What is the Scope of An Audit?
The scope of an audit is the determination of the range of activities and the period of records that are to be subjected to an audit examination.
Legal Requirements
The auditor can determine the scope of an audit of financial statements following the requirements of legislation, regulations, or relevant professional bodies.
The state can frame rules for determining the scope of audit work. In the same way, professional bodies can make rules to conduct the audit.
Entity Aspects
The audit should be organized to cover all aspects of the entity as far as they are relevant to the financial statements being audited.
A business entity has many areas of work. A small entity may have few functions, while a large concern has many. The auditor has to go through all the functions of the business.
The audit report should cover all functions, so the reader may know about all the workings of a concern.
Reliable Information
The auditor should obtain reasonable assurance as to whether the information contained in the underlying accounting records and other source data is reliable and sufficient as the basis for preparing the financial statements.
The auditor can use various techniques to test the validity of data. All auditors usually apply compliance and substance tests while doing the audit work. The auditor can show such information in the report.
Proper Communication
The auditor should decide whether the relevant information is properly communicated in the financial statements.
Accounting is an information system, so facts and figures must be presented so that the reader can get information about the business entity. The auditor can mention this fact in his report.
The accounting principles can be applied to decide the disclosure of financial information in the statements.
Evaluation
The auditor assesses the reliability and sufficiency of the information in the underlying accounting records and other source data by studying and evaluating accounting systems and internal controls to determine the nature, extent, and timing of other auditing procedures.
Test
The auditing assesses the reliability and sufficiency of the information contained in the underlying accounting records and other source data by carrying out other tests, inquiries, and other verification procedures of accounting transactions and account balances as he considers appropriate in the particular circumstances.
There are compliance tests and substantive tests to examine the data. The vouching, verification and valuation technique is also used.
Comparison
The auditor determines whether the relevant information is properly communicated by comparing the financial statements with the underlying accounting records and other source data to see whether they properly summarize the transactions and events recorded therein.
The auditor can compare the accounting records with financial statements to check that the same has been processed for preparing the final accounts of a business concern.
Judgments
The auditor determines whether the relevant information is properly communicated by considering the management’s judgment in preparing the financial statements.
The auditor assesses the selection and consistent application of accounting policies, how the information has been classified, and the adequacy of disclosure.
