What Is the Purpose of Audit Objectives?

Audit objectives refer to the goals and requirements that auditors expect to achieve through audit activities, and it is a guide to guide audit work. Audit objectives can be divided into two levels: overall audit objectives and specific audit objectives. The overall objective of the audit is to evaluate the performance of the entrusted economic responsibility. From the historical development point of view, in order to meet the needs of the audit client's audit objectives, the overall audit objectives are constantly changing and expanding. Audit specific objectives are the further refinement of the overall audit objectives. In order to achieve the overall audit objectives, the auditors must review the various items of the accounting statements and related information to obtain the necessary audit evidence. ^[1]

Audit objectives

Auditing Standards for Chinese Certified Public Accountants No. 1101--

After the certified public accountant understands the determination, it is easy to determine the specific audit objectives of each project and use this as a basis for assessing the risk of material misstatement and designing and implementing further audit procedures.

(I) Audit objectives related to various transactions and events

1. Occurrence: The audit objective deduced from the occurrence determination is that the recorded transaction is true. For example, if a sales transaction does not occur but a sale is recorded in the sales journal, the goal is violated.

The problem to be solved in the occurrence of identification is whether management records those items that have not occurred in the financial statements, which is mainly related to the overestimation of the components of the financial statements.

2. Integrity: The audit objective derived from the integrity determination is that transactions that have occurred have indeed been recorded. For example, if a sales transaction occurs but is not recorded in the sales journal and general ledger, the goal is violated.

Both occurrence and integrity emphasize opposite concerns. Occurrence targets are for potential overvaluation, while integrity targets are for missed transactions (underestimation).

3. Accuracy: The audit objective derived from the accuracy determination is that the recorded transactions are reflected at the correct amount. For example, if in a sales transaction, the number of items issued does not match the amount on the bill, or the wrong sales price was used when billing, or the product or sum in the bill is wrong, or it is recorded in the sales journal Wrong amount, the goal is violated.

There is a difference between accuracy and occurrence and completeness. For example, if a recorded sales transaction should not be recorded (such as a consigned consignment), even if the invoice amount is accurately calculated, it still violates the goal of occurrence. As another example, if the recorded sales transaction is a record of the correct delivery of the product, but the amount is calculated incorrectly, the accuracy goal is violated, but the occurrence goal is not violated. The same relationship exists between completeness and accuracy.

4. Cut-off: The audit goal derived from the cut-off determination is that transaction records close to the balance sheet date are recorded in an appropriate period. For example, if the current period of transactions is pushed to the next period, or if the next period of transactions refers to this period, the deadline is violated.

5. Classification: The audit objective deduced from classification identification is that transactions recorded by the audited unit are appropriately classified. For example, if the current sales are recorded as credit sales, and the income from the sale of operating fixed assets is recorded as operating income, it will result in a misclassification of transactions and violate the goals of classification.

(II) Audit objectives related to the closing account balance

1. Existence: The audit objective deduced from the existence determination is that the recorded amount does exist. For example, if there is no account receivable of a customer, but the account receivable of that customer is included in the trial accounts receivable balance, it is against the existence goal.

2. Rights and obligations: The audit objectives derived from the identification of rights and obligations are that assets belong to the audited unit and liabilities belong to the audited unit's obligations. For example, recording consignments of others in the inventory of the audited entity violates the goal of rights; recording debts that do not belong to the audited unit into the account violates the objective of obligations.

3. Integrity: The audit objective derived from the integrity determination is that all existing amounts have been recorded. For example, if there is a accounts receivable for a customer that is not included in the accounts receivable trial balance, the integrity objective is violated. ^[2]

4. Valuation and allocation: Assets, liabilities and owner's equity are included in the financial statements with appropriate amounts, and related valuation or allocation adjustments have been properly recorded.

(3) Audit objectives related to presentation

The correct identification of various types of transactions and account balances merely laid the necessary foundation for the correct presentation, and the financial statements may also be misreported due to misunderstanding of the reporting requirements or fraud by the audited unit. In addition, the financial statements may be misreported because the audited unit has not complied with some specific disclosure requirements. Therefore, even if a certified public accountant audits the determination of various types of transactions and account balances, and achieves the specific audit goals of various types of transactions and account balances, it does not mean that sufficient and appropriate audit evidence is obtained that is sufficient to express an audit opinion on the financial statements. Therefore, the CPA should also audit the correctness of various transactions, account balances, and related matters reported in the financial statements.

1. Occurrence and rights and obligations: Including transactions or events that have not occurred or transactions and events unrelated to the audited entity in the financial statements would violate this goal. For example, reviewing whether the fixed assets mortgage and other matters are recorded in the minutes of the board meeting and asking the management whether the fixed assets are mortgaged is the use of the right of presentation. If mortgaged fixed assets are required to be presented in the financial statements, their rights are restricted.

2. Integrity: If the matters that should be disclosed are not included in the financial statements, this goal is violated. For example, checking related parties and related transactions to verify that they are adequately disclosed in the financial statements is an exercise in the integrity of the presentation.

3. Classification and understandability: Financial information has been properly presented and described, and the disclosure is clearly stated. For example, checking whether the main categories of inventory have been disclosed and whether long-term liabilities due within one year are classified as current liabilities is the use of classification and intelligibility of presentation.

4. Accuracy and pricing: Financial information and other information have been disclosed fairly and the amounts are appropriate. For example, checking whether the notes to the financial statements have properly explained the costing methods of inventories such as raw materials, work in progress, and finished products, that is, the accuracy of presentation and the use of valuation determination. ^[2]