Fiscal systems and scrutinizing is really of import for a company in order to extenuate concern hazard and to do certain the company is running in the right path. It besides helps the company to observe early alterations in the company and the action to be taken to work out or forestall the jobs. In order to do certain all the necessary informations are available for the intent or auditing, appropriate fiscal systems are needed. Internal and external hearers can utilize all the informations to look into and equilibrate the fiscal statements every bit good as the operational side. Fiscal auditing is normally done by external hearers meanwhile operational auditing is normally done by internal hearers. Both parties can portion information in order to look into the status of a company. In the presence of fiscal systems such as computerized systems, all information can be stored efficaciously and can be use by both hearers in measuring the company public presentation.
Harmonizing to scenario 1, Mr. Daniels is an independent adviser system direction which appointed to look into the effectivity of Syarikat Alpha ‘s purchases and stock direction systems. He verifies the purchases and stock direction systems of Syarikat Alpha. Based on his observation, he did recommendation which is to put in an efficient computing machine system for the company ‘s ageless records for stock direction. This is a really superb thought because computing machine system is really efficient and dependable where all the informations will be stored safely in the system. However, Mr. Daniels did non confer with the users of the systems and the internal audit section for their positions and suggestions. This shows that Mr. Daniels as did non collaborate with the internal hearers of Syarikat Alpha in put ining new system for the company. Even though Mr. Daniel is non the external or internal hearers of Syarikat Alpha, he should transport the occupation with duty and communicate with the members of the company. Below are the accounts about the hearers where Mr. Daniel should prosecute with them in implementing good system for Syarikat Alpha.
Duties, Status and Liability of the Auditors in Syarikat Alpha
Both internal and external hearers have their ain responsibilities, position and liability over the company that they being hired. These standards make them execute the occupation in efficient, unity and competent manner. There are several differences for internal and external audit. Duties of hearer of Syarikat Alpha are to confer with the company in term of fiscal statements and anything related to the funding activities of the company. This responsibility is normally conducted by external hearers. For internal hearers, they are more focussed on the operational side and internal control systems.
Harmonizing to ACCA, internal audit exist to supply the board or direction assuranceA that the internal controls in topographic point to pull off hazards that threaten the organisation ‘s aims are in topographic point and working every bit intended. This means that internal audit fundamentally concern about the internal control systems for the company. They work for direction. Status of internal hearers is under audit commission of the company. There will be a separate section named audit section that specialized on scrutinizing the internal control system of the company. Chief audit executive will describe the direction about the audit plan being implementing in the organisation. Liability of the internal hearer is the direction and the audit section might hold disagreements in the effectivity of internal control system. Because of this, internal hearers need to fight in happening the grounds and making research in placing the possible hazards in implementing current control system.
External audit on the other manus are appointed by stockholders ( in a limited company ) and supply confidence to the stockholders that the one-year histories are free from material mistake. In short, external hearers are more independent and nonsubjective than internal hearers, although internal hearers try to keep similar degrees of independency and objectiveness. Status of external hearers is fundamentally outside the authorization of direction of the company ( auditee ) . External hearers are independent and work under independent house. They have their ain direction and regulations to be obeyed. This means that all audit plan implement in the organisation is supervised under the direction of audit house and non the auditee. Liability for external hearers is fundamentally come from the research about the company operations and the industry. It is rather hard to understand the concern operation as a whole because there might be hidden operation under the company. Other than that, external hearers might confront the trouble in measuring the internal control system if the relationship between the external and internal hearer is non good.
External hearers entitle to reexamine fiscal coverage demands of other organisation which has concern with the company. The same goes to the retirement financess and municipalities. Other than that, external hearer has to measure Syarikat Alpha ‘s fiscal wellness and ensures that all fiscal controls are effectual and in topographic point. In order to guarantee this, the external hearer has to co-ordinates and requests the fiscal records and stuffs to be produced by Syarikat Alpha. The intent of this is to do certain that the records are available for the company and it help the company to command the fiscal activities. These records will be examined by the external hearer which includes histories receivable, account rapprochement studies and fiscal statements. Other than that, the responsibility of external hearer is to make be aftering which includes delegating staff and senior hearers to the battle, delegating the work load to the hearers and puting the battle day of the months. Battle means that the hearer is holding understanding with a company in order to scrutinize the company public presentation. All the specifics sing the battle are the responsibility of external hearers. In the missive of battle, the external hearer should specifically compose the duty of the manager of the company such as to fix the one-year study and keep a good record maintaining. So that, all related information about fiscal status can be audited.
