Professional Documents
Culture Documents
of financial statements that are free from material misstatements, whether from
error or fraud
2. To provide the auditor with the following information:
All records, documentation and other matters relevant to the preparation and
presentation of the financial statements
Any additional information the auditor may request from management
Unrestricted access to those within the organization if the auditor determines
it necessary to obtain audit evidence objectivity.
It is not uncommon for the auditor to make suggestions about the form and
content of the financial statements, or even assist management by drafting them,
in whole or in part, based on information provided by management. In those
situations, managements responsibility for the financial statements does not
diminish or change.
Audit Objectives
The primary purpose of the audit was to assess the effectiveness and efficiency
of security measures and their compliance with Government Security Policy
(GSP) and Operational Standards. The objectives follow Treasury Boards Audit
of Security and Audit Guide to Information Technology Security and include the
assurances that:
a management control framework exists;
an effective security program is in place;
security education and training is adequate;
information/communications is appropriately classified and protected;
an effective personnel screening program is enforced;
security breaches are dealt with;
physical safeguards are in place for the protection of personnel and assets;
contingency management has been developed;
security requirements are met in contract management; and
threat and risk assessments are conducted on a regular basis and prior to major
system, application and telecommunication changes.
Audit Scope and Approach
The information used in this report was collected through the review of relevant
documents, interviews and visual inspections of security measures on site.
Interviews were also completed with the user community to obtain their
comments and determine their understanding and capability to apply the
security practices and standards in their own environment. The audit team used
the audit questionnaires and audit plan developed during the preliminary survey
phase and reviewed the management control framework related to the security
function. The following elements were audited: Security Management Control
Framework Administrative Security
Physical Security
IT Security
Personnel Security
THE AUDITOR AND MANAGEMENT OF CORPORATIONS
Manasseh (2001) describes the managerial functions that are effected through
the office of the internal auditor. By looking at the key managerial functions that
determine a firms success, they emphasize therelevance of the auditing office
in making sure that there is (1) An effective Organization plan (2) Proper record
keeping (3) Segregation of duties to enhance accountability (4) Authorization
(5) Supervision of work (6) Safe guarding of assets (7) Well organized internal
audit (8) competent staff areemployed (9) proper accounting control Saleemi
and Ajowi (2000) observed that the auditor has two sets of objectives to
accomplish. These they group as;
Primary objectives and
Secondary objectives
Primary objectives of the Auditor In describing the audit objectives,
Saleemi
and
Ajowi
(2000)
explained
that
the
auditor
has
fraud, assist their clients improve their accounting systems and finding out
whether there are proper systems of internal control in the clients firm.
AUDIT DEMAND
Taylor and Glezen (1985) explain the demand for auditors as being aroused by
the needs of the present and potential investors, and the need for stewardship
accounting. They observed that it is the need of theauditor to provide the
investors with unbiased expert opinion by examining the operations of
thecompany. Hubbard T. D. (1983) observed that there exists conflict of interest
between owners and managers, and that it is the responsibility of the auditor as
a corporate strategist to resolve this conflicts. Taylor and Glezen (1985)
describes the corporate functions of the auditor as to include; (a) Auditing, (b)
Tax advisory services, (c) Management advisory services, and (d) Accounting
services.
PURPOSE OF AUDIT
For a better understanding we could classify the Purpose of
audit as:
1. Primary Purpose
2. Secondary Purpose.
Primary Purpose: To determine and judge the reliability of
the financial statement and the supporting accounting records
of a particular financial period is the main purpose of the audit.
As per the Indian Companies Act, 1956 it is mandatory for the
organizations to appoint a auditor who, after the examination
and verification of the books of account, disclose his opinion
that whether the audited books of accounts, Profit and Loss
Account and Balance Sheet are showing the true and fair view
of the state of affairs of the company's business. To get a true
and fair view of the companys affairs and express his
opinion, he has to thoroughly check all the transactions and
relevant documents of the company made during the audited
period. Which will help the auditor to report the financial
condition and working result of the organization. While carrying
out the process of audit, the auditor may come across certain
errors and frauds. But detection of fraud or errors are not the
primary objective of the audit. They are come under the
secondary objectives of audit.
Audit also disclose whether the Accounting system adopted in
the organization is adequate and appropriate in recording the
various transactions as well as the setbacks of the system.
