Framework for Auditing & Related Services Statutory Audit

•In Malaysia, the companies Act 1965, section 169 stipulates that every company incorporated under the Act shall have its profit & loss and balance sheet audited before presentation at the AGM annually. This is the statutory audit.

AUDITOR
•Section 8 defines who is approved company auditor
•Section 9 requires that an audit must be performed by an approved company auditors.
•Section 174 specifies the powers and duties of an auditor.
-is a qualified accountant, who is an expert in determining the proper audit procedures, the number and types of items to be tested, and evaluate the results thereof.

AN OVERVIEW
•Auditing Vs Accounting
Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between information and established criteria. E.g approved accounting standards in statutory audit.

Accounting is the recording, classifying and summarising of economic events for the purpose of providing financial information for decision making.

•Assurance
auditor’s satisfaction as to the reliability of an assertion being made by one party for use by other party.
Reasonable assurance
•An audit in accordance with ISAs is designed to provide reasonable assurance that the financial statements taken as a whole are free from material misstatement.

•However there are inherent limitations in an audit that effect the auditor’s ability to detect material misstatements. The factors such as:
-The use of testing
-The inherent limitation of accounting & IC system (e.g human error, mgt overight, collusion)
-The fact that most audit evidence is persuasive rather than conclusive.
-Judgement e.g depreciation, provision


Audit risk & Materiality
•The concept of reasonable assurance acknowledges that there is a risk that the audit opinion is inappropriate. i.e might have error.

•The auditor should plan (e.g QC) and perform the audit to reduce audit risk to an acceptably low level that is consistent with the objective of an audit.


Audit Planning
•Why?
-engagement will be performed in an effective manner
•Preplan-client acceptance, engagement, staffing
•Obtain background information-industry
•Client’s legal obligations-M&A, Minutes,contract
•Perform Analytical Procedures-Ind. Ratio,trend analysis
•Compute materiality levelProcedures-1-2% of sales;5-10% of PBT
•Prepare APM-test of IC, substantive test
•Develop overall Audit Plan & Audit Programme
•Perform test of control & substantive test
•Review of contingent liabilities
•Review of subsequent events
•Accumulate final evidence
•Evaluate result
•Issue audit report
•Communicate with management.