Fiscal coverage by companies is strengthened with hearers ‘ study. Section 174 ( 2 ) of the Companies Act 1965 requires hearer to describe to the members of the company on the histories presented at the one-year general meeting. An hearer ‘s study is a statement which communicates hearer ‘s positions on the fiscal statements prepared by the company. When the hearers are satisfied with all the groundss they have verified, they province that the fiscal statements give a ‘true and just position ‘ .
Based on the above statement:
Explain the significance of audit and its nature. ( 3 Markss )
Distinguish between accounting and auditing. ( 5 Markss )
Discuss the aim of scrutinizing and why auditing is needed. ( 8 Markss )
Distinguish the function of internal hearer from external hearer. ( 8 Markss )
Explain the importance of audit to the users of fiscal statement. ( 5 Markss )
Discuss the types of audit and supply ONE ( 1 ) illustration for each type. ( 12 Markss )
Explain the significance of ‘true and just position ‘ . ( 3 Markss )
Explain the classs of audit study. ( 12 Markss )
Choice TWO ( 2 ) companies ‘ one-year study for twelvemonth 2011. Discourse what class of audit study that has been issued by hearer on the company ‘s fiscal statement. ( 8 Markss )
Discuss your personal positions on unaudited fiscal statements and the fortunes or conditions that it can be used. ( 8 Markss )
A ) Auditing is a procedure that check the truth of fiscal by analyzing and measuring the fiscal statement. The word “ audit ” comes from Latin word audire which has the significance of “ to hear ” . As Professor L.R.Dicksee said, “ Auditing is an scrutiny if accounting records undertaken with a position to set up whether they right and wholly reflect the minutess to which they relate. ” ( Dicksee, L. R. ) The book “ An debut to Indian Government history and audit ” that is issued by The Comptroller and Auditor General of India stated the significance of audit as an instrument of fiscal control. ( India, T.I. )
The nature of audit is it is concerned with the constitution of the dependability of fiscal statement. Besides, audit is a critical reappraisal of the accounting system and the internal control. Hearers can merely acquire their occupation done with the relevant paperss such as bills and other information and accounts.
Harmonizing to Assurance Standard 1 ( ASS 1 ) which is issued by the council of the Institute of Chartered Accountant of India in the book entitled “ Basic Principles Regulating an Audited account ” , audit is to independently analyze the fiscal statements of an entity, no affair the net income is oriented or non and irrespective of its legal signifier or size, as the scrutiny is conducted to show an sentiment on the fiscal statements ( India, T.I. ) .
B ) The first difference of accounting and auditing is the significance. Accounting is the recording of all the twenty-four hours to twenty-four hours minutess in the accounting books to ease the readying of fiscal statements. In other words, it is the procedure of identifying, entering and pass oning information for determination devising. However, scrutinizing is the scrutiny of the minutess recorded in the accounting books to turn out the true and just value of the history.
The 2nd difference between accounting and auditing is the nature. Accounting is concerned with the current information. It is to finalise the histories. However, scrutinizing is concerned with base on balls informations. It is to set up dependable fiscal statements.
The 3rd difference between accounting and auditing is the aim. The aim of the accounting is to determine the trading consequences. It keeps the minutess recorded. However, the aim of scrutinizing is to look into on the rightness of fiscal statements. It is concerned with checking and confirmation of the histories.
Besides, beginning is besides one of the differences between accounting and scrutinizing. Accounting commences when book maintaining terminals. Accountants will necessitate to make entering each clip a dealing takes topographic point. Normally, accounting period is one twelvemonth, which means comptrollers takes one twelvemonth to finish the records. Auditing commences when accounting work terminals. Normally, the clip period of scrutinizing is less than one twelvemonth.
The last difference of accounting and auditing is the range. Accounting involves many fiscal statements such as statement of comprehensive income, statement of fiscal place and statement of hard currency flow. It besides involves the care of the accounting books. It does non travel beyond the accounting books. However, scrutinizing depends on the understanding or the proviso of the jurisprudence or company act. It goes beyond the accounting books.
C ) The aim of scrutinizing is to assist the users to show the sentiments and observe the mistakes and frauds. The hearers should do certain that the accounting statements are true and accurate and the mistakes and frauds should non be. There are two chief aims of scrutinizing which are primary nonsubjective and the secondary aim which are besides known as incidental aim.
