CHAPTER3: AUDIT ON FINANCIAL STATEMENT
Welcome to our Blogspot, We are from Group 3 going to share topic about Audit on Financial Statements
1.Jaseema Banu Binti Abdul Rahim 10DAT18F2001
2. Shafazrun Nahar Binti Shahul Hamid 10DAT18F2005
3.Noor Lianah Binti Sultan Mydin 10DAT18F2045
4. Haswini A/p Kathiravan 10DAT18F2500
5. Aqil Daniel bin Abdul Kadir 10DAT18F2027
Assalamualaikum and Selamat Sejahtera
Introduction to Audit on Financial Statements
Financial Statements are the structure represent of the financial position ( Balance Sheet) and financial performance ( Income Statement) of an entity. The objective of Financial Position is to provide information about the financial position, financial performance and cash flow of an entity that is useful to a wide range of users in making economic decisions. The reason why we need to audit financial statement is to check whether the information irregularity and conflict of interest lead to information risk of the principle. Besides that, by auditing the financial statements able to verify whether the statements are true and fair or fraud had occurred or not. Directors is accountable to principle provides financial reports. Directors will hires audit to report on the fairness of manager financial statements that can reduce risk information irregularity of principle. Auditors will gathers evidence to evaluate fairness of manager financial statements.
AUDITING SALES AND REVENUE
Accounting transaction cycles:
· Sales and cash receipts
· Purchasing and account payable
· Payroll
· property plan equipment
· Long term liabilities
Understanding Sales process:
· Goods and service;
Ø Receiving and recording customers orders
Ø Authorising credit terms and shipment
Ø Confirming orders
Ø Executing shipping orders for goods or works orders for the performance of services
Ø Recording the shipment or services performed
· Payment received
Ø Receiving the cash and depositing in the bank cash
Ø Comparing amounts remitted with recorded amounts
Ø Authorizing discounts and allowances
Ø Recording cash receipt, discount and allowances
· Good returned by claim received from customer
Ø Receiving and accepting goods and claims
Ø Preparing receiving report
Ø Reviewing claims
Ø Preparing and mailing credits
Ø Recording returns and claim
AUDIT OBJECTIVES AND ASSERTION
Ø Existence
Ø Occurrence and Completeness
Ø Accuracy
Ø Classification
Ø Valuation
Audit Test that will be used consist of two:
Ø Test of Control
Ø Substantive Control
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Question for every group:
1. What do the financial statement structure represents?
Comments
The objective of an audit is to form an independent opinion on the financial statements of the audited entity. The opinion includes whether the financial statements show a true and fair view, and have been properly prepared in accordance with accounting standards.
The following five items are classified as assertions related to transactions, mostly in regard to the income statement:
Accuracy. The assertion is that the full amounts of all transactions were recorded, without error.
Classification. The assertion is that all transactions have been recorded within the correct accounts in the general ledger.
Completeness. The assertion is that all business events to which the company was subjected were recorded.
Cutoff. The assertion is that all transactions were recorded within the correct reporting period.
Occurrence. The assertion is that recorded business transactions actually took place.
There are four main financial statements. They are:
(1) balance sheets;
(2) income statements;
(3) cash flow statements; and
(4) statements of shareholders’ equity.
-Balance sheets show what a company owns and what it owes at a fixed point in time.
-Income statements show how much money a company made and spent over a period of time.
-Cash flow statements show the exchange of money between a company and the outside world also over a period of time.
-The fourth financial statement, called a “statement of shareholders’ equity,” shows changes in the interests of the company’s shareholders over time.
Audit Test of controls is a type of audit examination on the internal control of an entity after they performed an understanding of internal control over financial reporting. Those internal controls mainly related to internal control over financial reporting.
Internal control testing is normally done at the audit planning as required by the standard, but in practice, the internal control testing might be done at the execution stages. Test of controls is part of System Based Approach and Substantive Procedures Audit Approach.
Audit Test of controls is the difference from substantive or detail test. Test of controls is performed to confirm the efficiency and effectiveness of control over financial reporting so that the audit can conclude whether they could rely on or not. For example, auditor test whether monthly bank statements are properly prepared, reviewed and approved.
The element of financial statement:
-Assets.These are items of economic benefit that are expected to yield benefits in furute periods. Example are account receivable, inventory and fixed assets.
-Liabilities. These are legally binding obligations payable to another entity or individual. Examples are accounts payable, taxes payable and wages payable.
-Equity. This is the amount invested in a business by its owners, plus any remaining retained earnings.
-Revenue. This is an increase in assets or decrease in liabilities caused by the provision of services or products to customers. It is a quantification of the gross activity generated by a business. Examples are product sales and service sales.
-Expenses. This is the reduction in value of an asset as it is used to generate revenue. Examples are interest expense, compensation expense and utilities expense.
Of these elements, assets, liabilities, and equity are included in the balance sheet. Revenues and expenses are included in the income statement. Changes in these elements are noted in the statement of cash flows.
List 5 accounting transactions cycle is
1) source document
2) journal
3) Ledger
4) trial balance
5) financial statement
-journal entries
-posting
-trial balance
- worksheet
-financial statement
5 accounting transactions periods
-financial statement
-journals entries
-ledger
-trail balanced
-worksheet
1. cash
2. account receivable
3. bank
Accounts receivable are recorded in the current asset section of the balance sheet. If the business has to wait more than one year to convert AR to cash, it is considered a long-term asset.
"The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions." Financial statements should be understandable, relevant, reliable and comparable.