Тема 2. Auditing

І

Auditing is closely connected with Accounting. The traditional definition of auditing is a review and an evaluation of financial records by a second set of accountants.

There is another more modem definition. "An audit is the independent examination of an expression of opinion on the financial statements of an enterprise by an appointed auditor in compliance with statutory obligation." (David Choppy).

The main purpose of the audit is to give the user of the financial statements confidence that they give a true presentation of the position of the company at a certain date. There are the two types of audit.

An internal audit. It is a control by a company's own accountants. They check for complete, exact and reliable data. Internal auditors also look for departures from the methods for recording business transactions which are established by a company.

An independent audit is a review of financial statements and records by an accountant not belonging to the company. Such auditors have to judge if the accounts present a true and fair view of the company's financial position. In the USA they use the term "a fair presentation" which means the same what British term "a true and fair view" means.

Who appoints auditors? Senior executives and advisors of the company do it. Then the candidates are to be approved by the owners of the share capital at the company's assembly (meeting).

Auditors write an audit report. They also may write a "management letter" to directors. They may underline some weak points and recommend to improve operating procedures.

ІІ

The creation of the audit function is linked to the growth of the Joint– Stock company. Shareholders are often not involved in the day– to– day running of a company. They entrust this role to the directors. The directors, in their turn, need to account to the members of the company during each financial period.

The role of the financial statements is to show the way the company was run during this period. Therefore, the report of the auditor is addressed to the members of the company.

The auditor tries to ensure that the accounts give a true picture of the position. To achieve this the auditor needs to go beyond the accounting function within the company.

The auditor often looks at the way in which the other parts of the business work. It is common for the auditor to discuss the activities with the members of staff working in different departments of the company, not only in the accounting or finance departments. The understanding of the business as a whole is very important for auditing.

It is also important to keep in mind such two points.

First, the auditor gives his opinion in the report. The latter gives some level of assurance. But this assurance is never considered to be absolute.

Second, the auditor has no duty relating to the prevention of fraud or other errors.

On the other hand, if the auditor does find any fraud he must make further investigations.

Questions to part I:

1. What subject is audit closely connected with?

2. Can you give a definition of audit (auditing)?

3. What is the main purpose of auditing?

4. How many types of audit do you know?

5. What is the difference between internal and external auditors?

6. Can you explain the difference between the terms "a fair presentation" and "a true and fair view"?

7. Who appoints auditors?

8. Who approves the candidates?

9. Who writes "a management letter" to directors?

10. Do you see any difference between an audit report and a management letter?

If you do, explain it.

VOCABULARY

audit – аудит

auditing – аудит

an auditor – аудитор

an evaluation – оцінка

confidence – довір'я

a presentation – представлення

internal – внутрішній

complete – повний, закінчений

exact – точний

reliable – надійний

departure – відхід, відхилення, відступ

judge – судити; суддя

fair – справедливий

to appoint – призначити

to approve – затверджувати

to link (with) – з'єднувати

joint– stock – акціонерний капітал

running – управління

to run – управляти

to entrust – довіряти

staff– персонал

assurance – гарантія

prevention – запобігання

a fraud – шахрайство

an investigation – розслідування, дослідження

an error – помилка, огріх

to err – помилятися

to relate – ставитись

related – споріднений

relation – відносини

as a whole (on the whole) – в цілому

business law – господарське право

a breach – порушення

to endorse – індосувати

a forge – підробка

a note – вексель

a requirement – вимога