English for auditing compatibility mode

ENGLISH FOR AUDITING

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Outlines
3.1. Basic Auditing (Các vấn đề chung về kiểm toán)
3.2. Techniques in Collecting Audit Evidence (Các kỹ
thuật thu thập bằng chứng kiểm toán )
3.3. Types of Audit Tests (Thử nghiệm kiểm toán)
3.4. Internal Control (Kiểm soát nội bộ)
3.5. Audit of Items in Financial Statements and Business
Cycles (Kiểm toán các khoản mục trên báo cáo tài chính và
các chu trình kinh doanh)
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3.1.

Basic Auditing

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3.1.1. Nature 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.

Auditing should be done by a competent,

independent person.

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Information and Established
Criteria
To do an audit, there must be information in a
verifiable form and some standards (criteria)
by which the auditor can evaluate the information.

FASB

Criteria

IASB
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Accumulating Evidence and
Evaluating Evidence
Evidence is any information used by the auditor
to determine whether the information being
audited is stated in accordance with the
established criteria.
Transaction
data

Client
Testimony

Written and
electronic
Communications
with outsiders

Observations

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Competent, Independent
Person

Judgment and
Experience

Competence
Independence

Evaluation of
Evidence
Proper
Conclusion
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3.1.2.
Types of Audits and
Types of Auditors

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Types of Audits
1

Operational Audit

2

Compliance Audit

3

Audit of Financial Statement

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Operational Audit
Example

Evaluate computerized payroll system
for efficiency and effectiveness

Information

Number of records processed, costs of
the department, and number of errors

Established
Criteria

Company standards for efficiency and
effectiveness in payroll department

Available
Evidence

Error reports, payroll records, and
payroll processing costs
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Compliance Audit
Example

Determine whether bank requirements
for loan continuation have been met

Information

Company records

Established
Criteria

Loan agreement provisions

Available
Evidence

Financial statements and
calculations by the auditor
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Audit of Financial Statements
Example

Annual audit of Boeing’s financial
statements

Information

Boeing's financial statements

Established
Criteria

Generally accepted accounting
principles

Available
Evidence

Documents, records, and outside
sources of evidence
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Types of Auditors
1

Independent auditors/
Certified public accounting firms

2

Governmental accountability office auditors

3

Internal auditors

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Three Requirements for
Becoming a CPA
 Educational requirement
 Uniform CPA examination requirement
 Experience requirement

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3.1.3. Fundamental Concepts
in Auditing

Learning objectives
 Fraud and Error
 Materiality and Audit risk
 Audit Evidence

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Fraud and Error
 A Student took materials (text books or mini photocopies) in
examination room. (Rule: Close-book exam)

What is fraud and error?

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What is Fraud?
 Fraud is an intentional act by one or more individuals among
management, those charged with governance, employees, or third
parties, involving the use of deception to obtain an unjust or
illegal advantage.
 Although fraud is a broad legal concept, the auditor is concerned
with fraud that causes a material misstatement in the financial
statements.

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Types of Fraud

 Misappropriation of assets
 Fraudulent Financial Reporting

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Misappropriation of assets (“employee fraud”) involves theft of an
entity’s asset.
Examples include:





Embezzling receipts
Stealing physical assets or intellectual property
Assets are used wrong purposes
….

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Fraudulent Financial Reporting (“management fraud”)
 Misrepresentation in, or intentional omission from, the financial
statements of events, transactions, or other significant information
 Manipulation, falsification or alteration of records or documents
from which financial statements are prepared
 Intentional misapplication of accounting principles relating to
amounts, classification, manner of presentation, or disclosures.

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What is Error?
Unintentional mistakes in financial information such as:
 Errors of commission: mathematical or clerical mistakes
in the recording and accounting data;
 Errors of omission: transactions, events is left out of an
accounting statement by mistake.
 Errors of principle: misapplication or misunderstanding of
accounting policies unintentionally. Ex: wrong allocation
between different accounts, wrong valuation of assets,…
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Study break
An CPA has the responsibility to design the audit to provide
reasonable assurance of detecting errors and fraud that may have
a material effect on FS. Which of the following, if material,
would be a fraud as defined in auditing standard:
1, Misappropriation of an assets
2, Mistake in calculation of asset’s value
3, Mistake in application of accounting principles
4, Duplication of recording accounting transaction
unintentionally
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Materiality
Materiality is the magnitude of an omission or

misstatement of accounting information that, in the light of
surrounding circumstances, make it probable that the judgment
of reasonable person relying on the information would have
been changed or influenced by the omission or misstatement.

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Assessment of Materiality
 Materiality is a relative rather than absolute concept
 Materiality includes both quantitative and qualitative
consideration (size and nature of the misstatement)

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 Quantitative materiality level
 No official guidelines within auditing standards
 Bases for evaluating Materiality
 5-10% of Net Income before Taxes
 ½-1% of Total Assets
 ½-1% of Total Revenue
 1- 2% of Equity
 Auditor add up all individually immaterial misstatements in
order to detect material misstatement in aggregate.
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