Financial Audit Task
A Financial Audit Task is an audit task that issues an audit report on the true and fair presentation of the financial statements of the state in conformity with an accounting practice standard.
- Context:
- output: Audit Report/Auditor's Report/Audit Opinion.
- It can (typically) be performed by a Financial Auditor.
- It can be instantiated in a Financial Audit Instance.
- It can range from being an Internal Financial Audit to being an External Financial Audit.
- It can range from being a Financial Audit of a For-Profit Organization to being an Financial Audit of a Not-For-Profit Organization.
- It can include a Financial Variance Analysis.
- It can include an Financial Transaction Existence/Occurrence Test.
- It can include a Financial Completeness Test ("Is this all of it?").
- It can include a Rights and Obligations Test ("Does the client really own this?").
- It can include a Valuation and Allocation Test ("Is it valued at the correct amount?").
- It can include a Presentation/Disclosure Test ("Is it properly presented and disclosed in the financials?").
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- Example(s):
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- Counter-Example(s):
- See: International Auditing and Assurance Standards Board, Assurance Services, Accountancy, International Standards on Auditing.
References
2016
- (Wikipedia, 2016) ⇒ http://wikipedia.org/wiki/financial_audit Retrieved:2016-4-15.
- A financial audit is conducted to provide an opinion whether “financial statements” (the information being verified) are stated in accordance with specified criteria. Normally, the criteria are international accounting standards, although auditors may conduct audits of financial statements prepared using the cash basis or some other basis of accounting appropriate for the organization. In providing an opinion whether financial statements are fairly stated in accordance with accounting standards, the auditor gathers evidence to determine whether the statements contain material errors or other misstatements.[1]
The audit opinion is intended to provide reasonable assurance, but not absolute assurance, that the financial statements are presented fairly, in all material respects, and/or give a true and fair view in accordance with the financial reporting framework. The purpose of an audit is to provide an objective independent examination of the financial statements, which increases the value and credibility of the financial statements produced by management, thus increase user confidence in the financial statement, reduce investor risk and consequently reduce the cost of capital of the preparer of the financial statements. In accordance with the US GAAP, auditors must release an opinion of the overall financial statements in the auditor's report. Auditors can release three types of statements other than an unqualified/unmodified opinion. The unqualified auditor's opinion is the opinion that the financial statements are presented fairly. A qualified opinion is that the financial statements are presented fairly in all material respects in accordance with US GAAP, except for a material misstatement that does not however pervasively affect the user's ability to rely on the financial statements. A qualified opinion can also be issued for a scope limitation that is of limited significance. Further the auditor can instead issue a disclaimer, because there is insufficient and appropriate evidence to form an opinion or because of lack of independence. In a disclaimer the auditor explains the reasons for withholding an opinion and explicitly indicates that no opinion is expressed. Finally, an adverse audit opinion is issued when the financial statements do not present fairly due to departure from US GAAP and the departure materially affects the financial statements overall. In an adverse auditor's report the auditor must explain the nature and size of the misstatement and must state the opinion that the financial statements do not present fairly in accordance with US GAAP. Financial audits are typically performed by firms of practicing accountants who are experts in financial reporting. The financial audit is one of many assurance functions provided by accounting firms. Many organizations separately employ or hire internal auditors, who do not attest to financial reports but focus mainly on the internal controls of the organization. External auditors may choose to place limited reliance on the work of internal auditors. Auditing promotes transparency and accuracy in the financial disclosures made by an organization, therefore would likely reduce such corporations concealmeant of unscrupulous dealings. [2]
Internationally, the International Standards on Auditing (ISA) issued by the International Auditing and Assurance Standards Board (IAASB) is considered as the benchmark for audit process. Almost all jurisdictions require auditors to follow the ISA or a local variation of the ISA.
