Scope of Audit

Scope of AuditThe scope of an audit is the determination of the range of the activities and the period of records that are to be subjected to an audit examination.

The scope of audit are;

  • Legal Requirements.
  • Entity Aspects.
  • Reliable Information.
  • Proper Communication.
  • Evaluation.
  • Test.
  • Comparison.
  • Judgments.

Audit scope are explained below;

Legal Requirements

The auditor can determine the scope of an audit of financial statements in accordance with 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 working. A small entity may have few functions while a large concern has many functions. The auditor has the duty to go through all the functions of business.

The audit report should cover all functions so that the reader may know about all the working 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 preparation of the financial statements.

The auditor can use various techniques to test the validity of data. All auditors while doing the audit work usually apply the compliance test and substance test. 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 so presented that reader can get information about the business entity. The auditor can mention this fact in his report.

The principles of accounting can be applied to decide about the disclosure of financial information in the statements.

Evaluation

The auditor assesses the reliability and sufficiency of the information contained in the underlying accounting records and other source data by making a study and evaluation of accounting system 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 test and substantive test in order 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 summarized the transactions and events recorded therein.

The auditor can compare the accounting records with financial statements in order to check that 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 judgment that management has made in preparing the financial statements, accordingly.

The auditor assesses the selection and consistent application of accounting policies, the manner in which the information has been classified and the adequacy of disclosure.

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