Mª ANGELA JIMENEZ 1 UNIT 4. EXTERNAL AUDIT BASIS CONCEPTS.

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UNIT 4. EXTERNAL AUDITUNIT 4. EXTERNAL AUDIT

BASIS BASIS CONCEPTSCONCEPTS

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4.1. DEFINITION4.1. DEFINITION

GENERAL DEFINITION: – A PERIODIC EXAMINATION OF THE BOOKS OF

ACCOUNT AND RECORDS OF AN ENTITY.– IT IS CARRIED OUT BY AN INDEPENDENT THIRD

PARTY (THE AUDITOR) – IF THE BOOKS OF ACCOUNT ARE ACCURATE AND

COMPLY WITH ESTABLISED CONCEPTS, PRINCIPLES, ACCOUNTING STANDADS, LEGAL REQUIREMENTS AND GIVE A TRUE AND FAIR VIEW OF THE FINANCIAL STATE OF THE ENTITY

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THE OBJECTIVE OF AN AUDIT OF FINANCIAL STATEMENTS IS TO EXPRESS AN OPINION WHETHER THE FINANCIAL STATEMENTS ARE PREPARED, IN ALL MATERIAL RESPECTS, IN ACCORDANCE WITH AN APPLICABLE FINANCIAL REPORTING FRAMEWORK.

AUDITING IS UNDERSTOOD: – AS THE ACTIVITY, – PERFORMED BY A QUALIFIED, INDEPENDENT PERSON,– CONSISTING OF ANALYSIS, USING APPROPIATE

REVIEWING AND VERIFICATION TECHNIQUES, OF THE ECONOMIC-FINANCIAL INFORMATION OBTAINED FROM THE ACCOUNTING EXAMINED.

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THE KEY WORD OF AUDITING ARE:– TRUE AND FAIR VIEW OF THE FINANCIAL

STATEMENT AND THE ASSETS – VERIFICATION OF THE FINANCIAL SITUATION OF THE

COMPANY OR BODY AUDITED, – VERIFICATION OF THE RESULTS OF ITS OPERATIONS, – TO COMPLY WITH THE GENERALLY ACCEPTED

ACCOUNTING PRINCIPLES AND RULES.

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4.2. GENERAL METHODOLOGY OF AUDITING PROCESS

OBJECTIVES AND CONFIGURATION OF WORK AUDITINGOBJECTIVES AND CONFIGURATION OF WORK AUDITING

ENGAGEMENT LETTER OF AUDITINGENGAGEMENT LETTER OF AUDITING

STRATEGY OF WORK>STRATEGY OF WORK>Objective and configurationObjective and configuration

Size and complexity of companySize and complexity of companyThe auditor experienceThe auditor experience

Knowledge of the type of the businessKnowledge of the type of the businessQuality of the organizationQuality of the organization

Internal Control of the organizationInternal Control of the organization

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PLANIFICACION OF AUDITINGPLANIFICACION OF AUDITINGScope, configuration and exact date of the beginning of the workScope, configuration and exact date of the beginning of the work

GLOBAL PLAN OF AUDITINGGLOBAL PLAN OF AUDITINGPlanning, Planning,

Independent expert in other mattersIndependent expert in other matters

Internal auditorsInternal auditors

Auditing risk methodsAuditing risk methods

The internal controlThe internal control

Analysis of the probabilistic series of different accounts of the financial Analysis of the probabilistic series of different accounts of the financial statementsstatements

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AUDITING PROGRAMAUDITING PROGRAM

REVIEW TECHNIQUES TO REACH THE OBJECTIVESREVIEW TECHNIQUES TO REACH THE OBJECTIVES

PROFESSIONAL AND INDEPENDENT OPINIONPROFESSIONAL AND INDEPENDENT OPINION

AUDIT REPOR OF FINANCIAL STATEMENTAUDIT REPOR OF FINANCIAL STATEMENT

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4.3. PLANNING ACTIVITIES

ENVIRONMENTAL MATTERS CAN BE COMPLEX AND MAY ENVIRONMENTAL MATTERS CAN BE COMPLEX AND MAY THEREFORE REQUIRE ADDITIONAL CONSIDERATION BY THEREFORE REQUIRE ADDITIONAL CONSIDERATION BY AUDITORS. AUDITORS.

