3) stages namely: planning , executing and reporting processes. Planning process – involves activities like engagement letter , preliminary survey , entrance interview and audit plan/programmes. Wednesday, June 22, 2016 14

15. Audit process (Cont’) Execution process – in this stage the auditing process involves are: transaction testing , advice & informal communication , audit summary and working papers. Reporting process - this is the final product activities of audit process and activities it also involves the following aspects: exit conference , draft report , issue a final report and audit follow-up. Wednesday, June 22, 2016 15

16. Audit report and Recommendations Audit report is a signed, written document which present the purpose, scope and result of audit. In other words, it is the finding or final outcome of the test evaluation and the observation of the audit on the audited financial and operational system. While audit recommendations are actions the auditors believes necessary to correct existing conditions to improve operations. All audit recommendations must: Be doable by the auditee Be specific And has to solve the problem and address the cause of the problem Wednesday, June 22, 2016 16

17. Types of audit reports Qualified audit report Unqualified audit report Adverse opinion report Disclaimer opinion report Wednesday, June 22, 2016 17

18. Summary and conclusion Both management and its staff of the auditee should know that the auditor are not witch-hunters, rather they are partners in good governance. To achieve overall business objective for providing public goods or efficient customers service delivery as the case may be, there is this need to co-operate with auditors to achieve optimum result. Wednesday, June 22, 2016 18

19. Thank you Wednesday, June 22, 2016 19 …but over all endued with knowledge is one, the All-Knowing. Qur’an:12:76