Question

What do you understand from the following, describe all in detail, and ADD the specimens wherever applicable………

1. Audit Engagement Letter

2. Audit Appointment Letter

3. Audit Planning and Initial Assessments / Walk Through in Audits

4. Audit Verification and Six Point Technique

5. Vouching – the first step towards substantial analysis

6. Verification of Assets, Verification of Liabilities and Revenue Accounts

7. Professional Ethics for CPAs and External Audits ( All aspects )

8. Code of Corporate Governance in Saudi Arabia

• do not forget to have references of all materials and write the references at the end )

Answer 1

1)Audit Engagement Letter

Auditing standards require that the auditor and the client should agree on the terms of the engagement.

The agreed terms must be in writing and the usual form would be a letter of engagement.

Any other form of appropriate contract, however, may be used. It is a written contract between the auditor and the client, stating both parties’ understanding of the professional relationship

2)An audit engagement is an arrangement that an auditor has with a client to perform an audit of the client's accounting records and financial statements. This information is stated in an engagement letter, which is prepared by the auditor and sent to the client.

3)

Walkthroughs are cradle-to-grave reviews of transaction cycles. You start at the beginning of a transaction cycle (usually a source document) and walk the transaction to the end (usually posting to the general ledger). The auditor is gaining an understanding of how a transaction makes its way through the accounting system and about related internal controls.

As we perform a walkthrough, we:

• Make inquiries
• Inspect documents
• Make observations

By asking questions, inspecting documents, and making observations, we are evaluating internal controls to see if there are weaknesses that would allow errors or fraud to occur. Audit standards do not permit the use of inquiries alone. Observations and inspections must also occur.

Some auditors believe that audit walkthroughs (or documentation of controls for significant transaction cycles) are not necessary if the auditor is assessing control risk at high. This is not true. While the auditor can assess control risk at high, she must first gain an understanding of the cycle and the related controls. In other words, the auditor can’t default to high. Risk assessment procedures are required.

4)Verification is an auditing process in which auditor satisfy himself with the actual existence of assets and liabilities appearing in the Statement of Financial position.

• Vouching. When the Auditor verifies accounting transactions with documentary evidence, it is called vouching.
• Confirmation.
• Reconciliation.
• Testing.
• Physical Examination.
• Analysis.
• Scanning.
• Inquiry.

5)

Vouching is the act of reviewing documentary evidence to see if it properly supports entries made in the accounting records. For example, an auditor is engaged in vouching when examining a shipping document to see if it supports the amount of a sale recorded in the sales journal. Vouching can work in two directions. For example, an auditor can trace actual inventory items back to the accounting records to see if the items are properly documented, or start with the inventory records and trace back to the warehouse shelves to see if the inventory exists.

When engaged in vouching, an auditor is looking for any errors in the amount recorded in the accounting records, as well as ensuring that the transactions are recorded in the correct accounts. The auditor is also verifying that transactions have been properly authorized.

When vouching uncovers an error, the auditor may need to increase the sample size being audited in order to gain assurance that a system operates properly. An alternative is to engage in different auditing procedures.

6)Verification means "proving the truth" or "confirmation". Verification is an auditing process in which auditor satisfy himself with the actual existence of assets and liabilities appearing in the Statement of Financial position.

7)

IFAC Code of Ethics for Professional Accountants

A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest.

In acting in the public interest a professional accountant should observe and comply with the ethical requirements of this Code.

A professional accountant is required to comply with the following fundamental principles:

1. Integrity

A professional accountant should be straightforward and honest in all professional and business relationships.

1. Objectivity

A professional accountant should not allow bias, conflict of interest or undue influence of others to override professional or business judgments.

1. Professional Competence and Due Care

A professional accountant has a continuing duty to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional service based on current developments in practice, legislation, and techniques.

Professional accountants should act diligently and by applicable technical and professional standards when providing professional services.

1. Confidentiality

A professional accountant should respect the confidentiality of information acquired as a result of professional and business relationships and should not disclose any such information to third parties without proper and specific authority unless there is a legal or professional right or duty to disclose.

Confidential information acquired as a result of professional and business relationships should not be used for the personal advantage of the professional accountant or third parties.

1. Professional Behavior

A professional accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession.

8)The study of corporate governance structure in banking sector is an important component within the enhancement of banks' efficiency and performance. This current study investigated relationships between the efficiency of corporate governance structure and bank performance. The sample was comprised of nine listed banks in Saudi Stock Exchange. The sample indicated an overall support that blockholders play an important role in the enhancement of the efficiency of corporate governance structure of banks. The results reflected that there was a strong relationship between the efficiency of corporate governance structure and bank performance when using return on assets as a performance measure with one exception that government and local ownership groups were not significant. However, when using stock return as a performance measure, there was a weak positive relationship between the efficiency of corporate governance structure and bank performance.

Source - The institute of chartered accountants EPC vol2.37e