Questions:
1.What are the Objectives of Financial Statement
2.Discuss the differences between Accounting and Auditing.
A literature review have been given on management’s assertion and the differences between accounting and auditing is being discussed. The objective behind this literature review is to develop a learner’s ability on management’s assertion, a clear view of objectives of financial statement in auditing terms, a detailed discussion of differences of auditing and accounting has been done (Siagian, Siregar, and Rahadian, 2013). The management assertions are defined on the basis of existence, completeness, its valuation and presentation. The impacts of auditing which helps to improve the firm’s performance have been discussed here under (Haji, 2014).
The general purpose of preparing financial statement for the year is to provide few information about the financial position and financial performance of the entity to the third party users in order to make informed economic decisions. According to the author Noor Adwa Sulaiman, Zarina Zakaria and University Malaya. They have mentioned in the chapter that the objectives of financial statement in auditing is to ensure the reliability of the financial statements that they are made in with the compliance of accounting standards and Financial Reporting Act 1997 which has establish the foundation of this act and based on Malaysian Accounting Standards Board (MASB); Though each statement has its own particular objective to serve but they are interconnected that the sole purpose of statement can be fulfilled and looked as a whole not to be considered separately. The financial statement should depict true and fair value of the organization’s financial position and it should be free from the material misstatements. Also it showcases the flow of cash of the organization which affects the financial performance of the entity. The statement shows the company affairs which are regulated by the Companies Act 1965; so that third party users can rely upon the financial statement of the company and the entity itself can make economic decisions (Weil, Schipper, and Francis, 2013).
Generally, when the process of accounting ends and the auditing process begins for the sole purpose of defining the true and fair view of books of accounts. It is basically an activity of recording, preparing, classifying and presenting the financial statements. Accounting is used to keep the track of monetary transactions and audit on the other hand means an inspection of the books of accounts and the financial statement of an entity with an intention to reveal the fact that at what extent does financial statement is giving a fair picture of an organization. According to the author the distinction between accounting and auditing is that, accounting is a process of recording, classifying and summarizing the transactions or events in a manner that fulfilment of the purpose of providing financial statement to third party users for decision making (Yu-Shu, Chyi-Lin, and Altan-Uya, 2015). Whereas audit is a process of improving the trustworthiness of financial statements. A thorough understanding of accounting principles and the rules of law is must in evaluating the relevancy of financial information that the statements are depicting the true value of an organization. The economic events that have been occurred in the accounting period are also covered in by the auditors while auditing (Wang, and Huang, 2014).
The standards and procedures of accounting and auditing are correlated. This integrated system of both help managing the accounts of a company. The application of GAAP (generally accepted accounting principles) is only being determined by applying the auditing procedures in company’s financial statements.
According to the author Weirich, (Weirich, Pearson, and Churyk, 2013). In his Accounting and auditing research, accounting is one studied language of business whose purpose is to provide economic activities carried on by the entity. It captures the day to day monetary transactions of business by classifying those transactions into groups and summarize them in a way that in case of urgency one can refer to them easily. Thereafter analyzing the results of financial statement made and communicate the same to the interesting parties. The key function of accounting is to help in decision making by providing material information of financial nature. There are varied field of accounting namely Cost Accounting, Management Accounting, Human Resource Accounting, so it can be said that the scope of accounting is wide in nature. Objectives of Accounting are maintaining proper record in Journal, Ledger books and Trial Balance and determining the profitability position from these records by preparing Trading and Profit & Loss Account. Lastly, Balance Sheet is prepared to showcase the financial position of the entity, as it provides necessary information regarding insolvency and liquidity position to the interested parties (Turner, 2013).
On the other hand, auditing is known to be a methodical procedure of examining financial information with an intention of giving an opinion about the truthfulness and fairness of the financial statement. Auditing is critical in nature and an unbiased thorough investigation of each and every aspect starting from vouchers, receipts, account books that needs to be verified with an objective of spotting the reliability and validity of the financial statement. A detailed scrutiny is done to detect frauds, errors and manipulation if any. The accuracy and transparency is being inspected in compliance with the accounting principles and standards. After all the inspection of books of accounts and financial records, auditor gives his opinion in the form of a report. The report made by the auditor for the person who has appointed auditor to carry on the auditing process in his organization (Brooks, Cheng, and Reichelt, 2013). The report are of two types called as Unmodified and Modified, it can be conducted internally and externally depending upon the requirements of organization. If management wants to improve their accounting as well as internal control systems then auditor is appointed to do auditing internally within a specific time decided by directors (Cassell, Drake, and Dyer, 2014). The external auditor is appointed by the shareholders of the company because they are the interested parties who need the true and fair picture of financial statement to make formed economic decision for the company. The scope of Auditing is not as wide as of Accounting.
It is being concluded from the articles and theory given by the mentioned authors that:
The definition pounded by the author ‘Leow’ that Management Assertions are mere representations in the annual report made through the financial statements (Leow, and Khong, 2015). The directors do so to discharge their responsibility towards shareholders of the company. These representations may be implicit or explicit by the management which are exemplified in the financial reports of the company. These assertions are broadly classified into five categories which are as follows:
These assertions are further explained by Leow in his journal article where author tried to explain Management assertions are the claims made by members in relation to certain aspects of a company. When audit is conducted, auditors rely on the variety of assertions in regard to business. The concept of management assertions is to provide a source while applying audit procedure in the company. But before applying such assertions, auditors make sure by conducting audit tests on given assertions and check the reliability of these assertions. Management assertions are further classified into three levels named as Transaction-level assertions, Account balance assertions and Presentation and disclosure assertions.