As per Section 227 of the Companies Act 1956, the primary aim of the hearer is to describe whether the company ‘s balance sheet provide a true and just position. The primary aim of scrutinizing is to show the hearers ‘ sentiment of the truth and equity of the fiscal statements of a company so that other users can swear it. The deduction of the construct of “ true and just position ” must be understood. Harmonizing to Lord Justice Lindley, Auditors do non necessitate to advice managers or stockholders. Besides, whether the loans are made sanely and carefully or non, whether the company ‘s concern is conducted sanely and carefully ; profitableness or unprofitableness, there is nil to make with the hearer. The hearer ‘s occupation is merely to analyze and province the company ‘s true fiscal place as when he or she is scrutinizing ( India, T.I. ) .
The secondary aim is to forestall and observe the mistakes and frauds. As per the Statement on Auditing Practices that is issued by the Institute of Chartered Accountants of India, an hearer should ever remind himself or herself of the possibility of the being of mistakes and frauds in the unaudited histories since they may do the fiscal place to be misstated ( India, T.I. ) .
Fraud in accounting means the defalcation of either hard currency or goods and the deceitful use of histories. Mistakes are the errors in the fiscal information such as rule mistakes. The scrutinizing procedure is undertaken to do certain that mistakes and frauds do non be in the fiscal statement of the company.
The ground why the auditing is needed is there are ever some jobs that will be in the fiscal statement. For illustration, the fiscal study may incorporate mistake and fraud. Therefore, the scrutinizing procedure is needed for the independent individual who is known as the hearer to look into the study and study on what he or she found.
Besides, scrutinizing is needed to assist to better the internal controls of a company and assist the company to put its aims. Internal control system is established to guarantee the company ‘s minutess are controlled harmonizing to the regulations and policies. Therefore, cognizing this system enables the company ‘s occupation to be completed expeditiously and efficaciously. Audit procedure helps to increase the investor ‘s assurance because the auditing procedure provides them a sure 2nd sentiment of the company ‘s fiscal statement so that they will swear the company and put their money in the company.
( D ) The first difference between the function of internal hearer and external hearer is their place in the organisation. Internal hearers are considered portion of the organisation. The board, professional criterions and direction will find their aims. The direction and the board are their primary clients. However, external hearers are non considered as portion of the organisation, although they are engaged in it. Their aims are set by the act of the organisation and their primary client which is the board of managers.
The 2nd difference between the function of internal and external hearer is their aims. Internal hearers help the organisation to carry through its aims, better operations, manage hazard, provide internal controls and administration procedures. They are concerned will both fiscal and nonfinancial facet of the organisation. They continuously review and evaluate controls and procedures so that they are able to concentrate on future events. However, external hearers ‘ primary mission is to supply an independent sentiment on the fiscal statements of the organisation annually. They audit the fiscal statement and supply a enfranchisement of internal controls over fiscal coverage.
Besides, attack of internal control besides differs between the function of internal and external hearers. Internal hearers are concerned with all the facets sing the organisation ‘s internal control system. However, external hearers concerned the internal control system based on materiality position, which enables them to extinguish those mistakes that are non important since they do non act upon the fiscal consequences.
Finally, application of the audits besides differs between internal and external hearers. Internal hearers deal with all the organisation ‘s minutess. External hearers merely deal with those operations that will impact the fiscal consequences and the public presentation of the organisation.
Tocopherol ) In short, the chief map of audit is to verify a fiscal statement of a legal entity, to demo an audit option with a position. Audit is really of import to the users of fiscal statement because the users like revenue enhancement governments, bankers, stockholders and so on are concern in cognizing that the fiscal statements are presented reasonably. Audited fiscal statements aid to protect the users of fiscal statement by turn outing the audited company fiscal statement has no fraud and corruptness and these could assist to heighten the assurance of the users of fiscal statements.
Besides, audit prepare an outside expression at the operation of accounting and the overall fiscal wellness of a company, this is of import to the users because the users may trust on these audited fiscal statements to do a determination whether it is deserving to put in this concern or non. For illustration, bank and provider used audited fiscal statements to make up one’s mind whether it is deserving to borrow the money to the company or non.
