CS – GOVERNANCE AND COMPLIANCE AUDIT REVISED NOTES

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GSA SAMPLE

 

SAMPLE WORK

Complete copy of this book is available in SOFT ( Reading using our Mobile app) and in HARD copy 

Phone: 0728 776 317

Email: info@masomomsingi.com

TOPIC 1

BASIC CONCEPTS AND ELEMENTS IN AUDITING

 

 

Auditing

Auditing typically refers to financial statement audits or an objective examination and evaluation of a company’s financial statements – usually performed an external third party.

Importance of Auditing

Audit is an important term used in accounting that describes the examination and verification of a company’s financial records. It is to ensure that financial information is represented fairly and accurately.

Also, audits are performed to ensure that financial statements are prepared in accordance with the relevant accounting standards. The three primary financial statements are:

  1. Income statement
  2. Balance sheet
  3. Cash flow statement

Financial statements are prepared internally management utilizing relevant accounting standards, such as International Financial Reporting Standards (IFRS) or Generally Accepted Accounting Principles (GAAP). They are developed to provide useful information to the following users:

  • Shareholders
  • Creditors
  • Government entities
  • Customers
  • Suppliers
  • Partners

Financial statements capture the operating, investing, and financing activities of a company through various recorded transactions. Because the financial statements are developed internally, there is a high risk of fraudulent behavior the preparers of the statements.

Without proper regulations and standards, preparers can easily misrepresent their financial positioning to make the company appear more profitable or successful than they actually are.

Auditing is crucial to ensure that companies represent their financial positioning fairly and accurately and in accordance with accounting standards.

 

  • Assessment

A compliance assessment is really a gap assessment. You are looking to identify gaps between your existing control environment and what is required. It is not a risk assessment, and identified gaps may or may not correlate to risk exposure.

 

A Compliance Assessment is used to assess and document the current state of compliance oversight, management and related risks in a given compliance area.

The assessment will help identify strengths and opportunities within a specific compliance area’s ecosystem, including oversight accountability, regulatory reporting requirements, compliance management, compliance risks, and key compliance gaps, along with laying the groundwork to develop a compliance gap closure plan and escalating compliance concerns as appropriate.

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1.3       Monitoring

 

Monitoring is the regular observation and recording of activities taking place in a project or programme. It is a process of routinely gathering information on all aspects of the project.

To monitor is to check on how project activities are progressing. It is observation; ─ systematic and purposeful observation.

Monitoring also involves giving feedback about the progress of the project to the donors, implementors and beneficiaries of the project.

Reporting enables the gathered information to be used in making decisions for improving project performance.

 

1.4       Assurance engagement

“Assurance engagement” means an engagement in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria.

 

In some assurance engagements, the evaluation or measurement of the subject matter is performed the responsible party, and the subject matter information is in the form of an assertion the responsible party that is made available to the intended users. These engagements are called “assertion-based engagements.” In other assurance engagements, the practitioner either directly performs the evaluation or measurement of the subject matter, or obtains a representation from the responsible party that has performed the evaluation or measurement that is not available to the intended users. The subject matter information is provided to the intended users in the assurance report. These engagements are called “direct reporting engagements.”

 

1.5       Non-assurance engagement

Non- assurance engagement is used when referring to engagements that do not meet the definition of an assurance engagement. In non-assurance engagement, specific tests to be undertaken the auditor are agreed with the client or user.

 

Non- assurance engagement is used when referring to engagements that do not meet the definition of an assurance engagement. In non-assurance engagement, specific tests to be undertaken the auditor are agreed with the client or user.

 

1.6       Reasonable assurance

Reasonable assurance is a high level of assurance regarding material misstatements, but not an absolute one. Reasonable assurance includes the understanding that there is a remote likelihood that material misstatements will not be prevented or detected on a timely basis.

 

1.7       Limited assurance

Limited assurance means a level of assurance that is less than that provided in an audit. The objective of a limited assurance engagement is a reduction in assurance engagement risk to a level that is acceptable in the circumstances of the assurance engagement, but where that risk is greater than for a reasonable assurance engagement, as the basis for a negative form of expression of the appointed auditor’s conclusion. A limited assurance engagement is commonly referred to as a review.

 

1.8       Direct reporting engagement

In a direct (direct reporting) engagement, the responsible party does not present the subject matter information in a report in a direct engagement. Instead the practitioner reports directly on the subject matter and provides the intended users with an assurance report containing the subject matter information.

An example of a direct engagement would be a Sarbanes-Oxley engagement to report on the effective control over the financial reporting process.

