Question

answer question 1 part 1

1. Explain the importance of auditing in Reducing information risk?
2. Define management assertions in auditing process?
3. Describe key elements of an audit report?

Answer 1

A. Auditing refers to the evaluation conducted to determine the effectiveness of a firms internal control. It is essential in achieving the long term objective of the business.

Auditors tend to assess the risk of material misstatement in a firm's financial reports. Without a system that of internal auditing, a firm may fail to create a reliable financial reports for its stakeholders. Thus, it would lead to a failure to decide how to allocate or reallocate firms resources. Moreover, it would also fail to manage its internal and external affairs, as it would have the ability to tell the status of its assets and liabilities. Thus a proper auditing system, internal or external is vital in managing misstatement or information risk.

B. The concept of management assertion primarily relies upon the auditing aspect of the firm's financial statements, where the auditors take into consideration variety of assertions (a set of representation of financial data), regarding the business.. These management assertions are helpful to the auditor in 2 ways:

1. The reliability and accuracy of the financial reports of the business

2. Considering the information risk through understanding the environment and its entity.

C. The key elements of the auditors report are divided into 7 parts.

1. Report title: which includes the date of the audit as well as the addressee of the report, who usually is the board of directors or the stockholders.

2. Introductory Paragraph: states that an audit is carried out, defines the financial documents that is used to perform the audit and the time frame within which the audit has been carried out.

3. Scope paragraph: states that audit was carried out within the set rules and the methods set by the Generally Accepted Audit Standards.

4. Executive Summary: Includes the summary of the auditors work. It is based on what are the things that the auditor thinks important to be considered.

5. Opinion Paragraph: tells about the auditors opinion on the financial position of the company and whether they comply to the Generally Accepted Accounting Principles.

6.Auditor's Name: It is important for the auditor to identify himself.

7. Auditors Signature: Is essential as this makes the auditor responsible for the results of the audit.