Sure! Here’s an Audit Scope Example for a hypothetical company. The word ‘scope’ means the range of actions’. The term ‘scope of an audit’ means the procedure which is considered necessary in order to achieve the desired objectives of audit.
Audit Scope Example You Must Know.
SCOPE OF AUDIT IN SMALL SCALE BUSINESS
In small scale business the scope of audit may be limited by agreement with the client. In small scale business records are maintained usually by one or two persons. So auditor should apply the thorough checking. Small businesses take interest in audit for detailed checking so that all types of errors are pin pointed and remedial action can be taken.
IN LARGE SCALE BUSINESSES
In large scale businesses, the auditor can not check the each and every transaction. So he checks the few transactions with very care. In. public limited company, scope of audit can not be limited by agreement. The audit of public limited company is compulsory by law. So scope of audit work is determined by law. He has to report whether the accounts are showing the true and fair view of the concern.
There is no exact formula for the audit but the following points must be kept in mind:-
- LEGAL REQUIREMENTS
The auditor should determine the scope of audit in accordance with the requirements of legislation, regulations or relevant professional bodies.
- RELIABLE INFORMATION
The auditor should obtain the reasonable assurance as to whether the information contained in the underlying accounting records and other source data is reliable
3. COMMUNICATION
The auditor determines whether the relevant information is property communicated in financial statements. For this purpose he can compare the financial statements with the underlying accounting records *
- JUDGEMENT
In forming his report on financial statements, the auditor carries out procedures designed to obtain reasonable assurances that financial statements are property 5 stated in all material respects.
- RELY ON INTERNAL CHECK
It is impossible to check every voucher and transaction, so he should try to analyze and to rely on system of internal check in force
- BOOKS OF ENTRIES
The auditor is appointed to report on figures of financial statements, yet he has to go beyond balance sheet and profit and loss account. He should take reasonable steps to satisfy himself that books of accounts and relating supporting evidences are correct.
- APPLYING HIS OWN KNOWLEDGE
The auditor should- apply his own professional skill to prove that there is no reason of doubt about the accounts.
DETERMINATION OF SCOPE
The scope of audit is determined by the following: –
- COMPANIES ORDINANCE
The scope of audit of companies is determined by the legal requirements of companies ordinance, 1984. The state determines the rules for determining the scope of audit. The auditor has to follow all the rules applicable on the audit work while checking the accounts of a business concern
- INTERNATIONAL STANDARDS ON AUDITING
Federation of accountants issue the “International Standards on Auditing. These standards are very useful in all areas of auditing. Institute of Chartered Accountants of Pakistan (ICAP) also follows these standards.
- OTHER RULES AND REGULATION
In certain cases, the other laws determine the scope . of audit. For example in case of banks, the scope of audit is determined by Banking Companies Ordinance 1962.
- TERMS OF AGREEMENT
In certain cases, the scope of audit is determined by the terms of agreement. For example if the management appoints the auditor to specially check the Cash Book ther the auditor has to pay the more attention to cash book.