AUDITING 1 ACC210 Course Guide

NATIONAL OPEN UNIVERSITY OF NIGERIA

Course Guide Briefer

• Course Code: ACC210 (Auditing 1)
• Course Developer/Writers:
    - Dr. Appolos Nwaobia Nwabuisi, Ph.D, FCA, ACTI
    - Olaolu Umukoro, M.Sc.
    - Department of Accounting, Babcock University
• Course Editor: Dr. Abuh Adah, Department of Accounting, Kogi State University
• Head of Department: Dr. (Mrs) Ofe Inua, Department of Financial Studies
• Programme Coordinator: Anthony I. Ehiagwina

TABLE OF CONTENTS

• Introduction
• Course Aim
• Course Objectives
• Study Units
• Assignments
• Tutor Marked Assignment
• Final Examination and Grading
• Summary

1. INTRODUCTION

• This course guide outlines the structure and expectations of course ACC210 (Auditing 1).
• Will clarify what students will study and expect throughout the course material.

2. COURSE AIM

• To equip students with essential information needed to understand auditing practices at the university level.

3. COURSE OBJECTIVES

At the end of this course, students should be able to:

1. Understand the concept of auditing.
2. List and explain the advantages and importance of auditing.
3. Explain the types of audits.
4. Explain why auditing needs regulation and discuss sources of regulation.
5. Discuss the Companies and Allied Matters Act of 2004 related to auditing.
6. Explain elements of assurance engagements.
7. Detail objectives of assurance engagements.
8. Explain the “audit programme” and its significance in auditing.
9. Discuss audit programmes' types and their pros and cons.
10. Elaborate on types of audit testing and their importance.

4. COURSE MATERIAL

• Components include:
    - Course Guide
    - Study units
    - Self-Assessment Exercises
    - Tutor-Marked Assignment
    - References/Further Reading

5. STUDY UNITS

• Unit 1: Introduction to Auditing
• Unit 2: Regulation of Audit and Assurance Services
• Unit 3: Audit Planning and Strategy
• Unit 4: Professional Ethics
• Unit 5: Corporate Governance
• Unit 6: Internal Control
• Unit 7: Audit Programmes and Audit Testing
• Unit 8: Internal Audit and Outsourcing
• Unit 9: Verification of Assets and Liabilities
• Unit 10: Audit Report

6. ASSIGNMENTS

• Each unit will have self-assessment exercises; completion will aid understanding of unit material.

7. TUTOR-MARKED ASSIGNMENT (TMA)

• TMAs will be assessed electronically as part of continuous assessment (30% of total score).
• Final examinations will contribute 70%.

8. SUMMARY

• Dedication to studying the course material is critical for success.
• Good luck to all students!

UNIT 1: INTRODUCTION TO AUDITING

1.1 Introduction

• This unit covers the fundamentals of auditing, its importance, types, and advantages.

1.2 Objectives

By the end of this unit, students should be able to:

1. Understand auditing.
2. List advantages and importance.
3. Explain types of audits.

2. MAIN CONTENT

2.1 Evolution of Auditing

• Auditing traces back to around 3000 BC in ancient Babylon, China, Greece, and Rome, focusing on accountability for tax returns and financial transactions.
• The term 'audit' derives from the Latin word 'audire,' meaning 'to hear.'
• Significant milestones include:
    - The invention of double-entry bookkeeping by Luca Pacioli in 1494, promoting systematic verification of accounts.
    - Legislative milestones such as the Joint Stock Companies Act (1844) and the Companies Act (1862) formalizing independent audits.

2.2 Auditing Defined

• An accepted definition by the American Accounting Association (AAA):
    - Auditing is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria.
    - This definition encompasses the auditor's activities, including evidence evaluation and communication of results.

Key Aspects of Auditing:

• Checking accuracy of accounts based on accepted principles.
• Assessment of compliance with accounting standards (e.g., IFRS).

2.3 Objectives of Audit

A. Primary Objective

• To express an opinion on whether financial statements present a true and fair view per an applicable financial reporting framework.

B. Secondary Objectives

• Include detection/prevention of fraud, evaluating internal controls, and providing advisory services to management.

2.4 Advantages of an Audit

1. Fraud Deterrence: Increases accountability among employees.
2. Regular Account Maintenance: Encourages better recordkeeping.
3. Compensation on Losses: Necessary for claims made to insurance.
4. Facilitating Loans: Financial institutions often approve loans based on audited statements.
5. Valuation of Businesses: Essential for mergers and acquisitions.
6. Tax Assessment: Tax authorities depend on audit statements for assessment.
7. Enhanced Goodwill: Builds public trust.
8. Access to Capital Markets: Compliance streamlines registrations with regulatory bodies.
9. Reduced Cost of Capital: Reliable audited financial statements lower investment risk.
10. Control Improvements: Prompts management to strengthen internal controls.

2.5 Limitations of Auditing

1. No assurance of detecting all errors or fraud.
2. Sampling risks exist; auditors typically examine a sample, not all transactions.
3. Auditing evidence tends to be persuasive rather than conclusive.
4. Personal collusion may occur, impacting integrity.
5. It does not guarantee the performance or skills of company employees.
6. Costs involved may deter some smaller businesses from conducting audits.
7. Audit reports may be misunderstood by stakeholders due to technical jargon.