IT IS IMPORTANT TO CONSIDER THE JUDGMENT’S IT IS IMPORTANT TO CONSIDER THE JUDGMENT’S AUDITOR.AUDITOR.

IT USES TO DETERMINE THE NATURE, TIMING AND IT USES TO DETERMINE THE NATURE, TIMING AND EXTENT OF AUDIT PROCEDURES WITH RESPECT TO>EXTENT OF AUDIT PROCEDURES WITH RESPECT TO>

– KNOWLEDGE OF THE BUSINESSKNOWLEDGE OF THE BUSINESS– RISK ASSESSMENTS AND INTERNAL CONTROLRISK ASSESSMENTS AND INTERNAL CONTROL– CONSIDERATION OF LAWS AND REGULATIONSCONSIDERATION OF LAWS AND REGULATIONS– USING THE WORK OF AN EXPERT AND SOME OTHERSUSING THE WORK OF AN EXPERT AND SOME OTHERS

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THE AUDITOR SHOULD DEVELOP AN AUDIT PLAN FOR THE AUDITOR SHOULD DEVELOP AN AUDIT PLAN FOR THE AUDIT IN ORDER TO REDUCE AUDIT RISK TO AN THE AUDIT IN ORDER TO REDUCE AUDIT RISK TO AN ACCEPTABLE LOW LEVEL.ACCEPTABLE LOW LEVEL.

THE PLAN INCLUDES THE NATURE, TIMING AND EXTENT THE PLAN INCLUDES THE NATURE, TIMING AND EXTENT OF AUDIT PROCEDURES TO BE PERFORMED BY OF AUDIT PROCEDURES TO BE PERFORMED BY ENGAGEMENT TEAM. ENGAGEMENT TEAM.

THE AUDITOR RE/EVALUATES THE PLANNED AUDIT THE AUDITOR RE/EVALUATES THE PLANNED AUDIT PROCEDURES, BASED ON THE REVISED PROCEDURES, BASED ON THE REVISED CONSIDERATION OF ASSESSED RISKS FOR ALL OR CONSIDERATION OF ASSESSED RISKS FOR ALL OR SOME OF THE CLASSES OF TRANSACTIONS, ACCOUNT SOME OF THE CLASSES OF TRANSACTIONS, ACCOUNT BALANCES OR DISCLOSURES.BALANCES OR DISCLOSURES.

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THE AUDITOR MAY CONSIDER THE FOLLOWING THE AUDITOR MAY CONSIDER THE FOLLOWING MATTERS TO ESTABLISH THE PLANN OF AUDITING>MATTERS TO ESTABLISH THE PLANN OF AUDITING>

– THE FINANCIAL REPORTING FRAMEWORK ON WHICH THE THE FINANCIAL REPORTING FRAMEWORK ON WHICH THE FINANCIAL INFORMATION TO BE AUDITED HAS BEEN FINANCIAL INFORMATION TO BE AUDITED HAS BEEN PREPARED.PREPARED.

– INDUSTRY/SPECIFIC REPORTING REQUIREMENTS SUCH AS INDUSTRY/SPECIFIC REPORTING REQUIREMENTS SUCH AS REPORTS MANDATED BY INDUSTRY REGULATORS.REPORTS MANDATED BY INDUSTRY REGULATORS.