Internal hearer on the other manus is an independent, nonsubjective confidence and confer withing the company in order to better quality and add values to the organisation ‘s operation. Internal hearer fundamentally focused on internal control system and evaluates and improves the effectivity of hazard direction every bit good as the corporate administration.
Other than that, liabilities of an hearer includes complete the audit in conformity with all conformity guidelines, including By and large Accepted Auditing Principles ( GAAP ) . GAAP is rules that view the fiscal coverage criterions and the rules guide the hearers to scrutinize all the fiscal statements in standard ways. Other than that, external hearer has to command the construction of the company in term of separation of responsibilities among the staffs and consistent procedure fir accommodating histories. These are really of import because in order to do certain all the information are standardize, the workers have to divide the responsibilities harmonizing to their expertness. After all the rules are followed, external hearer has to compose studies and he is responsible to fiscal statement users who rely on the hearer to add credibleness to the statements. The studies green goods by the external hearer have to be true and just and dependable. The fiscal coverage procedures besides have to be crystalline where there is no mistake while fixing the statements. Other than that, external hearers besides have to do certain that the Syarikat Alpha pay the revenue enhancement belongings and on clip.
Relationship between Internal and External Auditors of Syarikat Alpha
Internal and external hearers are closely related where they portion same aim which is to do certain that Syarikat Alpha is running the concern decently and follows the criterions in fixing fiscal studies every bit good as at the operational degree.
Both hearers will be assigned to different occupations and responsible to different party. Internal hearers are responsible to the direction of Syarikat Alpha where all the activities record in operational degree will be reported to the direction of Syarikat Alpha. Meanwhile external hearers are responsible to fiscal statement users such as fiscal establishments, board of managers of Syarikat Alpha, Bankss, authorities, every bit good as revenue enhancement organic structure. But this difference is did non interrupt the relationship of both hearers. They still work for the same intent.
First relationship between internal and external hearers of Syarikat Alpha exists when the external hearers used up the expertness of internal hearers in measuring the company public presentation. For illustration, information about the failings of company can be used by external hearers in urging new systems to be installed in the company. Harmonizing to Peacock E. and Pelfrey S. ( 1989 ) which conducted a research about the current attitudes of internal hearers toward their working relationships with external hearers, 92 % from internal audit managers appreciated that external hearers make full usage of the expertness of the internal audit staff. This study was conducted of two groups: first group was represented by internal audit managers, and the 2nd group was formed by staff hearers who work straight which external hearers. Both groups were asked to measure the overall public presentation of their organisation ‘s external hearer and their perceived relationship with the external hearer. From the consequence, I can state that the information prepared by the internal hearers is really utile for the referencing of the external hearers. The relationship between the internal and external hearers is really good since they can interchange information in scrutinizing Syarikat Alpha.
The 2nd relationship exist when both internal and external hearers of Syarikat Alpha follow a similar methodological analysis in executing their audits, including planning and executing trials of controls and substantial trials. The difference is merely the specifics that they audits. They besides use audit hazard theoretical account and materiality in make up one’s minding the extent of their trials and measuring consequences. External hearers rely on the hazard theoretical account prepared by the internal hearers. The stairss involve in using materiality that used by both hearers can be described as follow:
Third relationship between internal and external hearers exists when external hearers have to entree, evaluate and prove the internal hearer ‘s competency, objectiveness and work. From the informations and statements that internal hearers produce, external hearers can supervise and measure their occupations. They can place whether internal hearers manipulate the figures or non. This is really of import in order to bring forth true and just statements. Other than that, external hearers besides have to understand the internal hearer ‘s function when measuring their client ‘s control construction.
An Audited account with Reference to Scope, Materiality and Risk
In order to carry on audit, an hearer has to follows a set of measure that illustrate good process in carry out audit expeditiously. The stairss involve initial planning for hearer and all stairss are decently organized to assist hearer to make audit. The stairss are as follow:
Amplification on Planing an Audited account
Initial audit planning
First measure of carry oning an audit is hearer should make initial audit planning. This is the beginning of every audit plan where hearer has to make up one’s mind whether to accept the client or to go on functioning with the bing. Discussion between the hearer and auditee ( client ) is highly of import for hearer to place client ‘s ground for audit. Reason for audit can be because of the failure of procuring the company belongings, direction intuition on accounting section staff and so on. This information is likely to impact the staying parts of the planning procedure. In the treatment, both parties normally obtain an apprehension where all the footings and conditions are satisfied. Once the apprehension is achieved, hearer will choose staff for the battle. Battle should be done in proper manner such as supplying the missive of battle to be signed by both parties. Example missive of battle can be viewed in appendix. The demand for outside specializers besides has to be evaluated in order to fulfill the client.
