Auditing and assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

Distinguish between the following:
a) Substance over form and Neutrality.
b) Internal Audit and External Audit.

a) Substance over form is a qualitative characteristic of financial statements. If information is to represent faithfully the transactions and other events that it purports, it is necessary that they are accounted for and presented in accordance with their substance and economics reality i. e. substance over form and not merely their legal form. The substance of transaction or other events is not always consistent with that which is apparent from their legal or contrived form. Similarly, another characteristic of financial statement is neutrality. The information contained in financial statements must be neutral, that is, free from bias to be reliable. Financial statements are not neutral if, the selection or presentation of information, they influence a decision or judgement in order to achieve a predetermined result or outcome.

b) On the basis of functional division, auditors can be classified into broad categories, namely, external auditors and internal auditors. External auditors are the persons who practice the profession of accountancy and are external vis-à-vis the organization whose books are being audited. The external auditors are appointed the owners of the organization, say, shareholders of the company and thus they are treated external to the organization in which they have been appointed.
The Internal auditors, on the other hand, may also be professionally qualified and are internal vis- à-vis to the organization in which they are appointed to perform specific work. They are considered internal because their appointment is done the management and scope of work is also specified it. They may be appointed either on a contract basis or as employees to undertake auditing of the books and records as a part of management control and appraisal system.

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