 Hello and welcome to this session in which we will discuss what is auditing. Now if you're taking an auditing course, an introduction to auditing course or auditing an attestation at an undergraduate or graduate level, the first thing you want to know is what is auditing? Well, in this session we will exactly define this term. So what does auditing entails? Well, it entails the collecting of evidence. You need to look for evidence related to information aiming to assess and report on how well this information conforms to a predetermined standard or established criteria. So there's a lot of information in this statement. One is evidence. We need evidence. What is evidence approved for something? For what purpose? To generate a report. What is that report about? That report is to measure your evidence against a set of criteria. What is that criteria? We're going to discuss each one of these terms separately today. However, we have to keep in mind that the person that conducts the audit, which is the auditor, they have to be skilled, which is they know what they're doing, and most importantly, impartial. Impartial means independent. For your report to carry any weight, to be trusted by the users, you as an auditor will have to be independent. Now each term that I highlighted in yellow on this slide, I will go over briefly in this session to give you the big picture. Now each term highlighted on this slide, listen to me carefully, will consume 10 to 15 different lectures. Each lecture might be 10 to 15 minutes to explain the topics more in depth. So this is just an overview of what is auditing. You will see this topic when you are taken an introduction to auditing course. Let's go ahead and get started. Before we proceed any further, I have a public announcement about my company farhatlectures.com. Farhat accounting lectures is a supplemental educational tool that's going to help you with your CPA exam preparation as well as your accounting courses. My CPA material is aligned with your CPA review course such as Becker, Roger, Wiley, Gleam, Miles. My accounting courses are aligned with your accounting courses broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true-false questions as well as exercises. Go ahead, start your free trial today. Well one of the things that we mentioned on the previous slide is established criteria. What does that mean? It means we have to measure our evidence against something. So we collected evidence. Well how do we collect evidence? Do we collect evidence randomly? Just we pull things from the hat just you know this is the evidence that we're going to be using and if we collect the evidence what are we measuring the evidence against? This is what we mean by established criteria. So what is the criteria? Well the criteria will differ from audit to audit depending on what you are auditing. For some audits your criteria must could be for example in the in the United States is generally accepted auditing principles or GAP. If you are conducting an audit based on international standard your standard, your established criteria is IFRS the international financial reporting standard. Now bear in mind those are criteria for the audit not the audit tools. What do we follow when we conduct an audit? Well we follow generally accepted auditing standards. That's totally different. This is we're looking at the criteria, the measurement. What are we measuring our performance against? Now if you are conducting an audit for the IRS you will follow the IRS audit rules depending on what your audit is. Audit requires verifiable information and set of criteria for evaluation. So the information the evidence that you select has to be verifiable and it has to be compared measured against some criteria. We're going to have all sorts of data various types of data that we can audit from financial statement to system effectiveness so on and so forth. So we can audit practically anything and anything will have some sort of a standard. Now in an auditing course like an undergraduate auditing course you're going to be auditing financial statements and in the US your criteria will be generally accepted accounting principle. What do you need to do? You need to collect evidence as an auditor evidence. What is evidence? Evidence is used to check if the audited information aligned with the criteria. So I need to collect some sort of proof and evidence could come in diverse forms. Now in terms of evidence we are going to have literally maybe 20 lectures. We already have 20 lectures in my course about evidence. What type of evidence? How to collect evidence? Evidence procedures and each one of them will be separated into four or five lectures. So evidence comes in different forms. Transaction data, communication record, observation and oral statements as well as many many other types of data. So as a student later on you need to kind of evaluate which data fits this scenario. Which data has more credibility because not all evidence will be equal. Certain evidence will carry more weight than the other and this is what we will be discussing later. So auditor gather evidence that what we call sufficient and appropriate and we'll have one whole session explaining what's sufficient and appropriate. Just now acceptable evidence for now for other purpose adequate evidence. And we need to assess if the data matches criteria, well if the evidence matches the criteria and this is the key aspect in order. What we collected