Understand the client concern and industry
Second measure is to understand the client concern and industry. This is really of import portion of be aftering an audit because hearer has to detect the concern operation every bit good as the industry. He has to cognize the possible hazard of the concern that can give impact and trouble for audit procedure. Examples of high hazard industry are casualty insurance companies, salvaging and loans, and wellness. If an hearer is accepting the client in these Fieldss, he should hold better communicating with the old hearer that has much experience in making audit for the company. In order to understand the client concern and industry, hearer can utilize information engineering that connects client companies with major clients and providers. Auditor besides needs to place hazard related to these relationships. Harmonizing to Arens ( 2006 ) , strategic system apprehension of the client ‘s concern and industry is to analyse:
Industry and external environment.
Business operations and procedures.
Management and administration.
Aims and schemes.
Measurement and public presentation.
With all these factors, an hearer will pull off to understand better about the client ‘s concern and industry.
Access client concern hazard
Third measure is to entree client concern hazard. Once the hearer understand the client ‘s concern and industry, it is easier for him to measure the hazard associated with all the strategic system. Harmonizing to Arens ( 2006 ) , client concern hazard is the hazard that the client will neglect to accomplish its aims. For illustration, the promotion of engineering presents can give competitory advantage for the company. If client do non obtain the best engineering, this can be a concern hazard for the company. From this hazard, hearer has to place the hazard of stuff misstatements in the fiscal statements due to client concern hazard. Once the hearer place the concern hazard and stuff misstatements, he can be after on the disciplinary action or control systems that can extenuate concern hazard such as audit hazard theoretical account and Enterprise Risk Management ( ERM ) .
Perform preliminary analytical processs
Analytic processs can be described as comparing of client ratios to industry or rival benchmarks which provides an indicant of the company ‘s public presentation. It is a really effectual tool that can place possible misstatements at a low cost. It can be used to cut down elaborate trial and to measure going-concern issues. Sample of analytical process can be viewed in appendix.
One of the ratios that an hearer should concern about is current ratio that indicates the short-run debt paying ability. This ratio has to compare with the ratio of industry. If the company has lower ratio than the industry, this means that the company is non good plenty in short-run debt paying. Other ratios that can be used to measure the company public presentation are liquidity activity ratio, ability to run into long-run duty and profitableness ratio.
There are five types of analytical processs that can be used which are:
Compare client and industry informations
Compare client informations with similar anterior period informations
Compare client informations with client-determined expected consequences
Compare client informations with auditor-determined expected consequence
Compare client informations with expected consequence, utilizing nonfinancial informations.
Once the hearer has completed the analytical processs, they will travel for set materiality and entree acceptable hazard audit hazard and built-in hazard. In this portion, audit hazard theoretical account will be used as one of the tools available in evaluate the hazard. Great attention must be used in revising the hazard factors when the existent consequences are non every bit favourable as planned.
The following measure is audit planning is to understand internal control and buttocks control hazard. In this portion, the relationship between internal and external hearers is really of import where both parties can pass on about the internal control system for the company. Based on scenario given, Syarikat Alpha is holding job with the internal control system where the computerized system do non work good and as a consequence, direction decided to postpone the full undertaking. From here, hearers need to measure the existent map of the system installed by the company
After that, hearers need to garner information to measure fraud hazards. Fraud is possible to be happened when the company holding job with the informations stored. For illustration, employees can easy pull strings the informations and commit fraud. With all the hazard, hearers will so develop overall audit program and audit plan in order to extenuate the concern hazards.
Statutory Audit Report
Statutory audit study is a study that shows the fiscal statements conformity with the jurisprudence. Harmonizing to CIMA ( 2004 ) , statutory audit study covers all external audit activities, to guarantee that the entity complies with the appropriate financial demands, accounting criterions, and other statute law regulating the fiscal records of the entity. This means that all the fiscal studies have to be crystalline, free from prejudice and misstatement. Meaning to state that the balance sheet must give a true and just position of the province of personal businesss of the company every bit at the terminal of the fiscal twelvemonth ; and the net income and loss history must give a true and just position of the net income or loss of the company for the fiscal twelvemonth. This study is being prepared by the managers of the company and being audited by the hearers in conformity with the Companies Act 1965. Harmonizing to Arens ( 2006 ) , Section 169 of the Companies Act 1965 requires the managers of every company to put before the company at its one-year general meeting audited fiscal statements that give a true and just position of the province of personal businesss of the company and its consequence for the period under audit. This means that, manager of Syarikat Alpha besides entitled to fix true and just statements before the company one-year general meeting. All the fiscal activities should be stated clearly without any mistake or misstatement. The readying and treating all the fiscal information besides should be done in proper manner and run into the criterions every bit good as the General Accepted Accounting Principles ( GAAP ) . In statutory audit study, hearer is required to carry through several conditions where the intent of these conditions is to do certain the fiscal statements being audited are true and just.