In add-on, audit aid to add dependability to the study and cut down the missing and false information which would do users to alter their determination, these would make a favor to the users.
Last, the internal controls organisation and users. It helps to better the operation or concern procedure of a company. The external hearer aid to place the concern procedure betterment. For illustration, audit discovers any failing in internal controls. When any failings are discovered, the hearer will describe it to the users ( direction ) for subject or disciplinary actions. Hearers may give some recommendation to users and aid users to ease declaration.
F ) What is audit? Harmonizing to ‘Gale Encyclopedia of Small Organization ‘ , audit is a systematic procedure of objectively obtaining and measuring the histories or fiscal records of a governmental, organisation or other entity. There are several types of audit, such as fiscal statement audit, operational audit, forensic audit and conformity audit.
First, a fiscal statement audit is the finding of the fiscal statement provided by the board of manager of an organisation. Normally, fiscal statement audit will refer about the basic set of fiscal statement, such as Income Statement, Balance Sheet and Statement of Cash Flow. The illustration of this audit is an external audit examines the equity, truth and dependability of fiscal studies prepared by an organisation and whether it complies with relevant statute law and accounting criterion.
Second, an operational audit surveies the internal system and operation processs used by an organisation in order to bring forth goods and services sold to clients. This audit focuses on the efficiency and effectivity of the production operations. Some of the chief intents and duties of an operational audit are to measure public presentation, place countries for betterment and develop recommendations. The illustration of this audit is a private sector employs hearers to measure the effectivity and efficiency of the usage of natural stuff resources.
Third, a forensic audit investigates the fiscal records prepared by an organisation in order to observe corruptness, fraud and embezzlement of assets. The grounds of people commit fraud are deficiency of control, deficiency of fraud sensing mechanisms, absence of appropriate penalty and hapless wage of employees. Forensic audits are trained to observe, look into and discourage the fraud. . The illustration of this audit is public accounting houses employ forensic audit in order to analyse the fiscal minutess affecting unauthorised transportation of hard currency and place the plus embezzlement.
Last, a conformity audit is an overall finding of an organisation ‘s acceptance to regulative guidelines. Besides, conformity audit identifies the whether the regulations, policies or governmental ordinances are followed by the entity being audited. The illustration is a conformity hearer may scrutinize an organisation to find whether the section follows organisation ‘s regulations and ordinances. Therefore, regulations and ordinances are the standards for mensurating the section ‘s conformity.
G ) A true and just position is the significance of look. True and just position in the audit means that the fiscal statement is materially accurate based on relevant grounds. Therefore, users are able to do a good determination based on the right statement.
The Companies Act ( CA 1985 S.226 ) defines that every company ‘s net income and loss history and the balance sheet must hold a true and just position of the province of personal businesss and the net income or loss severally. The hearers should guarantee a few conditions in order to demo a true and just position in scrutinizing. For illustrations, the concluding history must be tally with the book of history and the proviso for depreciation must be right. Besides, the minutess that are cut off must be recorded decently so that all the gross revenues bills are relevant with the goods delivered and the goods that received from providers are matched with all the purchase bills. Furthermore, the minutess are recorded based on the accrual rule which are prepaid disbursals, accrued disbursals, income accrued and the income in progress must be recorded decently.
Furthermore, the history is considered as true and just position when it discloses all the material facts. The history must unwrap all stuff facts based on the gross, disbursals, assets and liabilities. Besides, the concluding histories of the limited company must be in the format under the Schedule VI of the Companies Act, 1956. For illustrations, particular companies such as Bankss must fix the histories under particular Torahs.
H ) An audit study is an rating of an organisation ‘s overall fiscal position. This papers shows the organisation ‘s assets and liabilities. Audit study is required by jurisprudence if an organisation is publically traded or regulated by the Securities and Exchange Commission ( SEC ) . There are four primary classs of audit study. They are unqualified sentiment, qualified sentiment, inauspicious sentiment and disclaimer of sentiment.
Unqualified sentiment study is besides called as a clean sentiment. This is because this study will merely publish when an hearer identifies that every fiscal records provided by the organisation is just and free of deceits. Besides, fiscal records with unqualified sentiment have been maintained in conformity with the criterion which is By and large Accepted Accounting Principles ( GAAP ) . By this, comptroller is much easier to execute the audit. Normally, unqualified study will consists of a rubric with word “ independent ” demoing that it was completed by an indifferent 3rd party. Then, the chief organic structure of the rubric emphasizes the duties of hearer, intent of audit and the audit ‘s findings.
