Question

List three fundamental concepts underlining financial statements and include the 5 components of auditing process.

Answer 1

List of three fundamental concepts underlining Financial Statements:

1) Going concern

2) Consistency

3) Accural

1)Going Concern: Under this concept it is assumed that the enterprise has neither the intension nor the need to liquidate or curtail materially the scale of its operations.

2) Consistency: Under this concept it is assume that the accounting policies are followed consistently from one period to another

The concept of consistency is applied when there are alternative methods of accounting which are equally acceptable for the example valuation of closing stock.

3) Accural: Under this concept the effects of transactions and events are recognised when they occur and not as cash recieved or paid, for example Mr Z sell goods to Mr Y at ₹1000 on credit so In such case Mr Z record sell ₹1000 even no money received

Five component of auditing process

According to COSCO

The component are

1) Control Environment

2) Risk Assessment

3) Control Activities

4) Information and communication

4) Monitoring

1)Control and Environment : This component refers the the managers and employees attitude toward the internal controls.

2)Risk Assessment : This component refers to the identification andevaluation of Risk in particular Area of enterprise

3) Control Activities : This component refers to the rules and policies of enterprise that help ensure appropriate control

4) Information and Communication :This component refers to the understanding the information and communication technologies of enterprise

5) Monitoring : This component refers to the understanding that how the management is monitoring the control system of enterprise and how effective this is