Additional Information
Book Details
Abstract
Auditing Fundamentals covers the exciting and developing financial area of both External and Internal auditing in a clear and reader friendly way. This up-to-date textbook examines the fundamentals of auditing in terms of legislation, codes affecting the profession, and the International Auditing Standards.
Table of Contents
| Section Title | Page | Action | Price |
|---|---|---|---|
| Cover | Cover | ||
| Dedication | v | ||
| Brief contents | vii | ||
| Contents | ix | ||
| Preface | xv | ||
| About the authors | xvii | ||
| Acknowledgements | xviii | ||
| Chapter 1: Introduction to audit | 1 | ||
| Objectives | 1 | ||
| Introduction | 2 | ||
| External audit | 3 | ||
| Internal audit | 5 | ||
| Summary | 6 | ||
| Practice question | 6 | ||
| Chapter 2: External and internal audit | 7 | ||
| Objectives | 7 | ||
| Introduction | 8 | ||
| External audit | 8 | ||
| External auditor’s reports to users and to management | 8 | ||
| Management representation letters | 9 | ||
| The management letter | 10 | ||
| External audits in the public sector | 10 | ||
| Auditor liability | 11 | ||
| What are the auditor’s duties? | 12 | ||
| Relationship between external and internal audit | 14 | ||
| Internal audit | 14 | ||
| Independence | 15 | ||
| Staffing and training | 16 | ||
| Relationships | 16 | ||
| Due care | 17 | ||
| Planning, controlling and recording | 17 | ||
| Evaluation of the internal control systems | 17 | ||
| Evidence | 18 | ||
| Reporting and follow-up | 18 | ||
| The image and marketing of internal audit | 20 | ||
| Performance indicators for internal audit | 22 | ||
| External audit reviews of internal audit | 22 | ||
| Summary | 24 | ||
| Practice question | 24 | ||
| Chapter 3: Auditing standards | 25 | ||
| Objectives | 25 | ||
| Introduction | 26 | ||
| Background to the adoption of international auditing standards | 26 | ||
| History and development | 26 | ||
| The IAPC becomes the IAASB | 27 | ||
| The International Auditing and Assurance Standards Board | 27 | ||
| International Standards on Auditing | 27 | ||
| Accounting and auditing regulation in the UK | 28 | ||
| The Financial Reporting Council | 28 | ||
| The Professional Oversight Board | 29 | ||
| The Auditing Practices Board | 30 | ||
| International Standards on Auditing: an introduction | 31 | ||
| International Standard on Quality Control (UK and Ireland) | 37 | ||
| Practice notes and bulletins | 38 | ||
| Summary | 38 | ||
| Practice question | 38 | ||
| Chapter 4: Professional ethics and code of conduct | 39 | ||
| Objectives | 39 | ||
| Introduction | 40 | ||
| Why is there a code of professional ethics? | 40 | ||
| Why is there a need for an ethics guideline for professional auditors? | 41 | ||
| Background | 42 | ||
| Professional ethics and codes | 43 | ||
| Reasons for adopting ethical standards | 43 | ||
| APB Ethical Standard 1 – Integrity, objectivity and independence | 45 | ||
| Integrity | 45 | ||
| Objectivity and independence | 46 | ||
| APB Ethical Standard 2 – Financial, business, employment and personal relationships | 48 | ||
| APB Ethical Standard 3 – Long association with the audit engagement | 49 | ||
| APB Ethical Standard 4 – Fees, remuneration and evaluation policies, litigation, gifts and hospitality | 50 | ||
| APB Ethical Standard 5 – Non-audit services provided to audit clients | 51 | ||
| Audit firms as advisory companies | 51 | ||
| Differences between independence in fact and independence in appearance | 51 | ||
| Proper conduct | 52 | ||
| Ethical Standard: Provisions Available for Small Entities 2005, revised 2008 | 52 | ||
| Revised Ethical Standards 2008 | 53 | ||
| Internal audit ethics | 53 | ||
| Standards and quality of audit | 54 | ||
| International Federation of Accountants (IFAC) ethics guidelines | 55 | ||
| European Union | 55 | ||
| United States | 56 | ||
| Summary | 56 | ||
| Practice question | 56 | ||
| Chapter 5: Corporate governance | 57 | ||