as it matched the criteria that we are measuring ourselves against. Now not anyone can collect evidence. You have to have an auditor and the auditor has to be competent. They know what they're doing and most importantly they have to be impartial. What is impartial? It means they have to be independent. To maintain users trust the auditor must prioritize independence. If the auditor is not independent the audit is useless. Why? Because you cannot trust the outcome. The reason for the audit is to give you an opinion about something. Well if that opinion of the person that's given you the opinion is not independent, like think about this. Would you trust the opinion of a used of a car salesperson? Nothing wrong with car salespeople. Just simply put they're not going they're not going to give you an independent opinion. They're going to give you something that's going to help them sell the product. So it's not independent. So you want someone who's impartial. Those assessing financial statements are called independent auditors. They are called independent for a reason. Otherwise if they are not independent the whole audit is literally worthless. Even if you are an internal auditor internal auditor will also have to be independent in the sense that internal auditors what they do they don't report to management because internal auditors are auditors that audit the company internally. Those individuals we're going to see what type of auditors we have. We have internal external but even if you are an internal auditor you have to be independent from management. How do you be independent? You report to the board of director. You report to a level above management so you maintain your independence. Auditor must understand the criteria and evidence complexity to draw accurate conclusion. You have to be competent. You have the evidence. You collected the evidence. Do you understand what evidence you are looking at so you draw the proper conclusion? You can be if you are not unbiased even let's assume you are competent. If you are competent but you are not independent the evidence is not good because I cannot trust it. You're a competent individual. You have an unbiased means you have to be independence in mind and in fact that means really independent and appear to be independent and we'll talk about that later. Again guess what one whole lecture about disturb independence maybe two. Okay so skill alone loses value with bias during evidence gathering. You have to be both competent and independent. At the end of the day as an auditor you have to assure report. The last thing is to assure report sharing the outcome sharing your opinion about what what you are doing and we're going to look at many types of report maybe 20 to 25. Some of them will be attestation non attestation compilation reviews so on and so forth. Just now at the end we assure report. Reports vary but they must reveal how closely audited information aligned with the criteria. So in every report you're going to look at this is what we did and this is the criteria and whether the we're going to give a clean opinion or not clean opinion. We'll talk about that later. Format ranges from complex financial audit to basic verbal reports for small operational units. We're going to have many many types of reports. Again from auditing a unit how it operates to auditing complex financial statements. So this is basically an introduction to what? Introduction to auditing. What is auditing? This is the big picture. Now let's take a look at multiple choice questions from Harhat Lectures where you can find more of those at my website harhatlectures.com under the auditing course. Which of the following statement is correct regarding the audit process? Let's start with D. The auditor collects record to determine whether the audited financial statement is according with the SEC standards. So when we audit financial statements do we use SEC standards? Not at all. We follow generally accepted auditing principle. Those are the standards that we follow therefore D is out. Let's move to C. The criteria for evaluating information would remain the same regardless of the information being audited. Absolutely not. The criteria will change from one audit to the other. Sometimes you're auditing an information system. Sometimes you're auditing financial statements. Sometimes you are auditing the efficiency of an of an of the internal control. So the criteria will differ from audit to audit. The types and amount of evidence are consisting from audit to audit. Not at all depending on what type of opinion you are giving. Certain opinion you would require more evidence than other opinion. Therefore the amount of evidence, the reliability of the evidence will differ from audit to audit. Therefore B is out by the process of elimination. A is the correct answer. And what does A state? The audit report informed users about the auditor's finding. Exactly. At the end of the day the auditor will inform the users in a form of a report about what did they find? And how do they phrase this? Here's the criteria that we use. This is the evidence that we collected. Do they match? What should you do now? Go to far-half lectures. Look at additional MCQs. If you are an auditing students you want to invest in your career. Look I have hundreds of lectures and thousands of MCQs that's going to help you do well in your course. Invest in yourself. Invest in yourself. Good luck. Study hard and of course stay safe.