In Transaction-level assertions, the assertions are related to transaction which are mostly in relation to income statement and they are as follows:
In Account balance assertion, the assertions related to the end balance of accounts and mainly relates with the balance sheet only.
In Presentation and disclosure assertion, the information under financial statement must be presented and disclosed with the compliance of accounting standards.
The author said in a clear way these assertions may sound almost same or may show repetition in the types of assertions which are categorize in three levels. Although they are repetitive in nature but they do carry a different aspect of the financial statements. As discussed they carry these three sets accordingly, the first set which is related to income statement and the second set to the balance sheet. Lastly, the third set to the presentations and disclosures (Mahzan, and Binti Hassan, 2015).
It is the responsibility of senior management to provide auditor appointed the letter containing management assertions. Because without the management assertions the auditor cannot proceed with the audit activities (Kwon, Lim, and Simnett, 2014). The management assertion letter is sort of an indicator that the management practices are engaged in fraud in the preparation of financial statements. The letter makes auditor able to perform their task in an orderly and well manner with a quite intensive examination to detect errors at the first place only. Management assertions are a sufficient evidence to support the audit procedure and every material component of financial statements.
Author Knechel (Knechel, and Salterio, 2016) has said in his study that there are few implications of audit on firm’s performance. Researcher supported the theory of auditing that how auditors help and contribute to a company’s audit system in various ways. These implications are as follows:
Conclusions
From the Literature review, there are several researchers who have seem to found out that audit and financial performance of an organization are inter-related. It is concluded after confirming from the empirical evidence that was obtained from the research. However it can be seen that there are very few studies done on this study.
References
Brooks, L., Cheng, A., and Reichelt, K. (2013). Audit Firm Tenure and Audit Quality: Evidence from US Firms. In CAAA Anual Conference.
Cassell, C. A., Drake, M. S., and Dyer, T. A. (2014). Stakeholder Reliance on Audited Reports, Audit Fees, and Auditor Litigation Risk.
Farouk, M. A., and Hassan, S. U. (2014). Impact of Audit Quality and Financial performance of Quoted Cement Firms in Nigeria. International journal of Accounting and Taxation, 01- 22.
Haji, A. A. (2014). The Relationship between Corporate Governance Attributes and Firm Performance Before and After the Revised Code: Some Malaysian Evidence. International Journal of Commerce and Management. 24(2), 3-3.
Knechel, W. R., and Salterio, S. E. (2016). Auditing: Assurance and risk. Taylor & Francis.
Kwon, S. Y., Lim, Y., and Simnett, R. (2014). The Effect of Mandatory Audit Firm Rotation on Audit Quality and Audit Fees: Empirical Evidence from the Korean Audit Market. AUDITING: A Journal of Practice & Theory. 33(4), 167-196.
Leow, K. L., and Khong, K. W. (2015). Organizational commitment: The study of organizational justice and leader-member exchange (LMX) among auditors in Malaysia. International journal of business and information, 4(2).
Mahamud, I. A., and Salad, M. D. (2013). Internal auditing and operational risk management for some selected remittance companies in Mogadishu- Somalia. African Journal of Business Management, 3374-3380.
Mahzan, N. S., and Binti Hassan, N. A. (2015). Internal Audit of Quality in 5s Environment: Perception on critical Factors, Effectiveness and Impact on Organizational Performance. International Journal of Academic Research in Accounting, 92-102.
Martinez, A. L., and de Jesus Moraes, A. (2014). Association Between Independent Auditor Fees and Firm Value: A Study of Brazilian Public Companies. Journal of Modern Accounting and Auditing. 10(4), 442-450.
MBA, A. (2013). Mandatory Audit Firm Rotation and Audit Quality in Nigerian Deposit Money Banks.
Nyakundi, D. O., Nyamita, M. O., & Tinega, T. M. (2014). Effect of internal control system on financial performance of small and medium scale business enterprises in Kisumu City Kenya. International Journal of Social Sciences and Entrepreneurship, 276-309
Ojong, E. N. (2014). The Effect of Internal Audit Function on the Financial Performance of Tertiary Institution in Nigeria. International Journal of Economics, Commerce and Management, 340-389.
Sayyar, H., Basiruddin, R., Rasid, S. Z. A., and Sayyar, L. (2014). Mandatory Audit Firm and Audit Partner Rotation. European Journal of Business and Management. 6(26), 80-83.
Siagian, F., Siregar, S. V., and Rahadian, Y. (2013). Corporate Governance, Reporting Quality, and Firm Value: Evidence from Indonesia. Journal of Accounting in Emerging Economies. 3(1), 4-20.
Turner, E. R. (2013). Understanding Internal Control Relevant to the Audit- The Function of a Walk-Through. International Accounting Journal, 452 (123), 120-134.
Wang, Y.-F., and Huang, Y.-T. (2014). How Do Auditors Increase Substantially Firm Value? International Journal of Economics and Finance. 6(10), p76.
Weil, R. L., Schipper, K., and Francis, J. (2013). Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.
Weirich, T. R., Pearson, T. C., and Churyk, N. T. (2013). Accounting and Auditing Research: Tools and Strategies. Wiley Global Education.
Yu-Shu, P., Chyi-Lin, H., and Altan-Uya, D. (2015). Corporate Social Responsibility and Corporate Financial Performance: The Intervening Effect of Social Capital. Journal of Advanced Management Science Vol. 3(4).
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order formOnce we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignmentAs soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download