Basic audit theory

Audit.

The Audit is the critical examination carried out by the Bachelor in Accounting or independent accountant, of the books, records, resources, obligations, assets and results of an entity, based on accounting principles, standards, techniques and specific procedures in order to give an opinion on the reasonableness of financial information.

Auditing standards.

They are the minimum conditions of the profile that the public accountant must have, their attitudes and personal aptitudes, to necessarily follow their application in each process of their activity as an auditor.

Concept of IMCP Auditing standards: these are the minimum quality requirements related to the personality of the auditor, the work performed and the information provided as a result of said work.

Classification of generally accepted auditing standards.

Personal Relative to the execution of the work Relative to information

Personal: refers to the person of the public accountant as an independent auditor; This must be: an expert in the field, being professional in their performance and always observing ethical principles.

Technical training and professional capacity: the auditor must have technical knowledge acquired in Universities or Higher Institutes in the country, having completed their studies with a professional reception of Public Accountant, in addition it is required that the young professional acquire an adequate practice or experience, which allows him to practice a sound and sensible judgment to apply the procedures and assess their effects or results. Professional care and diligence:Every professional is part of society, thanks to it they are trained and must serve. The Public Accounting professional, when offering their professional services, must be aware of the responsibility that this implies. It is true that professionals are human and therefore they are not allowed to make mistakes, these are eliminated or reduced when the public accountant puts their work (professional care and diligence). Mental independence: For the interested parties to trust the financial information, it must be ruled by an independent public accountant who has accepted the audit work beforehand, since their opinion is not influenced by anyone, that is, their opinion is objective, free and impartial.

Relating to the execution of the work. These standards refer to basic elements in which the public accountant must carry out their work with professional care and diligence, for which they require minimum standards to be followed in the execution of the work.

Planning and supervision: before the independent public accountant is responsible for carrying out any work, he must know the entity subject to the investigation in order to plan his work, he must assign responsibilities to his collaborators and determine what tests he must perform and what scope he will give to the same, as well as the opportunity in which they will be applied. Study and evaluation of internal control: the independent public accountant must analyze the entity subject to be audited, this is to evaluate and study the internal control, in order to determine what tests it should carry out and what scope it will give to them, as well as, the time in which they will be applied. Obtaining sufficient and competent evidence: The public accountant when issuing financial statements acquires a great responsibility with third parties, therefore, his opinion must be supported by evidence that will be sustainable, objective and of reasonable certainty, that is, these facts must be verifiable to the satisfaction of the auditor.

Regarding information: the objective of the audit of Financial Statements is for the independent Public Accountant to issue his opinion on the reasonableness of the same, since it is considered that the finished product of said work is the opinion.

Rules of opinion and information: the professional who provides these services must adhere to minimum rules that guarantee the quality of their work. It should clarify that the independent public accountant: when carrying out any work, he must clearly express what his relationship lies and what his responsibility is with respect to the financial statements. Opinion base on financial statements: in order to unify criteria, the IMCP, through its accounting principles commission, has recommended a series of criteria, to which professionals must adhere and thus eliminate discrepancies, when processing and prepare the information. Consistency in the application of accounting principles:For the financial information to be comparable with previous and subsequent years, it is necessary to consider the same criteria and the same bases of application of generally accepted accounting principles, otherwise, the auditor must clearly express the nature of the changes. Sufficiency of the informative statements: the accounting controls the operations and reports through the financial statements, which are the documents on which the public accountant will give an opinion, the information provided by the financial statements must be sufficient, so it must be disclosed. all important information in accordance with the principle of "sufficient disclosure".

Audit Background.

In the middle of the 18th century, a phenomenon occurred in England that came to transform humanity.

In 1733 the artifact flying shuttle was invented, which revolutionized the textile manufacturing process.

In 1767 the first spinning and weaving machines appeared that were powered by hydraulic energy. It is the birth of the industrial revolution; It is the replacement of manual manufacturing processes by the machine.

In 1783-1784 a new method was discovered to decarburize iron, making its industrialization cheaper and began to be used in a massive way. It is the birth of the steel industry, which allows machinery an extraordinary expansion. Around those same years the steam engine was invented.

Towards the end of this century the industrial revolution takes formal possession. Consequently, new forms of industrial and commercial organization appear.

