+ Theme 3. 3. 1. General Methods of Auditing of the Financial Statements Olga Obernikhina Management and Marketing department Group 013 a 2
+ Introduction n The ultimate purpose of financial auditing is n to present an accurate account of a company’s financial business transactions, n to make sure the company is trading fairly without deception and the accounts they are presenting to the public or shareholders are accurate and justified. n The financing auditing body is an independent third party. n Usually financial auditing takes place once a year, most commonly at the end of the financial year.
+ Methods of Auditing n A method is a means or manner of procedure, especially a regular and systematic way of accomplishing the purpose. n Methods of auditing of financial statements are based on general scientific and economical methods, not only on auditing methods.
+ Methods of Auditing n General scientific methods n n n Analysis and synthesis Induction and deduction Analogy and stimulation Abstraction and specification n Auditing methods n General economic methods n n System analysis Value analysis n n n Organoleptic methods n Inventory n Control measurements n Sample and continuous monitoring n Technological and chemical control n Examinations n Internal investigations n Experiment Analytical methods n Statistical calculations n Economic and mathematical methods n Economic analysis Documentary methods Generalizing and implementation of auditing results
+ Analysis and Synthesis n Analysis is the process of breaking a complex topic into smaller parts to gain a better understanding of it. n E. g. : auditing of financial activity of the enterprise. n Synthesis is the process studying and putting together into a complex entity small parts. n E. g. : auditing agreements on deliveries
+ Induction and deduction n Induction is the process of deriving general principles and conclusions from particular facts or instances. n E. g. : Auditing of expenditures is conducted by analytical accounting data and then by synthetic one. n Deduction is the process of reasoning from the general to the specific, in which a conclusion follows necessarily from the premises. n E. g. : Auditing of financial results is conducted by synthetic accounting data and then by analytical one.
+ Analogy and Simulation n Analogy is a process of transferring information or meaning from a particular subject (the analog or source) to another one (the target). n Analogy is the base for simulation method. n Simulation or scientific modeling is a process of generating abstract, conceptual, graphical or mathematical models which are analogs of original concept.
+ Abstraction and Specification n Abstraction is a process by which higher more conceptual concepts are derived from the usage and classification of literal concepts. n E. g. : Auditing separate warehouses conclusions are made on the total number of items. n Specification is a set of requirements to be satisfied by a material, product or service. n E. g. : identifying shortages in particular stores.
+ System analysis n System analysis is studying of the object as a part of a system. n The audit system analysis involves evaluation of objects as a part of a system with many factors which influence on their activity. It allows to apply a system approach to the evaluation of the enterprise industrial and economic activity.
+ Value Analysis n Value analysis or value engineering is studying of the object at the stage of production, including the design and synthesis of complex systems based on functional analysis. n E. g. : Design and evaluation of the economic efficiency of processes, etc.
+ Organoleptic methods n Organoleptic methods are methods of evaluating the product with the help of basic human senses. These methods include: n Inventory checking, n check studies, n sample and continuous monitoring, n technological and chemical control, n inspections, n internal investigations, n experiment.
+ Organoleptic methods n Inventory checking is actual availability and presence of inventory, raw materials, finished goods and other facilities. n n The numbers are compared with financial accounting data. Check studies of work are actual control over the corresponding of the consumption of raw materials and resources to the norms (used in manufacturing, building and construction, transportation).
+ Organoleptic methods n Sample monitoring is statistical monitoring of the quality characteristics of the economic process. n n Continuous monitoring is statistical monitoring of actual state of objects. n n E. g. : Determining defects in finished goods. E. g. : Timing norms, use of time during the reporting period. Inspections are expert evaluation used when there are no appropriate specialists among the auditors or the current auditor acts illegally.
+ Analytical methods n Statistical calculations are used in the need of quantitative ratios. n n Economic and mathematical methods are used in determining the impact of factors on the economic process results at the design stage in order to optimize them. n n E. g. : Optimization of the way for transporting goods by tracks. Economic analysis is a set of techniques aimed on identifying relationships and factors that influence the processes. n n E. g. : Labor participation, equipment utilization, production rhythm, etc. E. g. : Average and relative values, grouping, index method, liquidity ratios, accumulating of depreciation, etc.
+ Documentary methods n n n n Research and study of documents, Continuous and sample observations, Grouping of disadvantages, Formal and arithmetical checking of documents, Balance method, Evaluation of legality and validity of business transactions, etc. Information resources for documentary methods: n n n The primary documents including the technical data carriers, Registers of synthetic and analytical accounting, Financial, tax, statistical and operational reporting, etc.
+ Generalizing and implementation of audit results n Set of methods of synthesizing the results of the audit and taking appropriate decisions to correct mistakes and not to take them in future. n Grouping of problems and violations n Economic explanation n Systemizing of problems and recommendation in the auditing report.
+ Conclusion: n Thus, the methods of auditing of financial statements are a set of approaches and techniques directed on presenting an accurate account of a company’s financial business transactions and making sure the company is trading fairly without deception and the accounts they are presenting to the public or shareholders are accurate and justified.