Auditing Financial Statements: Key Concepts and Procedures
1. Defining Auditing
Auditing is the process of reviewing the financial statements of an economic entity to issue a professional opinion on the credibility of those statements. This opinion is expressed in a document called an audit report.
2. The Purpose of the Planning Process
The planning process provides knowledge of the audit to be employed, the extent of the evidence needed, the chance of implementation, and the staff that must intervene.
3. Stages of Audit Planning
- Investigation of general and particular aspects
- Study and evaluation of internal control
- Development of the work program
4. Advantages of Audit Planning
- Displays the total work to be performed
- Shows the work done by each team member
- Clearly identifies the actions to be performed
5. Understanding Internal Control
Internal control refers to the policies and procedures established by a company to provide reasonable assurance of achieving its specific goals.
6. Methods for Assessing Internal Controls
- Descriptive narratives
- Flowcharts
7. Defining a Work Program
A work program is a written record that outlines the audit procedures, their extent, the timing of their application, and staff allocation in an organized manner.
8. Components of a Work Program
- Procedures
- Extension
- Opportunity
- Personnel assigned
- Estimated time
- Typical procedures
9. Evidence Obtained During Audit Planning
- Interviews with clients and staff
- Analysis of financial statements
- Review of legal documents
- Observation
- Analysis of internal control
- Financial ratios
- Review of past audits
10. Understanding Auditing Standards
Auditing standards are the minimum quality requirements related to the work performed by the auditor.
11. Classification of Auditing Standards
- Personal standards
- Execution of work standards
- Information standards
12. Rules for Witnessing Financial Documents
These rules are used to make statements on a financial document, accounting record, or analysis.
13. Planning and Monitoring in Work Execution Standards
All audit work should be planned, and work developed by third parties must be supervised.
14. Technical Training and Personal Capacity Standards
Audit personnel must have the technical knowledge and professional capacity to perform their duties.
15. Clarifications in the Audit Opinion
The audit opinion should clarify the relationship with financial statements or any infringement of opinion and expression, including:
- The auditor’s opinion
- Limitations encountered
- Reservations or qualifications
- Reasons for issuing a qualified or adverse opinion
16. Defining Working Papers
Working papers are material evidence of the work done. They contain the tests performed and serve as the basis for issuing the audit opinion on the financial statements.
17. Classification of Working Papers
- By Use: Continuous and temporary
- By Content: Worksheets, summary schedules, detail schedules, and analytical schedules
18. Essential Information in Working Papers
- Company name
- Date of the end of the year under review
- Brief description of the content
- Date of preparation
- Signature or initials of the preparer
19. Traditional Classification of Assets in Working Papers
Assets are traditionally classified in working papers using alphanumeric indices.
20. Audit Marks: Definition and Use
Audit marks are graphic symbols used to indicate frequent operations, facilitating the transcription and interpretation of the work performed during the audit.
21. Activities During Preliminary Visits
Activities during preliminary visits include investigating and gathering information through interviews and analysis of financial statements.