– THE EXTENT TO WHICH COMPONENTS ARE AUDITED BY THE EXTENT TO WHICH COMPONENTS ARE AUDITED BY OTHERS AUDITORSOTHERS AUDITORS

– THE NATURE OF THE BUSINESS SEGMENTS TO BE THE NATURE OF THE BUSINESS SEGMENTS TO BE AUDITED, INCLUDING THE NEED FOR SPECIALIZED AUDITED, INCLUDING THE NEED FOR SPECIALIZED KNOWLEDGEKNOWLEDGE



– GOVERNMENT POLICIES CURRENTLY AFFECTING THE GOVERNMENT POLICIES CURRENTLY AFFECTING THE CONDUCT OF THE ENTITY’S BUSSINESS> MONETARY, CONDUCT OF THE ENTITY’S BUSSINESS> MONETARY, FISCAL, FINANCIAL INCENTIVES, ETC. FISCAL, FINANCIAL INCENTIVES, ETC.

– EXTERNAL FACTORS CURRENTLY> GENERAL LEVEL OF EXTERNAL FACTORS CURRENTLY> GENERAL LEVEL OF ECONOMIC ACTIVITY, INTEREST RATES, INFLATION, ECONOMIC ACTIVITY, INTEREST RATES, INFLATION, CURRENCY REVALUATION, ETC.CURRENCY REVALUATION, ETC.

– IMPORTANT SUPPLIERS OF GOODS AND SERVICES.IMPORTANT SUPPLIERS OF GOODS AND SERVICES.– RESEARCH AND DEVELOPMENT ACTIVITIESRESEARCH AND DEVELOPMENT ACTIVITIES– TRANSACTIONS WITH RELATED PARTIESTRANSACTIONS WITH RELATED PARTIES– ACCOUNTING FOR FAIR VALUESACCOUNTING FOR FAIR VALUES– ACCOUNTING PRINCIPLES AND INDUSTRY SPECIFIC ACCOUNTING PRINCIPLES AND INDUSTRY SPECIFIC

PRACTICES, ETC. PRACTICES, ETC.


4.4. ENGAGEMENT LETTER

THIS LETTER CONFIRMS THE AUDITOR’S ACCEPTANCE THIS LETTER CONFIRMS THE AUDITOR’S ACCEPTANCE OF THE APPOINTMENT, THE OBJECTIVE AND SCOPE OF OF THE APPOINTMENT, THE OBJECTIVE AND SCOPE OF THA AUDIT, THE EXTENT OF THE ADITOR’S THA AUDIT, THE EXTENT OF THE ADITOR’S REPONSIBILITIES TO THE CLIENT AND THE FORM OF REPONSIBILITIES TO THE CLIENT AND THE FORM OF ANY REPORTS.ANY REPORTS.

THIS LETTER IS THE AGREMENT BETWEEN THE THIS LETTER IS THE AGREMENT BETWEEN THE AUDITOR AND THE CLIENT.AUDITOR AND THE CLIENT.

PRINCIPAL CONTETS>PRINCIPAL CONTETS>– The objective of the audit of financial statementThe objective of the audit of financial statement– Management’s responsibility for the financial statmentManagement’s responsibility for the financial statment


4.4. ENGAGEMENT LETTER

– The scope of the audit, including reference to applicable The scope of the audit, including reference to applicable legislation, regulations, or pronouncementslegislation, regulations, or pronouncements

– The form of any reports or other communication of results of The form of any reports or other communication of results of the engagementthe engagement

– Unrestricted access to wathever records, documentation and Unrestricted access to wathever records, documentation and other information requested in connection with the audit.other information requested in connection with the audit.

– Management’s responsibility for establishing and maintaining Management’s responsibility for establishing and maintaining effective internal control. effective internal control.

– Arrangements concerning the involvement of internal Arrangements concerning the involvement of internal auditors and other client staff. auditors and other client staff.

– Arrangements to be made with the predecessor auditor, in Arrangements to be made with the predecessor auditor, in any, in the case of an initial audit. any, in the case of an initial audit.


4.5. AUDITOR’ S OPINION4.5. AUDITOR’ S OPINION

THE AUDITOR IS RESPONSIBLE FOR FORMING AND EXPRESSING A “TECHNICAL OPINION” ON THE FINANCIAL STATEMENTS WITH REFERENCE TO THE FOLLOWING PARTICULARS:

– WHETHER THEY HAVE BEEN PREPARED AND PRESENTED IN ACCORDANCE WITH THE GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND RULES.

