Professional Documents
Culture Documents
Assumption 1: There is a need for an audit a relationship of accountability between two or more parties (i.e. that one party owes a duty of acceptable conduct to another); an imposed audit (for example, companies, government, charities) a need by some party to establish the reliability and credibility of information for which they are responsible and which will be used by another party; a voluntary audit (for example, partnerships, companies who engage environmental auditors, newspapers that have their circulation figures audited) public interest in the proper and adequate performance of some party; a public interest audit (for example, academic audits designed to test the robustness of the systems employed by educational establishments in delivering services to their students).
Assumption 2: The subject matter is too remote, too complex or too important to accept without an audit Remoteness: those relying on information may not physically be able to check the validity of the information themselves, perhaps because they are remote from the company. Complexity: the nature of the subject is so complex that it requires special expertise to investigate and check. For example, most ordinary shareholders do not possess sufficient accounting knowledge and skills to be able to conduct the audit themselves. Significance: the matter under audit has such economic significance that an audit is required to lend it credibility. Note in contrast that unincorporated entities are often not required to have an audit, because lenders have recourse to the assets of the owners in the event that the business entity cannot meet its liabilities
Assumption 3: An audit must be conducted with independence and without constraints either over conduct or in reporting Findings Assumption 4: The subject matter of an audit can be verified by collection of evidence Assumption 5: Standards of accountability, performance, etc., can be set and actual performance can be measured against these standards
Assumption 6: The purpose of the audit is sufficiently clear that its results can be communicated clearly Assumption 7: An audit produces an economic or social benefit
Postulates of auditing
Mautz and Sharaf in The Philosophy of Auditing a. There is no necessary conflict of interest between the auditors and the management of the enterprise under audit. b. Financial statements and financial data are verifiable. c. The financial statements and other information submitted for verification are free from collusive and other unusual irregularities. d. The existence of a satisfactory system of internal control eliminates the probability of irregularities.
e. Consistent application of generally accepted accounting principles (GAAP) results in the fair presentation of financial position and the results of operations. f. In the absence of clear evidence to the contrary, what has held true in the past for the enterprise under examination will hold true in the future. g. When examining financial data for the purpose of expressing an independent opinion thereon, the auditors act exclusively in the capacity of auditor. h. The professional status of the independent auditor imposes commensurate professional obligations.