Secondary Purpose:
In order to report the financial condition of the business, auditor has to examine
the books of accounts and the relevant documents. In that process he may come
across some errors and frauds. We may classify these errors and frauds as
below:
1. Detection and prevention of Errors
2. Detection and prevention of Frauds.
Detection and prevention of Errors: Following types of errors can be detected
in the process of auditing.
1. Clerical Errors
2. Errors of Principle
Clerical Errors: Due to wrong posting such errors may occur. Money received
from Microsoft credited to the Siemens account is an example of clerical error.
Even though the account was posted wrongly, the trial balance will agree. We
can classify clerical errors as below:
i. Errors of Commission
ii. Errors of Omission
iii. Compensating Errors.
i. Errors of Commission: These errors are errors caused due to wrong posting
either wholly or partially of in the books of original entry or ledger accounts or
wrong totaling, wrong calculations, wrong balancing and wrong casting of
subsidiary books. For example Rs. 5000 is paid to Microsoft for the supply of
windows program and the same is recorded in the cash book. While posting the
ledger the Microsoft's account is debited by Rs. 500. It may be due to the
carelessness of the accountant. Most of these errors of commission are reflected
in the trial balance and can be identified by routine checking of the books.
ii. Errors of Omission: When there is no record of transactions in the books of
original entry or omission of posting in the ledger could lead to such errors.
Sales not recorded in the sales book or omission to enter invoices in the
purchase book are examples of Errors of Omission. Errors due to entire
omission will not affect the trial balance. Errors due to partial omission will
affect the trial balance and can be detected.
iii. Compensating Errors are errors committed in such a way that the net result
of these errors on the debit side and credit side would be nullifying the net effect
of the error. For example, Ram's account which was to be debited for Rs. 5000
was credited for Rs. 5000 and similarly, Sita's Account which was to be credited
for Rs. 5000 was debited for Rs. 5000. These two mistakes will nullify the
effect of each other. Unless detailed investigation is undertaken such errors are
difficult to locate as both the sides of the trial balance are equally affected.
2. Errors of Principle: While recording a transaction, the fundamental
principles of accounting is not properly observed, these types of errors could
occur. Over valuation of closing stock or incorrect allocation of expenditure or
receipt between capital and revenue are some of the examples of such errors.
Such errors will not affect the trial balance but will affect the Profit and Loss
account. It may occur due to lack of knowledge of sound principles of
accounting or can be committed deliberately to falsify the accounts. To detect
such errors, the auditor has to do a careful examination of the books of account.
Detection and Prevention of frauds: To get money illegally from the
organization or from the proprietor frauds are committed intentionally and
deliberately. If it remain undetected, it could affect the opinion of the auditor on
the financial condition and the working results of the organization. Therefore, it
is necessary for the auditor to exercise utmost care to detect such frauds. It can
be committed by the top management or by the employees of the organization.
Frauds could be of the following types:
1. Misappropriation of cash
2. Misappropriation of goods
3. Falsification or Manipulation of accounts
4. Window dressing
5. Secret Reserves
Misappropriation of Cash: Since the owner has very limited control over the
receipt and payments of cash, misappropriation or defalcation of cash is very
common especially in big business organizations. Cash can be misappropriated
by various ways as mentioned below:
a. Recording fictitious payments
b. Recording more amount than the actual amount of payment
c. Suppressing receipts
d. Recording less amount than the actual amount of payment.
There should be strict control over receipts and payments of cash known as
"Internal check system" to prevent such frauds. The auditor should check the
Cash Book with original records, bills register, invoices, vouchers, counterfoils
or receipt books, wage sheets, salesman's diary, bank statements etc. in order to
discover such frauds.
Misappropriation of goods: Companies handling with high value goods are
pray to this kind of misappropriation. Without proper records of stock inward
and stock outward, it is difficult for the auditor to find out such fraud.
Periodical and surprise checking of stock and maintaining the proper record of
inward and outward movement of stock can reduce the possibility of such fraud.
Falsification or manipulation of accounts: In order to achieve certain specific
objectives, accounts may be manipulated by those responsible persons who are
in the top management of the organization. They prepare accounts such a
manner that they disclosed only a fake picture not the true picture. Some of the
ways used in manipulating the accounts are as follows:
1. Inflating or deflating expenses and incomes
2. Writing off of excess or less bad debts.
3. Over-valuation or under-valuation of closing stock.
price.
It is very difficult to detect such frauds since these frauds are committed by
those persons in the organizations who are at the top positions like directors,
managers, financial controllers etc. To detect these kind of frauds, the auditor
must be vigilant and should make searching inquiries to arrive at the true
position.