IV. What does an auditor do? Look at the following activities and decide which ones are normally done internally or externally

An auditor …

1. spends time getting to know the business as well as the environment and the industry in which it operates;

2. analyses the internal business and financial control system used to make and record transactions;

3. gather evidence on the financial control systems and the figures in the financial statements;

4. gives advice on the business methods and transactions of the company;

5. examines financial statements to determine whether they conform to generally accepted accounting principles;

6. prepares the financial statements in accordance with the generally accepted accounting principles of the country where the enterprise operates;

7. examines the management report and determines whether it conforms to the financial statements;

8. guarantees the correctness of the figures presented in the accounts;

9. provides consulting services;

10. presents a written report to the management of the company, describing whether the accounting records, financial statements and management reports conform to legal requirements;

11. maintains confidentiality and independence.

V. Read passages describing some important aspects of general technology of auditing and answer the following questions.

What benefits are obtained by an engagement letter?

What are the five types of general analytical review procedures?

Engagement letter

An audit engagement begins with decisions about client acceptance and retention. When a new audit client is accepted, an engagement letter should be prepared. (The letter should be obtained each year from continuing clients.) This letter sets forth the terms of the engagement, including an agreement about the fee to be charged. In effect it is the audit contract. It may contain special requests to be undertaken by the auditors, or it may be a rather standard letter that an audit of financial statements will be performed in accordance with generally accepted auditing standards. An engagement letter is highly recommended as a means of reducing the risk of misunderstandings with the client and as a means of avoiding legal liability for claims that the auditor did not perform the work promised.