Topic 1 introduction AUDITING AND ASSURANCE SERVICES IN MALAYSIA
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AUDITING AND ASSURANCE SERVICES IN MALAYSIA TOPIC 1:INTRODUCTION References: Chapter 1,2 & 5 AUD390 2011
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Transcript of Topic 1 introduction AUDITING AND ASSURANCE SERVICES IN MALAYSIA
AUDITING AND ASSURANCE SERVICES
IN MALAYSIA
TOPIC 1:INTRODUCTION
References: Chapter 1,2 & 5
AUD390 2011
LEARNING OUTCOMES Definition of auditing Distinction between auditing &
accounting Demand for auditing Types of audits & auditors Profile of the auditing profession Stewardship, accountability and
agency Malaysian approved standards on
auditing
AUD390 2011
DEFINITION OF AUDITING
Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria.
(Arens, 2008)
Information and established criteriaAccumulation and evaluating evidenceCompetent, independent person (Auditor)Reporting (Audit Report)
AUD390 2011
DEFINITION OF AUDITING (FINANCIAL STATEMENT AUDIT)
To obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial report is prepared, in all material respects, in accordance with an applicable financial reporting framework;
(Gay & Simnett, 2012)
AUD390 2011
DEVELOPMENT OF AUDITING Assurance & Nonassurance Services
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Audits Reviews
Internal Controls over Financial Reporting
Other Attestation Services
Other Assurance Services
NONASSURANCE SERVICESASSURANCE SERVICES
Other Management Consulting
Accounting & Bookkeeping
Tax Services
Certain Management Consulting
ATTESTATION SERVICES
DEVELOPMENT OF AUDITING Definition : ASSURANCE SERVICES
An independent professional service that improves the quality of information for decision-makersCan be performed by auditors or a variety of other professionalsE.g. the Consumers Association of Penang (CAP) provides the information to help consumers make intelligent decisions about the product they buy
AUD390 2011
DEVELOPMENT OF AUDITING Definition : ASSURANCE SERVICES
Category of assurance services provided by CA firms:-
Attestation servicesAssurance services on Information TechnologyAssurance services on:
Controls over and risk related to investments, including policies and related to derivativesMysery shoppingAssess risks of accumulation, distribution and storage of digital informationFraud and illegal acts risk assessmentISO 9000 certifications, etc.
AUD390 2011
DEVELOPMENT OF AUDITING Definition : ATTESTATION
The CA firm issue a report about the reliability of an assertion that is made by another party4 categories of attestation:
Audit of historical financial statementsEffectiveness of internal controls over financial reportingReview of historical financial statementsOther attestation services that may be applied to a broad range of subject matter
AUD390 2011
DEVELOPMENT OF AUDITINGDefinition : NONASSURANCE
SERVICES Other services provided by CA firms that fall outside the scope of assurance services. E.g.
Accounting and bookkeeping servicesTax servicesManagement consulting services
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DISTINCTION BETWEEN AUDITING & ACCOUNTING
ACCOUNTING is the recording, classifying, and summarizing of economic events in a logical manner for the purpose of providing financial information for decision making. Person in-change known as ACCOUNTANT
The difference… AUDITOR focus on determining whether recoded information properly reflects the economic events that occurred during the accounting period
AUD390 2011
Compliance Audit Performance Audit Financial Statements Audit
AUD390 2011
TYPES OF AUDITS
AUD390 2011
TYPES OF AUDITCompliance Audit
Is conducted to determine whether the auditee is following specific procedures, rules or regulations set by higher authority
E.g. Determining whether accounting personnel are following the procedures prescribed by company controller
Results of the audit – Findings are reported to higher management of the unit being audited for necessary improvements
Performed by the internal auditor, external auditor & government auditor
AUD390 2011
TYPES OF AUDITPerformance Audit
Also known as ‘Value For Money Auditing’, ‘Operational Auditing’, ‘Efficiency Auditing’ or ‘Program Results Auditing’
Evaluate the efficiency & effectiveness of any part of an organization's operating procedures & methods
E.g. evaluate the efficiency & accuracy of processing payroll transactions in a newly installed computer system
Results of the audit - recommendation for improving the operations are propose to the management
Performed by the internal auditor of a company or management consultancy works by external auditor
AUD390 2011
TYPES OF AUDITFinancial Statement Audit
Is conducted to determine whether the overall FS (the information being verified) are stated in accordance with specific criteria i.e. an approved accounting standards
Results of the audit – draw conclusions on the FS that can be relied upon by different group of users for the different purposes
Performed by the external auditor on the frequent interval e.g. quarterly, half yearly or yearly basis
AUD390 2011
TYPES OF AUDITORS
External Auditor Internal Auditors Government Auditors Inland Revenue Assessment Officers
AUD390 2011
S8 of the Company Act (CA) 1965 …requires a company to appoint an “Approved Company Auditor” to audit every company incorporated under the Act
External auditor work in the CPA firm i.e. public accounting firm ranges from sole proprietorship to partnership providing services such as attestation services, accounting or tax services and management advisory services
TYPES OF AUDITORSExternal Auditor
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TYPES OF AUDITORSInternal Auditor
Employed by individual companies to audit for management
Involved in operational auditing or have expertise in evaluating computer systems
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TYPES OF AUDITORSGovernment Auditor
Working for the Auditor General Department, headed by the Auditor General and reports to & is responsible solely to Yang Dipertuan Agong
Responsible to evaluate the operational efficiency & effectiveness for all federal & states as well as statutory bodies & public authorities
AUD390 2011
TYPES OF AUDITORSInland Revenue Assessment Auditor
Staff of Inland Revenue Board (IRB), which responsible for enforcing the Income Tax Act as being defined by Parliament and interpreted by Courts
Responsible to audit the taxpayers’ returns to determine whether they have complied with the tax laws
AUD390 2011
PRINCIPLES OF STEWARDSHIP, ACCOUNTABILITY & AGENCY
PRINCIPAL(Absentee
Owner)
AUDITOR
AGENT(Manage
r)
Information assymmetr
y & conflicts of
interest lead to
information risk for the principal
Principal provides capital & hires agent to manage it
Agent is accountable to principal;
provides financial reports
Auditor gathers evidence to
evaluate fairness of
agents financial report. Auditor
issues audit opinion to accompany
agent’s financial reports. Adding credibility to the
reports and reduce
principal’s information risk
Agent hires auditor to
report on the fairness of
agent’s financial reports.
Agent pays auditor to
reduce principal’s
information risk
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MALAYSIAN APPROVED STANDARDS AUDITING
A general guidelines to aid auditors in fulfilling their professional responsibilities in the audit of historical financial statements
AUD390 2011
TUTORIAL QUESTIONS1. Development of Auditing. 2. Distinction between Auditing & Accounting. 3. Types of Audits and Auditors. 4. Difference between External Auditor &
Internal Auditor on appointment, responsibility, scope of works and objective.
5. Common objectives to both External and Internal Auditors
6. To be able to use work undertaken by internal audit, external auditor must be satisfied as the standard and reliability of the information. Explain the criteria that the external auditor should consider in deciding the use of internal’s auditor work.