– WHETHER SAID PRINCIPLES AND RULES HAVE BEEN APPLIED IN A UNIFORM MANNER AS TO THE PRECEDING FINANCIAL YEAR.



– WHETHER FAILURE TO APPLY ONE OR SEVERAL ACCOUNTING PRINCIPLES OR RULES IS CONSIDERED FITTING, IN APPROPIATE, WITHIN THE TRUE IMAGE THE ANNUAL ACCOUNTS MUST PROVIDE.

– AS TO THE EVENTS THAT MAY HAVE ARISEN BETWEEN THE CLOSING DATE OF THE FINANCIAL YEAR AND DRAFTING THE REPORT.



THE DIFERENTS KINDS OF TECHNICAL OPINION COULD BE:

– “QUALIFIED OPINION”: WHEN THERE ARE NO RESERVES IN THE PARTICULAR STATE OF THE PREVIOUS POINTS.

– “UNQUALIFIED OPINION” OR “ADVERSE OPINION”: WHEN THE RESERVES EXIST.

– “DISCLAIMER OF OPINION”: WHEN THERE ARE IMPORTANT RESERVES ABOUT THE DIFERENT PREVIOUS POINTS AND IT IS NECESSARY COMPLEMENTARY DETAILS AND INFORMATION ABOUT THE ANNUAL ACCOUNTS.


4.6. AUDITING REPORT4.6. AUDITING REPORT

THE TECHNICAL OPINION MUST STATE WHETHER THE ACCOUNTING STATEMENTS OR DOCUMENT ADEQUATELY REPRESENTS THE ECONOMIC EVENTS THAT HAVE ARISEN AT THE COMPANY OR BODY THAT THESE MUST CONTAIN ACCORDING TO THE APPLICABLE ACCOUNTING RULES AND PRACTICE.

THE TECHNICAL OPINION WILL BE WRITTEN AND EXPLAINED IN THE “INDEPENDENT AUDITOR´S REPORT”.



AUDIT REPORTAUDIT REPORT: THE FORMAL DOCUMENT IN WHICH AN : THE FORMAL DOCUMENT IN WHICH AN AUDITOR EXPRESSES AN CLEAR OPINION AS TO AUDITOR EXPRESSES AN CLEAR OPINION AS TO WHETHER THE FINANCIAL STATEMENTS OF AN ENTITY:WHETHER THE FINANCIAL STATEMENTS OF AN ENTITY:

– SHOW A TRUE AND FAIR VIEW OF:SHOW A TRUE AND FAIR VIEW OF: ITS POSITION AT A GIVEN DATE ANDITS POSITION AT A GIVEN DATE AND THE RESULTS OF ITS OPERATIONS FOR THE ACCOUNTING THE RESULTS OF ITS OPERATIONS FOR THE ACCOUNTING

PERIOD ENDED ON THAT DATEPERIOD ENDED ON THAT DATE

– HAVE BEEN PROPERLY PREPARED IN ACCORDANCE WITH HAVE BEEN PROPERLY PREPARED IN ACCORDANCE WITH THE RELEVANT STATUTORY REQUIREMENTS.THE RELEVANT STATUTORY REQUIREMENTS.

– COMPLIANCE WITH CONTRACTUAL AGREEMENTS.COMPLIANCE WITH CONTRACTUAL AGREEMENTS.– SUMMARIZED FINANCIAL STATEMENTS.SUMMARIZED FINANCIAL STATEMENTS.



EVALUATION ABOUT THE FINANCIAL STATEMENTS> IT EVALUATION ABOUT THE FINANCIAL STATEMENTS> IT INCLUDES>INCLUDES>

– THE ACCOUNTING POLICIES SELECTED AND APPLIED ARE THE ACCOUNTING POLICIES SELECTED AND APPLIED ARE CONSISTENT WITH THE FINANCIAL REPORTING CONSISTENT WITH THE FINANCIAL REPORTING FRAMEWORK.FRAMEWORK.