- A financial audit is conducted to provide an opinion whether “financial statements” (the information being verified) are stated in accordance with specified criteria. Normally, the criteria are international accounting standards, although auditors may conduct audits of financial statements prepared using the cash basis or some other basis of accounting appropriate for the organization. In providing an opinion whether financial statements are fairly stated in accordance with accounting standards, the auditor gathers evidence to determine whether the statements contain material errors or other misstatements.[1]
2014
- http://www.ofm.wa.gov/policy/glossary.asp#f
- QUOTE: FINANCIAL AUDIT - An audit made by an independent external auditor for the purpose of issuing an audit opinion on the fair presentation of the financial statements of the state in conformity with GAAP.
2004
- (Carcello & Nagy, 2004) ⇒ Joseph V. Carcello, and Albert L. Nagy. (2004). “Audit Firm Tenure and Fraudulent Financial Reporting." Auditing: A Journal of Practice & Theory, 23(2).
- ABSTRACT: The Sarbanes‐Oxley Act (2002) required the U.S. Comptroller General to study the potential effects of requiring mandatory audit firm rotation. The General Accounting Office (GAO) concludes in its recently released study of mandatory audit firm rotation that “mandatory audit firm rotation may not be the most efficient way to strengthen auditor independence” (GAO 2003, Highlights). However, the GAO also suggests that mandatory audit firm rotation could be necessary if the Sarbanes‐Oxley Act's requirements do not lead to improved audit quality (GAO 2003, 5).
We examine the relation between audit firm tenure and fraudulent financial reporting. Comparing firms cited for fraudulent reporting from 1990 through 2001 with both a matched set of non‐fraud firms and with the available population of non‐fraud firms, we find that fraudulent financial reporting is more likely to occur in the first three years of the auditor‐client relationship. We fail to find any evidence that fraudulent financial reporting is more likely given long auditor tenure. Our results are consistent with the argument that mandatory audit firm rotation could have adverse effects on audit quality.
- ABSTRACT: The Sarbanes‐Oxley Act (2002) required the U.S. Comptroller General to study the potential effects of requiring mandatory audit firm rotation. The General Accounting Office (GAO) concludes in its recently released study of mandatory audit firm rotation that “mandatory audit firm rotation may not be the most efficient way to strengthen auditor independence” (GAO 2003, Highlights). However, the GAO also suggests that mandatory audit firm rotation could be necessary if the Sarbanes‐Oxley Act's requirements do not lead to improved audit quality (GAO 2003, 5).
- (Hunton et al., 2004) ⇒ James E. Hunton, Arnold M. Wright, and Sally Wright. (2004). “Are Financial Auditors Overconfident in Their Ability to Assess Risks Associated with Enterprise Resource Planning Systems? (Retracted)." Journal of Information Systems, 18(2).
- ABSTRACT: The first objective of the current study is to examine the extent to which financial auditors recognize heightened risks associated with an enterprise resource planning (ERP) system, as compared to a non‐ERP (legacy) system, in the presence of a control weakness over access privileges. The second objective is to assess the propensity of financial auditors to consult with information technology (IT) audit specialists within their firm when assessing ERP and non‐ERP system risks during the planning stage of an audit. One hundred sixty‐five auditors participated in an experiment in which we manipulated system type (ERP versus non‐ERP) and measured auditor type (IT audit specialists versus financial auditors). Both auditor types indicate significantly higher business interruption, process interdependency, and overall control risks with the ERP, as compared to the non‐ERP, system. Additionally, while IT audit specialists assess significantly higher network, database, and application security risks with the ERP system, financial audits do not recognize higher security risks in these areas. Perceived risk differentials from the non‐ERP to the ERP system across all risk categories are significantly greater for IT audit specialists than financial auditors. Finally, financial auditors do not indicate a greater need to consult with IT audit specialists when auditing an ERP versus a non‐ERP system and they are equally highly confident in the ability of financial audit teams to assess risks in both computing environments. Overall, evidence from this study suggests that financial auditors may be overconfident in their ability to assess ERP system risks.