The Purpose of a Statutory Audit Report
The intent of a statutory audit study is to protect the stockholder of the company from manipulated by irresponsibleness individual or party in the organisation. If the statutory audit study is non exist, the stockholder ‘s wealth will be affected and diminish from clip to clip. Other than that, statutory audit study can do certain the fiscal statements and one-year studies are dependable and non distort.
Statutory audit study seemingly brings benefits which exceeds its cost to the company. If Syarikat Alpha implements statutory audit studies in the company, it merely has to engage the external hearers to do certain the studies are carry throughing the criterions. On the other manus, if no statutory audit studies are being done, hazard of mistake and fraud is ever there to be the obstructions in salvaging the costs. If there is fraud occur, company can lose its portions every bit good as the company wealth.
Other than that, harmonizing to ACCA planetary ( 2010 ) , external audit reinforces sound fiscal direction and corporate administration. Financial direction and corporate administration are both the factors of company wellness and can lend to the successful of the company. Corporate administration means that the company is directed and controlled in term of its public presentation by monitoring and achieving its aims. Statutory audit studies can do certain that the aims of the company can be achieved through its observation and supervising the fiscal place of the company.
The Content of a Statutory Audit Report
Statutory audit study consists of several elements that explain the overall public presentation of a company. There is a format that hearers should follow in bring forthing statutory audit study. It is known as qualified audit study and the construction is approved by ACCA and other scrutinizing organic structures.
A statutory audit study should get down with a rubric that includes the word independent, for illustration, “ independent hearer ‘s study ” . The word independent shows that the audit was unbiased in all facets. Title is really of import in order to convey to the users and exemplify them with the content of the studies.
Audit study reference.
Address is normally written to the company, its stakeholders, board of managers or the stockholder. All members of the company hold right to cognize the content of the study and the audited fiscal statements such as balance sheet, net income and loss history and hard currency flow history.
Scope in the statutory audit study explains the elements of fiscal statement that have been identified and audited. This paragraph is really of import to avoid misconstruing where all the fiscal information is complete stated with folio in the one-year study. In this paragraph besides, hearers will advert about the fiscal statements which is capable to scrutinize such as The Balance Sheet, The Net income and Loss Account, The Cash Flow Statement and The Statement of Total Recognized Gains and Losses ( STRGL ) . Other than that, range besides consists of account about the duty of direction and that the hearer ‘s duty is to show an sentiment on the statements based on an audit. The importance of range is to pass on with the users about the direction and their choice on appropriate approved accounting criterions. Other than that, hearers should unwrap the inside informations of managers such as wage and other inside informations about the dealing between the company and its manager.
The footing of sentiment
In this paragraph, hearers will explicate about the auditing criterions that give benchmark or mention to him in carry oning the audit for the company. This means that all the audit procedure is conformity with jurisprudence and ordinance. It is really of import for hearers to explicate farther in this paragraph in order to fulfill the users including external users about their committedness in scrutinizing the company through legal processs.
In this paragraph, hearers will give decision based on the consequence of the audit. Professional judgement will be written such as the information hazard associated with the fiscal statement even the statements have been audited. Other than that, hearers will explicate the possible hazard of the systems used by the company and other judgement on betterment of the systems based on their professional point of position.
Signature and day of the month
Statutory audit study must be signed by the registered hearer and day of the month should be written. It is of import to demo the day of the month because it specifies a cardinal point in the station balance sheet events review period and it will normally be the same as the day of the month of blessing of the fiscal statements.
Qualification on Audit Report
Qualification on audit study means that the hearer qualifies the audit study based on his sentiment on the fiscal statements. For illustration, is there is a restriction on the range of the audit scrutiny, he will give sentiments whether he agree or differ with the affair. Other than that, hearer has to give judgement on the consequence of the affair is or may be stuff to the statement. Qualification on audit study is done through the professional sight of an hearer. There are several characteristic that categories the audit study into different types of making. The different types of making will be discussed below.
Different Types of Qualification within an Audit Report
There are five types of making within an audit study. The five types are uncertainness, range restriction, dissension, inauspicious sentiment, and disclaimer sentiment. These makings will lift when an hearer place the fortunes of the fiscal statements of a company.