– THE ACCOUNTING ESTIMATES MADE BY MANAGEMENT THE ACCOUNTING ESTIMATES MADE BY MANAGEMENT ARE REASONABLE.ARE REASONABLE.

– THE INFORMATION PRESENTED IN THE FINANCIAL THE INFORMATION PRESENTED IN THE FINANCIAL STATEMENTS IS RELEVANT, RELIABLE, COMPARABLE AND STATEMENTS IS RELEVANT, RELIABLE, COMPARABLE AND UNDERSTANDABLE.UNDERSTANDABLE.

– THE FINANCIAL STATEMENTS PROVIDE SUFFICIENT THE FINANCIAL STATEMENTS PROVIDE SUFFICIENT DISCLOSURES TO ENABLE USERS TO UNDERSTAND THE DISCLOSURES TO ENABLE USERS TO UNDERSTAND THE EFFECT OF MATERIAL TRANSACTION AND EVENTS.EFFECT OF MATERIAL TRANSACTION AND EVENTS.



AUDIT REPORT: MERCANTILE DOCUMENT. IT CONTAINS:

– IDENTIFICATION OF THE COMPANY OR BODY AUDITED.

– INDIVIUALS OR CORPORATIONS WHO CARRIED OUT THE AUDIT PROCESS.

– IDENTIFICATION OF THE DOCUMENTS TO BE EXAMINED THAT ARE INCLUDED IN THE REPORT.

– SUMMARY AND GENERAL DESCRIPTION OF THE TECHNICAL STANDARDS OF AUDITING APPLIED TO THE AUDIT PROCESS.



– WHETHER FINANCIAL STATEMENTS CONTAIN ALL THE WHETHER FINANCIAL STATEMENTS CONTAIN ALL THE NECESARY AND SUFFICIENT INFORMATION TO INTERPRET NECESARY AND SUFFICIENT INFORMATION TO INTERPRET AND UNDERSTAND THE FINANCIAL SITUATIONAND UNDERSTAND THE FINANCIAL SITUATION

– TECHNICAL OPINION.TECHNICAL OPINION.

– SIGNATURE OF THE AUDITOR OR AUDITORS WHO DAFTED SIGNATURE OF THE AUDITOR OR AUDITORS WHO DAFTED THE REPORT.THE REPORT.



ELEMENTS OF THE AUDITOR’ S REPORT *ISAS*>ELEMENTS OF THE AUDITOR’ S REPORT *ISAS*>– TITLETITLE– ADDRESSEEADDRESSEE– INTRODUCTORY PARAGRAPHINTRODUCTORY PARAGRAPH– MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL

STATEMENTSSTATEMENTS– AUDTOR’S RESPONSIBILITYAUDTOR’S RESPONSIBILITY– AUDITOR’S OPINIONAUDITOR’S OPINION– OTHER REPORTING RESPONSIBILITIESOTHER REPORTING RESPONSIBILITIES– AUDITOR’ S SIGNATUREAUDITOR’ S SIGNATURE– DATE OF THE AUDITOR’S REPORTDATE OF THE AUDITOR’S REPORT– AUDITOR’S AFFRESSAUDITOR’S AFFRESS



WHEN THE ANNUAL ACCOUNTS ARE DEPOSITED AT THE BUSINESS REGISTRY, THEY SHALL BE ACCOMPANIED, WHEN APPROPIATE, BY THE AUDITOR´S REPORT.

THE REPORT IS REGULATED BY DIFFERENT STANDARD:– INTERNATIONAL– EUROPEAN COMMUNITIES– COUNTRY STANDARD AND ACTS

Mª ANGELA JIMENEZ 1 UNIT 4. EXTERNAL AUDIT BASIS CONCEPTS.

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