| Objectives | 57 | ||
| Introduction | 58 | ||
| Corporate governance codes | 59 | ||
| Corporate governance developments | 59 | ||
| Cadbury Report (1992) | 62 | ||
| Audit interest in the Cadbury Report | 62 | ||
| Greenbury Report (1995) | 63 | ||
| Hampel Report (1997) | 64 | ||
| Turnbull Report (1999) (Turnbull 1) | 65 | ||
| Smith and Higgs reports (2003) | 66 | ||
| FRC Combined Code (2003) | 68 | ||
| Recommended committees in the Combined Code (2003) | 69 | ||
| Tyson Report (2003) | 71 | ||
| Flint Report (2005) (Turnbull 2) | 71 | ||
| FRC Combined Code (2006) amendments | 73 | ||
| Key aspects of corporate governance in the UK (FRC 2006 and 2008) | 73 | ||
| Audit and corporate governance | 75 | ||
| Audit and risk management | 75 | ||
| Relationship between external and internal audit | 77 | ||
| US legislation on corporate governance – the Sarbanes-Oxley Act (2002) | 78 | ||
| Sarbanes-Oxley, internal auditing and corporate governance | 79 | ||
| An internationally accepted format for corporate governance | 80 | ||
| Limitations to the international acceptance of global corporate governance | 81 | ||
| Summary | 82 | ||
| Practice question | 82 | ||
| Chapter 6: Different approaches to investigation | 83 | ||
| Objectives | 83 | ||
| Introduction | 84 | ||
| Statutory audits | 84 | ||
| Voluntary audits | 84 | ||
| Social audits | 85 | ||
| Value-for-money (VFM) reviews | 85 | ||
| Performance indicators | 87 | ||
| Different approaches to VFM | 88 | ||
| Financial investigations | 90 | ||
| Fraud | 90 | ||
| Evidence | 92 | ||
| Summary | 95 | ||
| Practice question | 96 | ||
| Chapter 7: Planning the audit | 97 | ||
| Objectives | 97 | ||
| Introduction | 98 | ||
| The planning cycle | 98 | ||
| Preliminary arrangements and two important ISAs | 99 | ||
| The overall planning strategy | 99 | ||
| The audit plan | 100 | ||
| The value of the audit plan to the audit manager/senior partner | 101 | ||
| Post-audit review | 101 | ||
| Additional work | 102 | ||
| Considerations for initial audit engagements | 102 | ||
| Direction, supervision and review | 103 | ||
| Direction | 103 | ||
| Supervision | 103 | ||
| Review | 104 | ||
| Documentation | 105 | ||
| Working papers | 105 | ||
| Recording the audit work | 106 | ||
| Performance assessment | 108 | ||
| Controlling the audit | 108 | ||
| Quality of audit | 108 | ||
| Audit risk | 109 | ||
| Can it be eliminated? | 109 | ||
| Materiality | 110 | ||
| The importance of materiality | 111 | ||
| Assessing materiality | 111 | ||
| Qualitative considerations | 112 | ||
| Summary | 112 | ||
| Practice question | 112 | ||
| Chapter 8: Co-operative working between auditors and other professionals | 113 | ||
| Objectives | 113 | ||
| Introduction | 114 | ||
| The letter of engagement | 114 | ||
| Content of the engagement letter | 115 | ||
| Importance of information technology in the audit work plan | 116 | ||
| Computer-assisted audit techniques | 116 | ||
| Structured audit documentation | 119 | ||
| Using the work of others | 119 | ||
| Using the work of an expert | 119 | ||
| Using the work of another auditor | 120 | ||
| Use of internal audit work by the external auditor | 121 | ||
| Working effectively with other review and assurance agencies (external and internal) | 123 | ||
| Outsourcing internal audit | 124 | ||
| Advantages | 124 | ||
| Disadvantages | 125 | ||
| Summary | 125 | ||
| Practice question | 125 | ||
| Chapter 9: Internal control and systems audit | 126 | ||
| Objectives | 126 | ||
| Introduction | 127 | ||
| Risk | 127 | ||
| Internal control | 128 | ||
| Systems-based auditing | 133 | ||
| Planning | 134 | ||
| Evaluating a system | 134 | ||
| Testing | 136 | ||
| Compliance testing | 136 | ||
| Walkthrough tests | 137 | ||
| Substantive testing | 137 | ||
| Weakness testing | 138 | ||
| Evaluation and closure | 138 | ||
| Example of control evaluation: a staff restaurant | 138 | ||
| Summary | 142 | ||
