Auditing

Auditing

Auditing has been around since the mid-1800's, which originated in British. Some of firms today have been around since the 1800's, such as Deloitte & Co. Price Waterhouse & Co. In this paper, I will state the functions of auditing, the nature of auditing, how the standards apply to financial, operational, and compliance audits, and some other items that pertain to auditing in general.

Nature of Auditing

The nature of auditing is that auditors are placed with a special purpose, which is to provide credibility to the information that is reported on the financial statements, along with any other audits that are done by them. "The importance and comprehensive nature of auditing place a special responsibility on public officials or others entrusted with public resources who authorize or arrange audits to be done in accordance with these standards. This responsibility is to provide audit coverage that is broad enough to help fulfill the reasonable needs of potential users of the audit report. The comprehensive nature of auditing also highlights the importance of auditors clearly understanding the audit objectives, the scope of their work to be conducted, and the reporting requirements" (gao.gov, 1999).

The functions of auditing are that it "measures and evaluates the effectiveness of the various types of controls and may also properly be concerned with matters of the operating nature" (ofm.wa, 2006). Most audits, once done, will provide a written report stating their findings and what controls need to be put in place, if there is some missing. It is up to the management to make sure these controls start getting done.

When working at Sonic Corp. we had internal auditors, along with external auditors auditing how we did things in the Tax Department. The internal auditors would sit with you and see how things were done, ask quite a few questions. They were wanting to make sure all the controls were in place, correct signatures on the returns, the journals, who checked what and how often, etc. Now with the external auditors, they would pull returns from prior years, and different stores to make sure the numbers were the same as what was reported on the returns. If there were any discrepancies, then they would have to be noted, such as why the gross earnings of the store were more then what showed in the system.

Elements of the GAAS

There are many elements that are involved within the Generally Accepted Auditing Standards. One is to determine which controls should be tested, which includes the controls over all relevant assertions that are related to all significant accounts and disclosures in the financial statements. There are many controls that fall under this element, some are "Antifraud programs and controls, controls over the selection and application of accounting policies that are in conformity with the GAAP, information technology general controls, controls over significant nonroutine and nonsystematic transactions, company level controls.

Evaluating the likelihood that failure of the control could result in a misstatement, the magnitude of such a misstatement, and the degree to which other controls, if effective, achieve the same control objectives. Evaluating the design effectiveness of controls.

Evaluating the operating effectiveness of controls based on procedures sufficient to assess their operating effectiveness. Testing the controls of the internal audits is one of the procedures" (gallerco, 2004).

Communicating the findings to the auditor and to other people. Evaluating whether the findings are reasonable and support management's assessment.

Standards to financial, operational, and compliance audits

Standards to the financial audits are "Independence - auditors should be independent of management and shareholders.

Professional judgment should be used in planning and performing audits and attestation engagements, and in reporting the results. This requires auditors to observe the principles of serving the public interest and maintaining the highest sense of integrity, objectivity, and independence in applying professional judgment in all aspects of their work.

Competence - The staff assigned to perform the assignment should collectively possess adequate professional competence for the tasks required. This standard places responsibility on audit organizations to ensure that staff who collectively have the knowledge, skills, and experience necessary for that assignment performs each assignment.

Quality Control and Assurance - Each audit organization performing assignments in accordance