Instructor : Ghias ul Hassan Khan

Course : ACC 231

Office : S1B 227
Email : ghiasacca@gmail.com
Office hours : Flexible

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Coverage:
Total 8 chapters (1, 2, 3, 5, 6, 7, 8 & 9)

Assessment:
Test 1 - 25% - Chapters 1 & 2
Test 2 - 25% - Chapters 3 & 5
Case - 10% - Chapter 3
Final - 40% - Chapters 6, 7,
8&9

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Learning objective
1. Nature of Auditing
2. Who can be an auditor
3. Economic demand for auditing
4. Types of audits
5. Types of auditors
6. Difference of auditing and accounting
7. Assurance services

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 What is Auditing or Audit?
It is derived from a Latin word AUDIRE, which
means to check

Formal definition

Auditing is the accumulation and evaluation of

evidence about information to determined and
report on the degree of correspondence between
the information and establish criteria. Auditing
should be done by a competent independent
person.

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Evidence: Proof of transaction
Information: Financial statements
Report: Audit report
Criteria
GAAP Generally Accepted Accounting Principles
IFRS International Financial Reporting Standards
COSO Committee of Sponsoring Organization
IRS Internal revenue Services
Others Case to case

Competent Independent Person

(Relationship & Qualification)

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 To reduce the information risk
But first must understand that what is risk.
Chances or degree of variation between the perceived means of
information and actual.

We have three types of risks;

1. Risk free interest rate
2. Business risk
3. Information risk

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This is the main concern of auditor. It means
the variation in the information presented in
financial statements and it may also effect
business risk.
Causes How to reduce
1. Remoteness of information 1. User verifies information
2. Biases & Motives of the 2. User share information risk
providers with management
3. Voluminous data 3. Audited financial statements
4. Complex exchange & other
transactions

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 Client or audit Auditor issues
committee hires report relied
auditor
Auditor upon by users to reduce
information risk

Provides capital
External
Client
Users
Client provides financial
statements to users

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 Operational Audit
TYPES

Compliance Audit

Financial Audit

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 Evaluate computerized payroll system
Example
for efficiency and effectiveness

Number of records processed, costs of

Information
the department, and number of errors

Established Company standards for efficiency and

Criteria effectiveness in payroll department

Available Error reports, payroll records, and

Evidence payroll processing costs

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 Determine whether bank requirements
Example
for loan continuation have been met

Information Company records

Established
Loan agreement provisions
Criteria

Available Financial statements and

Evidence calculations by the auditor

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 Annual audit of Boeing’s financial
Example
statements

Information Boeing's financial statements

Established Generally accepted accounting

Criteria principles

Available Documents, records, and outside

Evidence sources of evidence

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 Certified Public Accountant Firms – (CPA)
Fours Primary Types of

Governmental Accountability Office Auditors

Auditors

Internal Revenue Agents

Internal Auditors

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 Accounting is the recording, classifying, and summarizing of
economic events for the purpose of providing financial information
used in decision making.

Auditing is determining whether recorded information

Properly reflects the economic events that occurred during the
accounting period.

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Beginning of Work
Work of accounting begins when financial
transactions take place but work of auditing begins
when work of accounting ends.

Scope
Accounting prepares profit and loss
account and balance sheet and other statements as
per the
instruction of management but auditor checks the
books of accounts considering their fairness as well
as complying with the provision of company act or
not.

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Nature of Work
Accounting keeps the record of financial
transactions but auditor checks and verifies the
books of accounts.

Staff
An accountant is a staff of an organization and
draws the salary from the business but
an auditor is an independent person who is
appointed for specific period and gets a sum
of remuneration.

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Responsibility
An accountant remains responsible to the
management but an auditor is responsible to
the owners or shareholders.

Relationship
Accountant can be a spouse, but auditor
must NOT have spouse relations or any such
which may create bias.

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1. Controls over and risks related to investments

2. Compliance with entertainment royalty agreements

3. ISO 9000 certifications

4. Corporate responsibility and sustainability

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