| Practice question | 143 | ||
| Chapter 10: Key systems audits | 144 | ||
| Objectives | 144 | ||
| Introduction | 145 | ||
| Stock and procurement | 145 | ||
| Potential risks | 146 | ||
| Systems control objectives | 146 | ||
| Questions about the system | 146 | ||
| Substantive tests | 147 | ||
| Payroll | 148 | ||
| Potential risks | 148 | ||
| Systems control objectives (SCOs) and key controls | 148 | ||
| Payments to suppliers | 149 | ||
| Potential risks | 149 | ||
| Systems control objectives (SCOs) and key controls | 149 | ||
| Substantive tests | 150 | ||
| Sales and receipts | 150 | ||
| Potential risks | 151 | ||
| Systems control objectives (SCOs) and key controls | 151 | ||
| Computer systems | 152 | ||
| Potential risks | 152 | ||
| Input controls | 153 | ||
| Processing controls | 154 | ||
| Storage controls | 154 | ||
| Output controls | 156 | ||
| Access controls | 156 | ||
| Summary | 156 | ||
| Practice question | 157 | ||
| Chapter 11: Revenue and capital expenditure | 158 | ||
| Objectives | 158 | ||
| Introduction | 159 | ||
| Asset security | 159 | ||
| Safety of employees and members of the public | 160 | ||
| Control of revenue expenditure | 161 | ||
| Questionnaires | 163 | ||
| Internal control questionnaires (ICQs) | 163 | ||
| Internal control evaluation questionnaires (ICEQs) | 164 | ||
| Flowcharting | 165 | ||
| Capital construction contracts | 166 | ||
| Need and feasibility study | 169 | ||
| Option appraisals | 169 | ||
| Capital programme (or capital budget) | 170 | ||
| Design stage | 171 | ||
| Construction of the bill of quantities | 171 | ||
| Contract stage | 174 | ||
| Construction phase | 174 | ||
| Final account stage | 175 | ||
| Post-project appraisal | 176 | ||
| Service contracts | 177 | ||
| Summary | 178 | ||
| Practice question | 178 | ||
| Chapter 12: Audit risk assessment and sampling | 179 | ||
| Objectives | 179 | ||
| Introduction | 180 | ||
| Risk management | 181 | ||
| Identification of risk | 181 | ||
| Risk measurement | 185 | ||
| Avoidance of risk | 187 | ||
| Reduction of risk | 188 | ||
| Accommodation of risk | 188 | ||
| Audit risk | 190 | ||
| Inherent risk | 191 | ||
| Control risk | 191 | ||
| Detection risk | 191 | ||
| Overall audit risk | 192 | ||
| Sampling | 192 | ||
| Sample selection | 192 | ||
| Summary | 196 | ||
| Practice question | 196 | ||
| Chapter 13: Financial statement audit | 197 | ||
| Objectives | 197 | ||
| Introduction | 198 | ||
| Financial | 198 | ||
| Non-audit services | 200 | ||
| The interim audit | 202 | ||
| Auditing of accounting estimates | 204 | ||
| Uncertainty and risk | 205 | ||
| Summary | 207 | ||
| Practice question | 207 | ||
| Chapter 14: Asset verification | 208 | ||
| Objectives | 208 | ||
| Introduction | 209 | ||
| Pre-audit preparation | 210 | ||
| Verification of tangible fixed assets | 210 | ||
| Land and buildings | 211 | ||
| Plant and machinery | 211 | ||
| Vehicles | 212 | ||
| Furniture, fitting and equipment | 212 | ||
| Investments | 212 | ||
| Goodwill | 213 | ||
| Certification of current assets | 213 | ||
| Debtors | 213 | ||
| Bank and cash balances | 214 | ||
| Analytical procedures | 214 | ||
| Computer-assisted audit techniques (CAATs) | 215 | ||
| Summary | 216 | ||
| Practice question | 217 | ||
| Chapter 15: Liabilities and accruals | 218 | ||
| Objectives | 218 | ||
| Introduction | 219 | ||
| Long-term liabilities | 219 | ||
| Share capital | 219 | ||
| Provisions and reserves | 220 | ||
| Loans and debentures | 221 | ||
| Current liabilities | 222 | ||
| Creditors | 222 | ||
| Dividends | 224 | ||
| Taxation | 224 | ||
| Overdraft | 225 | ||
| Analytical review | 225 | ||
| Summary | 226 | ||
| Practice question | 226 | ||
| Chapter 16: Going concern | 227 | ||
| Objectives | 227 | ||
| Introduction | 228 | ||
| The going concern assumption | 228 | ||
| Management’s assessment of the going concern assumption | 229 | ||
| Risk to the going concern of an entity | 229 | ||
