Basic Auditing Principles
March 28, 2012
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During a financial audit, an auditor evaluates a legal entity to determine how valid and reliable its financial statements are. An auditor is tasked with providing a reasonable assurance that the statements are free from error or fraud.
The growing number of companies, changes in financial laws, and increased scrutiny of company finances have all kept accountants and auditors in high demand. Accounting degree programs are consequently growing in popularity as well. There is a lot of intricate work involved in auditing a company. To be able to state an opinion of reasonable assurance, auditors follow the following standards and principles.
When working with a client, an auditor must:
- Have adequate training and proficiency to perform the audit.
- Maintain independence in fact, appearance, and mental attitude in all matters relating to the audit.
- Exercise due professional care when performing the audit and preparing the report.
Field Work Standards
An auditor also needs to:
- Adequately plan work and properly supervises assistants.
- Obtain an understanding of the entity and its environment to assess the risk of either error or fraud in financial statements.
- Gather sufficient evidence by performing audit procedures until a reasonable basis for an opinion regarding financial statements can be reached.
When compiling the final report, an auditor will:
- State in the auditor’s report if the financial statements are in accordance with generally accepted accounting principles.
- Identify circumstances where those principles are not consistently observed.
- State so if informative disclosures are not reasonably adequate.
- Express an opinion regarding the financial statements, or state that an opinion cannot be expressed.
Financial scandals such as Enron and WorldCom have led to the need for increasingly better oversight of company finances and more thorough audits. This keeps accountants and auditors very busy, and in very high demand.
Different countries or jurisdictions may have somewhat different auditing standards and principles, but they all serve to detect and deter incompetence and dishonesty in a company’s handling of their finances.
This article is presented by Briarcliffe College. Contact us today if you’re interested in developing marketable knowledge and career-relevant skills with our accounting program.