Second, qualified sentiment study is issued if the hearer has unsatisfactory on the fiscal records that provided by the organisation. Furthermore, qualifies sentiment shows that the fiscal statement has non been maintained in conformity with GAAP but there are no deceits or inauspicious sentiments are recognized. The authorship of both qualified and unqualified sentiment is highly similar, nevertheless the lone difference between them is the qualified sentiment study will includes a paragraph that emphasizes the ground why the issued audit study is non unqualified.
Third, inauspicious sentiment study is the worst type of audit study that can be issued to an organisation. One of the ground is the organisation ‘s fiscal records do non soothe to GAAP. The other ground is the fiscal records have been misrepresented and unjust. Typically, it is an indicant of fraud. When inauspicious sentiment study is issued, the organisation must rectify its fiscal statement, explain the jobs and give sentiment as to how the records differ from GAAP. This is because the loaners and investors will usually non accept the fiscal statement with inauspicious sentiment study.
Last is disclaimer sentiment study. When the hearers are unable to finish an accurate audit study and execute their work good, a disclaimer sentiment study is issued. This state of affairs may be influenced by some factors, such as absence of appropriate fiscal records, information restraint and clip restraint. Furthermore, disclaimer sentiment study indicates besides the organisation ‘s fiscal position could non be analyzed. After disclaimer sentiment study is issued, the organisation should give all the indispensable ground for the disclaimer.
I ) Our selected companies are Maxis Berhad and Digi.Com Berhad. Both of the companies are telecommunication services companies. We have identified the classs of audit study that has been issued by hearer on both companies ‘ fiscal statement based on their one-year study for twelvemonth 2011.
For Maxis Berhad, an unqualified sentiment study has been issued by the hearers. This is because based on the hearers ‘ sentiment, they think that the accounting records and the registries required by the Act to be kept by Maxis and its subordinates of which the hearers have been decently kept in understanding with the commissariats of the Act. Furthermore, the other ground is that the hearers are satisfied that the fiscal statements of Maxis are in signifier and considered proper and appropriate for the readying of fiscal studies and the hearers are besides satisfy with the information and account received. Therefore, the audit study on the fiscal statements of the subordinates did non incorporate any making and any inauspicious remark made under Section 174 ( 3 ) of the Act.
Similarly, an unqualified sentiment study has been issued by the hearers to Digi.Com Berhad. The chief ground is the hearers determine that the fiscal statements of Digi have been decently drawn up in understanding with Financial Reporting Standards and the Companies Act, 1965 in Malaysia so every bit to supply a true and just position of the fiscal place of the group and of the company at the terminal of the accounting period. The hearers are satisfied that Digi has an appropriate and proper content for the readying of the amalgamate fiscal statements. They have besides received satisfactory information and account that they require. Therefore, the hearers ‘ studies on the fiscal statements were non capable to any making and make non include any inauspicious remark required under Section 174 ( 3 ) of the Act.
J ) First of all, unaudited fiscal statements represent undependable fiscal statement because it is an accounting study that has non gone through the checking of truth and it may incorporate fraud which bring the significance of the purpose to alter or deceit of accounting record for a net income motivate. Besides, unaudited fiscal statement may misdirect the users of fiscal statements with their fiscal public presentation assessment will be put up by the optimistic to deceive the users of fiscal statements. Last, unaudited fiscal statements will impact the user ‘s opinion quality.
An unaudited fiscal statement can be used when bespeaking for a bank loan or requested from fiscal establishment. This is because for the current twelvemonth the audited fiscal statement is non accessible. So the fiscal establishment and bank merely can trust on these unaudited fiscal statements to boot before audited fiscal statements.
Besides, an unaudited fiscal statement can be used in a private limited company. This is because audited fiscal statement is non necessary for investors and stockholders but the company will utilize the information in the unaudited fiscal statements to do concern determinations.
For listed company, it is required to register unaudited fiscal statements on the quarterly footing with specific regulative governments.
Besides, of import fiscal information is besides announced to investor and general populace with unaudited fiscal statements.