Core Principles and Procedures of Financial Auditing

Core Principles of Financial Auditing

Auditing work aims to establish clear guidelines for execution. These fundamental rules ensure the integrity and reliability of the audit process.

Basic Rules for Audit Execution

• First Rule: Work is planned and overseen by a professional audit team.
• Second Rule: A study and assessment of internal control must provide an adequate and reliable basis for determining the scope, nature, and timing of specified audit procedures.
• Third Rule: Sufficient appropriate evidence must be obtained by implementing and evaluating necessary audit evidence to form a fair judgment based on the data in the reviewed annual accounts and to express an opinion on them.

Ground Rules for Independent Audit Reports

The independent audit report is the final product of the auditor's work, conveying results and explaining their professional opinion.

Key Principles for Audit Reporting

• First Rule: The auditor should state in the report whether the annual accounts contain the necessary and sufficient information for their interpretation.
• Second Rule: The report should state if accepted accounting principles and rules have been applied uniformly.
• Third Rule: The information in the annual accounts should be considered representative of the true image of the entity's wealth and financial situation.
• Fourth Rule: The auditor expresses an opinion in the report regarding the financial statements as a whole, including any causes that prevent a clear opinion.
• Fifth Rule: The auditor indicates in the report if the accounting information contained in the managed reports is consistent with the annual accounts.

Audit Procedures and Techniques

Auditors employ various techniques and procedures to gather evidence and form conclusions.

Audit Techniques

1. Analysis: Establishing the components of a specific balance by breaking it down to understand the group of elements.
2. Confirmation: Contrasting amounts, data, or information with third parties external to the company.
3. Estimates: Checking the reasonableness of data by relating it to other relevant information.
4. Inquiry/Survey: Understanding the procedures used by the audited company and establishing performance criteria.
5. Observation: When the auditor observes how company personnel operate during a specific task.
6. Recalculation: When the auditor repeats a series of numerical calculations made by the company to verify the reasonableness of a figure.

Common Audit Procedures by Area

1. Cash and Treasury Area: Reconciliation of cash balances maintained in banks.
2. Inventory Area: Observation of inventory preparation and count tests.
3. Accounts Receivable Area: Reconciliation of balances with third parties; cut-off procedures.
4. Financial Investment Area: Analysis of investment profitability.
5. Tangible and Intangible Assets Area: Checking company ownership certificates; revision of appraisal criteria.
6. Liabilities Area: Confirmation of balances with various creditors.