What is an Audit?
Auditing is a systematic and independent examination of accounts, statutory records, documents, books and vouchers of an organization. Auditing is done to ensure financial and non-financial statements present a fair view of the concern. It is done to ensure all the books; accounts are well maintained as required by the law. Auditing has become a very important phenomenon in the public sector and corporate sector. The auditor examines the documents required for auditing and obtains evidence and gives an opinion based on his or her knowledge which is seen in the audit report. Chartered Accountants in Dubai help in Auditing too.
Audit provides an assurance from third party to various stakeholders that the matter audited is free from any material misstatement. Auditing is frequently related to the financial information of a legal person. The other areas where auditing is done are internal controls, project management, secretarial & compliance audit, water management, quality management and energy conservation.
Auditors who evaluate financial and non-financial information are classified into three categories:
- External auditor or statutory auditor:
The external auditor is an independent firm. The external auditor is assigned by the client to evaluate the financial statements of the company to express an opinion on whether the statements are free from any material misstatement
- Cost auditor or statutory cost auditor:
Cost auditor is also an independent firm. Cost auditor is assigned by the client to evaluate the cost statements of the company to express an opinion on whether the cost statements are free from any material misstatements.
- Secretarial Auditor or statutory secretarial auditor:
The secretarial Auditor is an independent firm. The secretarial audit is engaged by the client to do the auditing of secretarial and applicable laws or compliances of other applicable laws to give an opinion on whether the company’s secretarial and applicable laws or compliances of other applicable laws are free from any material misstatements.
What is an Audit Risk?
Audit risk is also known as residual risk. It refers to the risk of an unqualified audit report issued by the auditor. It may be due to auditor’s failure to find material misstatements or due to fraud or error. The risk is calculated by:
AR=IR X CR X DR
AR = Audit Risk
IR= Inherent Risk
CR= Control Risk
DR= Detection Risk
Inherent risk is the risk involved like business or transaction.
Control risk is the risk due to auditor’s failure to find material misstatements.
Detection risk is the risk due to audit procedures that fail to detect material error or fraud.