Scope of Auditing - BZU PAGES: Find Presentations, Reports, Student's Assignments and Daily Discussion; Bahauddin Zakariya University Multan

**usmanstar** · #1 02-06-2011, 10:16 AM

Scope of Audit

1. Legal Requirements

The auditor can determine the scope of an audit of financial statements in accordance with the requirements of legislation, regulations or relevant professional bodies. The state can frame rules for determining the scope of audit work. In the same way professional bodies can make rules to conduct the audit. The auditor can follow all the applicable on the audit work while checking the accounts of a business concern.

2. Entity Aspects

The audit should be organized to cover all aspects of the entity as far as they are relevant to the financial statement being audited. A business entity has many areas of working. A small entity may have few functions while a large concern has many functions. The auditor has duty to go through all the functions of a business. The audit report should cover all function so that the reader may known about all the working of a concern.

3۔ Reliable Information

The auditor should obtain reasonable assurance as to whether the information contained in the underlying accounting record and other source data is reliable and sufficient as the basis for preparation of the financial statements. The auditor can use various techniques to test the validity of data. All auditors while doing the auditor work usually apply the compliance test and substance test. The auditor can show such information in the report.

4. Proper Communication

The auditor should decide whether the relevant information is properly communicated in the financial statements. Accounting is an information system so facts and figures must be so presented that reader can get information about the business entity. The auditor can mention this fact in his report. The principles of accounting can be applied to decide about the disclosure of financial information in the statements.

5. Evaluation

The auditor assesses the reliability and sufficiency of the information contained in the underlying accounting records and other source date by making a study and evaluation of accounting system and internal controls to determine the nature, the nature, extent and timing of other auditing procedures.

6. Test

The auditing assesses the reliability and sufficiency of the information contained in the underlying accounting record and other source data by carrying out other tests, inquiries and other verification procedures of accounting transaction and account balance as he considers appropriate in the particular circumstances. There are compliance test and substantive test in order to examine the date. The vouching, verification and valuation technique are also used.

7. Comparison

The auditor determines whether the relevant information is properly communicated by comparing the financial statement with the underlying accounting records and other source data to see whether they properly summarized the transaction and events recorded therein. The auditor can compare the accounting record with financial statement in order to check that same has been processed for preparing the final accounts of a business concern.

8. Judgements

The auditor determines whether the relevant information is properly communicated by consideration the judgement that management has made in preparing the financial statements, accordingly, the auditor assesses the selection and consistent application of accounting policies, the manner in which the information has been classified and the adequacy of disclosure.
The auditor must have the quality of judgement when accounting books to not provide true data.

9. Work

Judgement permeates the auditor's work. for example, in determining the extent of audit procedures and in assessing the reasonable of the judgments and estimates made by management in preparing financial statements. The accounting data is based on personal judgment of accountant and managers in preparing final accounts. Such judgment also affect the working of an auditor. He is also bound to make guess work on the basis of available data.

10. Evidence

The audit evidence available to auditor is persuasive rather than conclusive in nature. Due to judgment and persuasive evidence absolute certainty in auditing is really attainable. That is why the auditor can express an opinion as true and fair instead of exact and cent percent correct. The personal judgments affect the value of many items. The value of such items becomes an opinion so cent percent accuracy is not there.

11. Mis-Statement

The auditor carries out procedures designed to obtain reasonable assurance that financial statement are properly stated in all material respects. Because of test nature and other inherent limitations of an audit, together with inherent limitations of any system of internal control, there is an unavoidable risk that even some material misstatement may remain undiscovered. The statements show true and fair view instead of exact view of operations.

12. Errors

The auditor may get an indication that some fraud or error may have occurred which could result in material misstatement would curse the auditor to extend his procedures to confirm or dispel his suspicion. It is the duty of auditor to check cent percent items in order to discover the error in accounting books and other records when he smells any doubt. He should clear the doubt or confirm it while going through the record.

13. Opinion

Constraints on the scope of the audit of financial statement that impair the auditor's ability to express an unqualified opinion on such financial statements should be seen out in his report and a qualified opinion or disclaimer of opinion should be expressed as a appropriate.