A direct assurance conclusion would be constructed as: “In our opinion the company maintained, in all material respects, effective internal control over financial reporting as of date/month/year, based on the criteria established in Internal Control – Integrated Framework issued the Committee of Sponsoring Organizations of the Treadway Commission (COSO).”

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1.9       Attestation engagement

In an attestation (also known as assertion-based engagement), the responsible party carries out the measurement or evaluation of the subject matter and reports the information. This subject matter information contains the responsible party’s assertion (for example: “The subject matter information is fairly stated as of date/month/year”). The work the practitioner performs is to give an assurance conclusion on this assertion.

 

1.10    Compilation engagements

A compilation engagement is a type of engagement where a company engages an outside accountant to prepare and present financial statements.

It is not designed to express an opinion or provide assurance regarding the information contained in the financial statement.

The accountant uses financial data provided the management to compile the required financial statements.

 

1.11    Assurance reports

 

An assurance report is the tangible output of an assurance engagement. This report may be for internal use or for external use, but it will always be shared with the person using the information who needs to be confident that it is credible.

Assurance is provided to give its recipients ‘piece of mind’. There are different types of assurance reports, they can be for internal and external use, the reports provide confidence to stakeholders in regards to the systems and processes your business has in place. These reports highlight how risks are being managed and steps to take to mitigate them, as well as providing ‘good practice’ recommendations. The accountants providing you with the report will take different factors into consideration depending on the subject matter and criteria of the report. Assurance reports broadly cover the following:

  • The effectiveness of risk management
  • Quality of systems and processes in place
  • Performance effectiveness of systems and processes
  • Specific concerns

 

1.12    Direct reporting

Direct reports are employees who, as the term implies, report directly to someone who is above them in the organizational hierarchy, often a manager, supervisor, or team leader. … The person in charge of direct reports is responsible for assigning them work and monitoring performance.

 

1.13    Authorities and criteria

Authority Criteria means such guidelines, criteria and/or application requirements as the Authority may adopt from time to time relating to issuance of revenue bonds for projects such as the Project.

1.14    Assertions and audit

Audit assertions, also known as financial statement assertions or management assertions, serve as management’s claims that the financial statements presented are accurate. When performing an audit, it is the auditor’s job to obtain the necessary evidence to verify the assertions made in the financial statements.

 

Assertions are claims that establish whether or not financial statements are true and fairly represented in the process of auditing.

Assertions are an important aspect of auditing. Since financial statements cannot be held to a lie detector test to determine whether they are factual or not, other methods must be used to establish the truth of the financial statements.

Assertions are defined as “a statement that is believed to be true the speaker. “An assertion can be anything, e.g., “I assert that fundamental value investing is the best investing philosophy.”

However, it is difficult to measure whether the statement is indeed true. Similarly, with financial statements, it is difficult to determine what financial information is free from material misstatement.

There are two aspects to material misstatement. Clearly, materiality plays a large role; however, how to measure what information is true and fair or misstated is crucially important.

Assertions play a key role in determining what is true and fair when auditing financial records.

SAMPLE WORK

Complete copy of this book is available in SOFT ( Reading using our Mobile app) and in HARD copy 

Phone: 0728 776 317

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1.15    Internal audit

Internal audits evaluate a company’s internal controls, including its corporate governance and accounting processes. These audits ensure compliance with laws and regulations and help to maintain accurate and timely financial reporting and data collection. Internal audits also provide management with the tools necessary to attain operational efficiency identifying problems and correcting lapses before they are discovered in an external audit.

 

The role of internal audit is to provide independent assurance that an organisation’s risk management, governance and internal control processes are operating effectively.

 

1.16    Statutory audit

A statutory audit is an independent process of determining whether an organisation’s financial statements give a true and fair view of its financial performance and financial position. A statutory audit is not, as some would assume, a search for the proverbial needle in a haystack.

 

1.17    Legal audits

Legal auditing is a litigation management practice and risk management tool, used by insurance and other consumers of legal services, to determine if hourly billing errors, abuses, and inefficiencies exist carefully examining and identifying unreasonable attorney fees and expenses.

 

1.18    Governance audit

Governance Audit: an objective review of how an organization is governed. This review looks at how the governance structure is designed, but also how it is actually operating. It assesses whether there adequate checks and balances in place for effective governance.

 

SAMPLE WORK

Complete copy of this book is available in SOFT ( Reading using our Mobile app) and in HARD copy 

Phone: 0728 776 317

Email: info@masomomsingi.co.ke

 

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