Uncertainty audit study will originate when the hearer can non happen the grounds sing his uncertainties which exist in relation to an unsolved affair. This means that there is restriction upon the range of hearer. Auditor will happen troubles in deciding the job or uncertainty. For illustration, the hearer holding uncertainty and believe that the company keep big figure of liabilities but non province the exact figure in balance sheet. But he can non happen the grounds of those liabilities and this will take to uncertainness audit study.
Disagreement audit study rise when there is failure to follow with the accounting criterion or statute law in the fiscal statements. This means that the hearer fail to do usage the criterions and policies that fixed by the accounting organic structures. Other than that, dissension besides rises from factual disagreements which means there are different fact be in the study. For illustration, hearer ‘s fact and client ‘s fact is different. When this happened, the audit study is said to be disagreement. Unsuitable accounting policies and unequal or deceptive revelations given in the fiscal statements besides give rise to this type of audit study. In order to work out disagreement audit study, hearer and client have to co operated in accomplishing existent fact and there are no disagreements in the audit study. By this manner, both parties can give good reflect and right position of the fiscal statements.
Adverse sentiment rise when the fiscal statements do non show reasonably in term of the fiscal place, hard currency flow and any statement that need conformance with by and large accepted accounting rules. This means that the fiscal statements do non give a true and just position or make non follow with the Companies Act 1985. In inauspicious sentiment, hearers will compose his point of position if he thinks that the statements in missing in term of its equity. He besides should compose about his sentiment in overcome the job of unfairness of the fiscal statements. These sentiments will be written in the separate paragraph of the audit study.
Disclaimer sentiment exists when the hearer is unable to organize an sentiment on an entity ‘s fiscal statements. This means that the sentiment can non be given. This might ensue from nondependent hearer, a material range restriction exists or a important uncertainness exists. Harmonizing to ACCA ( 2010 ) , the uncertainness arises because of an imposed restriction of range by the managers.
In order to add value and clear vision to you company, the office of KPMG Malaysia will supply you with qualified hearers in order to scrutinize the fiscal statements of your company and supply revenue enhancement and advisory services. Hearers will besides supply you with rating on the internal control issues and disobedience issue which conformity with Torahs and ordinance. The fiscal statements of the company such as Balance Sheet, Profit and Loss Account and The Cash Flow Statement should follow with the accounting criterions ( by and large accepted accounting rules, GAAP ) and should follow the criterions from Companies Act 1985.
Through the professional position and expertness, hearers will bring forth audit studies which enhance the dependability of information prepared by your company for usage by investors, creditors and other stakeholders, including country-specific statutory demands. All the scrutinizing activities carry out by the hearers comply with the International Standards of Auditing which emphasize on nucleus rule associating to professional unity, independency and ethical behaviour. The extra of engineerings and tools will help our hearer ‘s squad to heighten cognition about your company operations every bit good as the industry as a whole. All the activities will be supervised by the top direction of our company and audience criterions will be given. The professional position is based on the resource centres which are The Audit Committee Institute ( ACI ) , The International Standards Group, and Sarbanes-Oxley Act. With equal information from the first-class beginnings, we will scrutinize your company in efficient mode.
From our observation, Syarikat Alpha is presently holding job in purchase and stock direction system where the computerized system give job to the informations stored. As a consequence, your company has decided to postpone full undertaking which can be a large loss for the company. The corrupt of the systems give rise to the uncomplete fiscal statements and at the same clip give rise to the misstatement and hazard. This job has affected the whole fiscal statements readying and this give rise to the demand of professional auditing in order to scrutinize the whole computer-based system. Potential hazard that might happen from this job includes accounting hazard, control hazard and built-in hazard, every bit good as the hazard of fraud. One of the tools that we will implement in auditing is audit hazard theoretical account
The services that we offering can ease the direction systems of your company and at the same clip can increase efficiency and effectivity of Syarikat Alpha. Conclusion and recommendations from us will assist the company to work out the current job and mitigate hazard to the concern.
As a decision, Syarikat Alpha truly needs an audit plan from external hearers in measuring the current jobs and public presentation of the company. The job that this company faces is rather serious because it gives rise to the concern hazards, material misstatement and fraud. Proper audit program need to transport out in conformity because from that, external hearers will cognize precisely about the company current state of affairs every bit good as the old public presentation in the industry. A good hearer will transport out the audit procedure comply with the jurisprudence and ordinance and ever act in ethical mode. All the processs have to be followed and this can take to good communicating between the hearers and the company.