Businesses with annual sales in excess of £6.5 million and/or business assets valued at or above £3.26 million their companies’ accounts are required to be audited.
The law requires every company to appoint registered auditors to perform auditing on their financial statements if they have not been eligible to claim audit exemption. The registered auditors must be person or accountancy firms authorized by the relevant professional accountancy bodies such as the Association of Chartered Certified Accountants (ACCA) or Institute of Chartered Accountants in England and Wales (ICAEW) to carry out audit assignments.
Before the auditors could express their opinion on whether a set of company accounts give a true and fair view, they will perform a number of audit tests.
Auditors do not check every single transaction booked on the accounts. They used sampling methods. The sample selection process is structured and with defined objectives.
Generally, the samples chosen have the following characteristics:
Random
A random sample is one where each item of the population has an equal (or specified) chance of being selected. Statistical inferences may not be valid unless the sample is random.
Representative
The sample should be representative of the differing items in the whole population. For example, it should contain a similar proportion of high and low value items to the population such as all the debtors.
Protective
Protective, that is, of the auditor. More intensive auditing should occur on high value items known to be high risk.
Unpredictable
The client should not be able to know or guess which items will be examined.
Even though auditors perform their audit tests on sample basis they still have equal chances of identifying unusual transactions and fraudulent business dealing. Should auditors are of the opinion that the financial statements are misleading, they may issue qualified audit report. The bank and investors may not like to see this type of audit report.
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