Page 191 - DCOM204_AUDITING_THEORY

Unit 10: Audit of Financial Statements

10.11 Depreciation Notes

10.11.1 Straight-Line Depreciation
10.11.2 Modified Accelerated Cost Recovery System (MACRS)
10.12 How to Deduct Office Equipment and Furniture?

10.13 Summary
10.14 Keywords
10.15 Review Questions
10.16 Further Readings

Objectives

After studying this unit, you will be able to:
Evaluate and describe audit of income statement;
Know audit of position statement in respect of the depreciation;
Interpret auditing or valuation of inventory;
Know audit of share capital, reserve and surplus, current assets and liabilities;
Discuss audit procedure for investment, SPV's, fixed assets.

Introduction

A financial statement audit is the examination of an entity’s financial statements and
accompanying disclosures by an independent auditor, with the result being a report by the
auditor, attesting to the fairness of presentation of the financial statements and related disclosures.
The auditor’s report must accompany the financial statements when they are issued to the
intended recipients.
The purpose of a financial statement audit is to add credibility to the reported financial position
and performance of a business. The Securities and Exchange Commission requires that all entities
that are publicly held must file annual reports with it that are audited. Similarly, lenders typically
require an audit of the financial statements of any entity to which they lend funds. Suppliers
may also require audited financial statements before they will be willing to extend trade credit.
Audits have become increasing common as the complexity of the two primary accounting
frameworks, Generally Accepted Accounting Principles and International Financial Reporting
Standards, have increased, and because there have been an ongoing series of disclosures of
fraudulent reporting by major companies.

Notes The Securities and Exchange Commission requires that all entities that are publicly
held must file annual reports with it that are audited.

10.1 Stages of Financial Audit

The primary stages of an audit are:
1. Planning and risk assessment involves gaining an understanding of the business and the
business environment in which it operates, and using this information to assess whether
there may be risks that could impact the financial statements.

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