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study about financial statements and audit
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PRESENTED BY TALHA SHAHZADI
0004RANA SOHAIL 007M USMAN KHAN
OO14EJAZ GADI 0025
MALIK SAQIB 0030
M WASEEM JUTT 0047
Group I
PRESENTED TO,PROF. USMAN
SB.
M USMAN KHAN UNIVERSITY OF CENTRAL PUNJAB COURSE MCOM K1F12MCOM0014
Introduction to Financial
Statements and Audit
Introduction to Financial Statements and Audit
We cover in this session the following:
1. Introduction to Financial Statements2. User’s of financial statements3. Why do we audit them
Introduction to Financial Statements Purpose of Financial Statements
Financial statements are a structured representation of the financial position (Balance Sheet) and financial performance (Income Statement) of an entity.
The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions.
Introduction to Financial Statements – User of Financial Statements
User of the financial statements Interest of the user
Equity investors (existing and potential) They are interested whether buy, hold or sell the shares in hand and also enable them in payment of dividends.
Loan creditors ie, existing and potential holders of debentures and loan stock, and providers of short-term loans
The amount will be paid when due and for continuation of the business.
Employees (existing, potential and past) Interested in stability and profitability for employment opportunities, remuneration and retirement benefits.
Business contacts including customers, trade creditors, competitors and potential take-over bidders
Whether the payment of loan will be made in due dates and enable sustainability of business for future business with the enterprise.
Government, including tax authorities, government departments and local authorities
Interested in allocation of resources and also to regulate the activities of an enterprise and determining tax policies and as a basis for national income.
Public, including tax payers, ratepayers and environmental groups
Trends and recent development in the prosperity of the entity and range of it’s activities.
Why do we audit them- Need for Audit
Principle (Shareholders)
Directors
Auditor
Information irregularityand conflict of interest lead
to information risk for the principle
Principle provides capital and hires manager
to manage it.
Directors hires audit to report on the fairness of manager financial statements. Risk information irregularity of principle reduce.
Auditor gathers evidence to evaluate fairness of manager financial statements.
Director is accountable to Principle;provides financial reports.
M waseem juttUNIVERSITY OF CENTRAL PUNJABCOURSE MCOMK1F12MCOM0047
Financial statement and audit major points for discussion
Objective
Types
Complete process
Regulation
Expectation gap
Objective
• Verify the Financial statements which are true and fair
• Compliance with international standards of reporting (IAS-1)
• International accounting standard-1(presentation f/s)
@Sako Mayrick 2006
Objectives of Auditing
• Primary Objective (main objective)–To produce a report by the auditor
of his opinion of the truth and fairness of financial statements so that any person reading or using them can have belief in them
@Sako Mayrick 2006
Objectives of Auditing
• Secondary– To detect errors and fraud ( Consider
materiality)– To prevent errors and fraud by the deterrent
and moral effect of the audit– To provide spin- off effects. The auditor will
be able to assist his clients with accounting , systems, taxation , financial , and other problems.
Talha shahzadiUNIVERSITY OF CENTRAL PUNJABCOURSE MCOMK1F12MCOM0004
Types of Audit
Internal audit not required by law but external audit is require in some situations.
Internal audit
External audit
Internal audit do only for in these situations
• The exercise of special investigations on detection of fraud.
• The preparation and documentation of internal procedures and processes in accordance with client needs and in accordance with regulatory bodies' requirements.
• The design and implementation of internal audit programs.
• The preparation of internal audit reports for management use and for company internal audit committees.
@Sako Mayrick 2006
Internal auditing External auditing
Objectives To advise management on whether the organization has sound systems of internal controls to protect the organization against loss
To provide an opinion on whether the financial statements provide a true and fair view
Legal basis All areas of the organization, operational as well as financial
Financial focus
Scope All areas of the organization, operational as well as financial
Financial focus
Approach Increasingly risk baseAssess risksEvaluate system of controlsTest operation of systemMake recommendation for
improvements
Increasingly risk basedTest underlying transactions that
form the basis of the financial statements
Responsibility To advice and make recommendations on the internal control and corporate governance
To form opinion on whether the financial statements provide a true and fair view.
Types of external audit• carried because the law requires them. Statutes
include Companies Act, Parastatal organization ActStatutory
audit
• Not compulsory for private companies• Only require for the satisfaction of shares
holdersNon-
statutory audit
@Sako Mayrick 2006
Planning of the audit
Assessment of the accounting and internal control systems and audit risk assessments
Consideration of the ways in which audit evidence can be sought
Testing of Internal Controls ‘test of control’
Extensive testing of transactions and balances ‘substantive procedures’
Reduced testing of transactions and balances “substantive procedures’
Review of financial statements
Audit Report
Complete process of audit
Rana sohailUNIVERSITY OF CENTRAL PUNJABCOURSE MCOMK1F12MCOM00o07
@Sako Mayrick 2006
• ATTESTATION occurs when a practitioner is engaged to issue or does issue a written communication that expresses a conclusion about the reliability of a written assertion that is the responsibility of another party.
• Examples:– The effectiveness of internal control– Financial information other than the financial
statements– Future-oriented financial information– Compliance with statutory, regulatory, or
contractual obligations– Management’s discussion and analysis
AUDITING, ATTESTATION, AND ASSURANCE SERVICES
@Sako Mayrick 2006
AUDITING, ATTESTATION, AND ASSURANCE SERVICES
ASSURANCE services are independent professional services that improve the quality of information, or its context, for decision makers.Examples:
Risk assessmentInformation system reliabilityElectronic commerceHealth care performance measurement
Regulations
• IFAC (international federation for accountancy)
IFAC is comprised of 179 members and associates in 130 countries, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce. IFAC members are professional accountancy organizations recognized by law or general consensus within their countries as substantial national organizations. National organizations may apply to become an IFAC associate where the organization is working toward membership.
Subsidiary boards
i) IAASB The International Auditing and Assurance Standards
Board (IAASB) is an independent standard-setting body that serves the public interest by setting high-quality international standards for auditing.
ii) IFRS ( international financial reporting standard)iii) IAS (international accounting standard
Ejaz gadiUNIVERSITY OF CENTRAL PUNJABCOURSE MCOMK1F12MCOM0025
Professional ethics
• The International Ethics Standards Board for Accountants (IESBA) is an independent standard-setting body that serves the public interest by setting high-quality ethical standards for professional accountants and by facilitating the convergence of international and national ethical standards, including auditor independence requirements, through the development of a healthy, internationally appropriate code of ethics.
Conceptual framework
principal
threats
Safe guards
Principal
• Objectivity ( auditor must be independent)• Integrity ( auditor must be honest and
punctual)• Professional competence ( update with
knowledge and standards• Confidentiality (auditor don’t share the secrecy
of company to others.• Professional behavior ( auditor behavior must
be the professional.
Malik saqibUNIVERSITY OF CENTRAL PUNJABCOURSE MCOMK1F12MCOM0025
Threats
• interest threat ( auditor must be independent person, he have no any interest in company and its profits)
• Advocacy ( he is not doing any work on company behalf like negotiate with others organizations and companies)
• Intimation( he is purely independent person)
Expectation gap
• Auditor not prepare the financial statements of that company where he is doing audit.
• Qualified reports are the negative report of the organization while unqualified reports are positive reports of the company
• Auditor is not hire for the detection of fraud while he is hire for opinions on statements, but if he find any detection he will point out it.
Opinions on reports
Thanks