| Auditor’s responsibility | 231 | ||
| Period beyond management’s assessment | 231 | ||
| Procedures when events are identified | 232 | ||
| Management assessments | 232 | ||
| Disclosure requirement relating to going concern issues | 232 | ||
| Additional procedures when events or conditions are identified | 233 | ||
| Subsequent events review | 233 | ||
| The overall review | 234 | ||
| Auditing Practices Board – Bulletin 2008/1 | 234 | ||
| Audit evidence issues | 235 | ||
| The Companies Act 2006 and going concern issues | 235 | ||
| Summary | 236 | ||
| Practice question | 236 | ||
| Chapter 17: Audit reporting | 237 | ||
| Objectives | 237 | ||
| Introduction | 238 | ||
| The audit report | 238 | ||
| The unqualified audit report | 240 | ||
| Introductory paragraphs | 241 | ||
| Scope paragraph | 241 | ||
| Opinion paragraph | 242 | ||
| Date, address and signature | 242 | ||
| Sample unqualified statutory auditor’s report | 243 | ||
| The modified (qualified) audit report | 245 | ||
| Matters that affect the auditor’s opinion | 245 | ||
| Matters that do not affect the auditor’s opinion | 246 | ||
| Inherent uncertainty and the auditor’s report | 248 | ||
| Disclaimer of responsibility | 248 | ||
| Comparison between SAS 600 and ISA 700 | 248 | ||
| Management reports, internal audit and review reports | 249 | ||
| Summary | 250 | ||
| Practice question | 250 | ||
| Chapter 18: Public sector auditing | 251 | ||
| Objectives | 251 | ||
| Introduction | 252 | ||
| What are the public sector organisations? | 253 | ||
| Accountability in the public sector | 253 | ||
| Parliamentary accountability | 254 | ||
| Other forms of accountability | 255 | ||
| Key points of accountability in the public sector | 255 | ||
| Accountability feedback | 255 | ||
| Public sector auditors | 256 | ||
| National Audit Office (NAO) | 256 | ||
| The Audit Commission | 258 | ||
| Devolved audit | 261 | ||
| External audit in the public sector | 261 | ||
| Internal audit in the public sector | 262 | ||
| External and internal audit relationships | 263 | ||
| Developments impacting on current auditing practices in the public sector | 264 | ||
| Local authority accountability issues – reports in the public interest | 270 | ||
| Report in the public interest versus the qualified audit report | 271 | ||
| Housing associations and charities | 272 | ||
| Summary | 273 | ||
| Practice question | 273 | ||
| Chapter 19: Value-for-money audit and performance indicators in not-for-profit organisations | 274 | ||
| Objectives | 274 | ||
| Introduction | 275 | ||
| The role of audit | 276 | ||
| External audit, internal audit and management’s responsibilities for VFM | 276 | ||
| Statutory requirement for a VFM audit | 277 | ||
| VFM focus | 277 | ||
| Undertaking a VFM audit | 278 | ||
| Categories of VFM studies | 279 | ||
| Performance targets, measures and indicators | 280 | ||
| The value of performance measurement | 281 | ||
| Internal and external performance measures that are used to enhance accountability | 281 | ||
| Evaluation of performance indicators | 283 | ||
| Setting of targets and measures | 284 | ||
| Limitations of performance indicators | 285 | ||
| Summary | 289 | ||
| Practice question | 289 | ||
| Chapter 20: Emerging issues in auditing | 290 | ||
| Objectives | 290 | ||
| Introduction | 291 | ||
| Forensic audit | 292 | ||
| Working with others | 293 | ||
| Forensic auditing and IT | 293 | ||
| The expert witness | 293 | ||
| The development of the ‘added value’ audit | 294 | ||
| Changes in the nature of auditing | 294 | ||
| Globalisation | 295 | ||
| Wider use of technology | 295 | ||
| The growth of audit assurance services | 295 | ||
| Management of risk | 295 | ||
| Risk management and audit | 296 | ||
| Environmental audit | 296 | ||
| Auditor skills | 296 | ||
| Environmental issues that auditors may encounter | 296 | ||
| Social audit | 297 | ||
| Summary | 297 | ||
| Practice question | 297 | ||
| Index | 299 |