Auditing is a process in which an auditor examines a subject matter. Usually, this subject matter is a client’s financial statements. The auditors can be internal or external to that client. However, they must be independent of the client’s management. The primary objective of this process is for the auditors to form an opinion based […]
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Cash: Cash includes cash equivalents. It is shown under the “current assets” of the balance sheet. These are the liquid assets of the company. The most essential component for any audit is checking cash. The inherent and control risks are both high in handling and managing cash. Auditors should ask the following questions while auditing
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Meaning of Accounts receivables Accounts receivables generally mean Trade receivables in the financial statement of large listed public companies. Accounts receivables are disclosed under the headings “Current Assets”. These are trade or non-Trade receivables that have been specified by the company or regulations and meet the criteria of being classified separately. Accounts receivables are characterized
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The risk of material misstatement is the risk that financial statements are materially misstated due to fraud or error, which includes the removal, omission, or misstatement of the account balance or transactions in the financial statements. The misstatements under ISA 315 are divided into financial statements level and assertion level. The inherent risk and control
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Meaning of materiality There is no specific definition of materiality under U.S. Generally Accepted Accounting Principles (GAAP). However, the gist per the Conceptual Framework for Financial Reporting under International Financial Reporting Standards states that information is to be considered material if it influences the decisions of stakeholders who depend on the financial information of the
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Meaning of retained earnings The company operates in a business environment and strives to obtain higher and higher profits each year. The net profit is obtained by deducting the expenses from the revenues. These net profits are appropriated to reserves and surplus. Such profits when transferred to reserves and surplus after paying off the dividend
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Meaning of share capital Share capital is the amount invested by a company’s shareholders for use in business operations. After the company’s creation, the shareholders bring in the contribution through cash or in-kind which is shown on the balance sheet on the liability side as an equity account. Share capital is also called shareholders’ capital,
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Meaning of Investments Investment is the deployment of capital in order to earn interest, dividend, or capital appreciation. Investments are basically either held to maturity or available for sale securities. Held to maturity securities are those that are held with intent until maturity. These are reported at cost, provided for amortization and accretion of discounts.
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Definition: Search for unrecorded liabilities is the audit testing procedure that auditors perform to verify if there are liabilities that exist at the reporting date and are not recorded in the company’s financial statements. Auditors perform such tests of the search for unrecorded liabilities to give an appropriate response to assess the risk of understatement
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Journaling entry testing: The need for journal entry testing arises when the auditor needs to test the nature, timing, and extent of journal entries. It is done to recognize the risk of material misstatement due to fraud while recording financial transactions. The auditor should be vigilant in its audit of transactions and look at all
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