Exercise 1.Match the following terms (1 – 14) with the correct definition (a – n) on the right.
| 1. statutory audit 2. continuous audit 3. Memorandum of Association 4. Articles of Association 5. walk through test 6. compliance test 7. substantive test 8. teeming and lading 9. auditor 10. prior period 11. audit assignment 12. corroborate 13. statistical sampling 14. consecutive numbers | a) official document stating the internal rules of the company; b) following one after the other without a break; c) this checks that controls are operating effectively; d) required by law; e) money received from one debtor is wrongly recorded to another; f) regulates the company’s relationship with the public; g) testing a small number of representative items; h) carried out all the time; i) following documents or transactions through the system; j) piece of work you are given to do; k) careful study of all the details; l) accountant who examines a firm’s accounts; m) previous length of time; n) make sure it’s true with more information. |
Exercise 2.Fill in the missing prepositional phrases in the following sentences. Choose from the following:
| agree with insist on | blame for reason for | caused by refer to | difference between responsible for | in line with suspicious of |
1. The auditor discovered that there was a … the cash book and the bank balance.
2. If the entries in the accounts are not clear, he can … the original invoices.
3. You must … an official signature on all large orders.
4. The auditor must chaxk that the records are … the company requirements.
5. The auditor must ask the … any large discounts or allowances.
6. The auditor is … checking the reason for any changes in the accounts.
7. The authorities will … the auditor … any mistakes in the accounts.
8. The auditor must check that the purchase invoices … the entries in the Purchases Journal.
9. The auditor should be … any short-cut methods of correcting errors.
10. Mistakes may be … the wrong steps used in the original accounting process.
Exercise 3.Number the following words or expressions with their underlined equivalents in the text:
| Annual General Meeting Transnational corporations standard operating procedures shareholders or stockbrockers | accuracy checking deficiencies derermine | board of directors deviations directives external | implemented ratified subsidiaries a synonym |
The traditional definition of auditing is a review and an evaluation of financial records by a second set of accountants. An internal audit is a control by a company’s own accountants, checking for completeness, (1) exactness and reliability. Among other things, internal auditors are looking for (2) departures from (3) a firm’s established methods for recording business transactions. In most countries, the law requires all firms to have their accounts audited by an outside company. An (4) independent audit is thus a review of financial statements and accounting records by an accountant not belonging to the firm. The auditors have to (5) judge whether the accounts give what in Britain is known as a “true and fair view” and in the US as a “fair presentation” of the company’s (corporation’s) financial position. Auditors are appointed by a company’s (6) most senior executives and advisors, whose choice has to be (7) approved by the (8) owners of the company’s equity at the (9) company’s yearly assembly. Auditors write an official audit report. They may also address a “management letter” to the directors, outlining (10) inadequacies and recommending improved operating procedures. This leads to the more recent use of the word “audit” as (11) an equivalent term for “control”: (12) multinational companies, for example, might undertake inventory, marketing and technical audits. Auditing in this sense means (13) verifuing that general management (14) instructions are being (15) executed in branches, (16) companies which they control, etc.
Exercise 4.Indicate whether each of the following statements is True or False.
1. ________ The people, who keep the financial records for an organization, are the same people who carry out an audit of those records.
2. ________ An outside or independent auditor is only brought in
when a company is having financial difficulties or when irregularities are suspected.
3. ________ The more internal controls an organization has, the more efficient is its operation.
4. ________ Many companies nowadays employ accountants of their own to maintain a continuous internal audit.
5. ________ Internal auditors try to make sure that the operating sections of a company follow the policies established by management.
6. ________ The reports of internal auditors always reach the people in management who can act on them.
7. ________ CPAs seldom do independent auditing work.
8. ________ An independent auditor must examine not only the financial records, but also the evidential matter that supports them.
9. ________ The scope paragraph of an auditor’s reporting letter includes both the extent of the audit and the standards that have been used to carry it out.
10. ________ The general ledgers of a company are used to keep a record of petty cash expenditures.
11. ________ An independent auditor is not concerned with judging the efficiency of a company’s internal control system.
12. ________ The precision with which an auditor expresses his opinion is not important.
13. ________ If a company’s financial records are not in satisfactory condition, the independent auditor must state in what way they are incorrect or incomplete.
14. ________ When an auditor’s opinion is unqualified, he believes that a company’s records meet the standard for fairness.
15. ________ An unqualified opinion by an independent auditor indicates that he has found minor areas in the financial statements that are not kept according to generally accepted accounting principles.
16. ________ A qualified opinion indicates that there were procedural omissions or variations in the financial records that have been audited.
17. ________ An independent auditor can give a piecemeal opinion about only some aspects of the financial records.
18. ________ A disclaimer of opinion indicates that the independent auditor cannot reach any judgment on the financial records.
19. ________ Only very large corporations need independent audits.
Exercise 5.Comment the following.
1. “The man who gets the most satisfactory results is not always the man with the most brilliant single mind, but rather the man who can best coordinate the brains and talents of his associated”.
2. The only man who never makes a mistake is the man who never does anything (T. Roosevelt).
3. Sometimes your best investments are the ones you don’t make (D. Trump)