2.6 Types of Audits

1. Statutory Audits: Legally required for companies.
2. Private Audits: Not mandated but usually performed at the client's request.
3. Internal Audits: Conducted by employees of the organization.
4. External Audits: Independent third-party audits.
5. Management Audits: Evaluates management effectiveness.
6. Transaction Audits: Validates specific transaction accuracy.
7. Balance Sheet Audits: Verifies assets and liabilities.
8. Value-for-Money Audits: Focus on economic use of resources.

3. Conclusion

• Effective auditing has evolved considerably, focusing on ensuring the integrity of financial statements.

4. Summary

• The unit described the development, definition, and objectives of auditing alongside advantages and limitations.

5. Tutor Marked Assignment (TMA)

1. Define auditing and list its advantages.
2. Discuss types of audits and their significance.

6. References/Further Reading

1. Adeniji, A.A (2012). Auditing and Assurance Services. Lagos: Value Analysis Consults.
2. ICAN (2011). ATSWA Study Pack on Auditing.

UNIT 2: Regulation of Audit and Assurance Services / Assurance Engagements

1.0 Introduction

• This unit discusses the necessity for regulation in audit and assurance services, including legal provisions affecting auditors.

2.0 Objectives

1. Explain why audits are regulated.
2. Review regulatory sources.
3. Discuss provisions of CAMA regarding auditors.

3.0 Main Content

3.1 Need for Regulation

• National and international regulations are critical for public confidence in the financial statements audited by professionals.
• Ethical boundaries and professional standards are essential in maintaining auditor credibility.

3.2 Sources of Regulation

1. Legal:
      - Specific laws govern auditing in various sectors (e.g., CAMA).
2. Ethical:
      - Guidance from professional organizations (e.g., ICAN).
3. Professional:
      - Audits must comply with international standards (e.g., ISAs).

3.3 CAMA and the Auditor

Key Provisions (Sections 357 - 369):

1. Appointment:
      - Mandatory auditor appointment at each AGM.
2. Qualification:
      - Auditors must be recognized accountants. Certain individuals are disqualified.
3. Audit Reports:
      - Auditors report on financial statements to shareholders and audit committees.
4. Duties/Powers:
      - Auditors must ensure accurate records and have access to accounting documents.
5. Remuneration:
      - Set by directors or at AGM.
6. Removal:
      - Can be removed by ordinary resolution with proper notice.
7. Rights:
      - Auditors are entitled to attend company meetings.
8. Resignation:
      - Must be communicated in writing and potentially reported to regulatory bodies.

3.4 Assurance Engagements

• Assurance engagements enhance the reliability and credibility of information. It involves:
• A practitioner providing assurance on a subject matter against criteria, impacting users' confidence.

3.5 Elements of Assurance Engagements

• Three-party relationship involving:

1. Practitioner
2. Responsible party
3. Intended users

• Subject Matter, Suitable Criteria, Evidence, Assurance Report.

4.0 Conclusion

• Regulation serves to protect the public interest; understanding the basis of assurance engagement is vital for auditors.

5.0 Summary

• The necessity for auditing regulations centers on public trust. Provisions under CAMA guide auditor practices.

6.0 Tutor-Marked Assignment (TMA)

1. Define assurance engagements and explain their elements.
2. Describe regulations affecting the auditor as per CAMA.

7.0 References/Further Reading

1. Ige, B. (2008). Introduction to Auditing.
2. CAMA (2004). Companies and Allied Matters Act.

UNIT 3: AUDIT PLANNING AND STRATEGY

1.0 Introduction

• Audit planning is a fundamental part of the audit process, ensuring executed work is on time and effective.

2.0 Objectives

1. Highlight the benefits of audit planning.
2. Discuss ISA 300 requirements.
3. Outline critical considerations when establishing an audit strategy.

3.0 Main Content

3.1 Nature and Need for Planning an Audit Engagement

• Audit planning enables auditors to:
    - Set effective strategies.
    - Identify potential issues in advance.

3.2 Planning an Audit of Financial Statements

• The general audit strategy should reduce risk while determining critical steps including:
    - Analytical procedures
    - Understanding the legal compliance relevant to the entity.

3.3 Summary of ISA 300

• Planning should commence with client continuance considerations, compliance assessments, and establishing engagement terms.

3.4 Audit Strategy and Audit Plan

• The audit strategy guides the overall approach, while the audit plan outlines specifics based on identified risks.

3.5 Changes to Audit Strategy and Plan

• Audit strategies and plans must be adaptable to new information or changes in circumstances.

3.6 Documentation

• Requirements for documenting audit strategies and plans, including records of significant changes.

4.0 Conclusion

• Effective audit planning ensures a structured approach to completing audit assignments efficiently.

5.0 Summary

• The unit emphasized the continuous nature of audit planning, requiring flexibility and thorough documentation.

6.0 Tutor-Marked Assignments (TMA)

1. Discuss benefits of audit planning.
2. List and explain elements considered in establishing audit strategy.

7.0 References/Further Reading

1. Ige, B. (2008). Introduction to Auditing.
2. ACCA Study Text on Advanced Audit and Assurance.