CONCEPT AND CONVENTIONS UNDERLYING THE PRACTICE OF AUDIT

CONCEPT AND CONVENTIONS UNDERLYING THE PRACTICE OF AUDIT

Because of the legal significance of the audit report, the auditor is required to obtained professional skill as such as work is described as onerous. To assist the auditor in his assignment, concerted efforts were made by accountancy bodies through issues of practice notes of different kind, which they expect their members to accept as Standard Accounting Practice and Standards and Guides. The most considerable concepts are conventions underlying the practice of audit are as follows: -

a)     Going Concern concepts: Unless the opposite is known, accounting always assumes that the business will continue to operate for an indefinitely long period of time.

b)    Consistency convention: Accounting policies shall be applied consistently with the same principle and from one financial to the next.

c)     Produce/conservatism: Revenue and profits are not recognized by inclusion of the profit and loss account only when realized in the form either cash or other assets.

d)    Realization/Accrual convention: Profit is normally regarded as being earned at the time when the goods and services are passed to the customer and he incurs liability for them i.e. this is the point at which the profit is treated as being realized. Also expense match against the revenue of the period is called the accrual convention.

Note any material departures from accounting standards made by the directors in preparing the accounts should be preparing the account should be referred to in the auditor's report whether or not they disclosed in the notes the accounts if possible in the financial effect of the departure should be stated.