The concept of capitalism is born. The free trade economic theories of Adam Smith and David Ricardo emerge obviously that such developments had to impact accounting. Accounting processes are perfected and modernized and new trends in cost accounting are born.

The advent of capitalism brings about the concentration of capital. Small family workshops and factories tend to disappear. Consequently, commercial and industrial societies arise.

At that time, lukewarm government provisions and regulations began to emerge that requested (did not require) the financial statements of companies that had shares placed among the general investing public to be reviewed by independent public accountants. The big but is that at that time what is known today as generally accepted accounting principles had not appeared, giving rise to each person accounting as they wanted, as they could or as they saw fit. Nor did there exist what is now known as Auditing standards and procedures, also generally accepted, and the auditors reviewed as they could and as they wanted, in addition to the fact that their reports were presented at the whim and convenience of the owners and administrators of the companies, of share issuers, who at the same time,they handed them over or showed them to the authorities and small investors whenever they wanted.

All of the above gave rise to a chain of fraud and deception that, combined with market losses and economic problems, caused the New York stock market to crash in October 1929.

The solution to prevent another phenomenon like the aforementioned from happening again, took place in 1933, when the then American president Franklin Delano Roosevelt issued the security acts of the securities law in 1933, completed and expanded with the securities exchange law. of 1934, which, among other provisions, oblige all issuing companies that have shares placed among the general investing public, which registers their operations on homogeneous, consistent bases and accounting criteria generally accepted by the social nucleus in which they converge and by public accountants;in the same way that the financial statements that are generated are reviewed and examined annually by independent public accountants based on standards and auditing procedures that are generally accepted by the accounting community. And to oversee compliance with such provisions, the Securities Exchange Surveillance Commission is created.

In the absence of a formal, homogeneous and generally applicable accounting doctrine and the lack of a statement for the standardized practice of auditing financial statements, the commission for the surveillance of securities exchanges summoned public accountants of the time to collect the studies and research on the subject that had begun to appear at that time.

Thus, in June 1936 a document called: "Tentative declaration of accounting principles" was published, and also in that same year, "The examination of financial statements" was published, which was accepted immediately and as mandatory for all auditors..

In 1938, the American Institute of Public Accountants was born, which prevails to date, creating the Accounting Principles Committee, which promulgated its accounting research bulletins in 1939, which became the first pronouncements of that time.

In terms of auditing standards and procedures, the financial statements examined, carried out by independent public accountants, that is, external auditor, are mandatory.

Classification of the Audit.

Tax audit. Internal audit. Administrative audit. Operational Audit. Financial Audit.

Fiscal Audit: It is the one that is in charge of the correct and timely payment of the different taxes (Constitutional Article 31, section IV) and fiscal obligations of the taxpayers from the fiscal point of view (SHCP, SAT, treasuries and state and municipal finances).

This audit also includes the reviews carried out by bodies or authorities with the power to impose taxes on taxpayers, such as the IMSS and INFONAVIT, for example.

Internal Audit: It is one whose scope of its exercise will be by auditors who depend on or are employees of the same organization in which it is practiced. The result of your work is for internal or service purposes for the same organization.

Internal audit covers the types of:

Administrative audit. Operational Audit. Financial Audit.

Administrative audit: it is the one that is in charge of verifying, evaluating and promoting compliance and adherence to the correct functioning of the phases or elements of the administrative process and what affects them is also its objective to evaluate the quality of the administration as a whole.

Operational audit: it is the one in charge of promoting efficiency in operations, in addition to evaluating the quality of operations.

Financial audit: it is the total or partial examination of the financial information and the corresponding operational and administrative information, as well as the means used to identify, measure, classify and report that information.

Tax audit.
- Audits by programs.

They are those that emanate from a normal or special program, designed by specific authorities. Normal programs are usually formed on an ANNUAL BASIS and it establishes the goals to be achieved for that period based on the human, material and economic resources available for this purpose, established based on the budgetary resources assigned by regularly for such purposes.

Example:

The audits carried out by the SHCP. (Inspection)

SAT audits.

Those of the State or Federal Government (application of resources)

Audits derived from economic studies.

The great advance in the field of Informatics and the application of statistics, the supervisory authorities are becoming more and more interested in developing programs for measuring economic or statistical factors that allow the detection, with the use of mathematical models managed through the use of of computers, cases of evasion of tax payments or taxation, as, based on the aforementioned models, the assumptions that should be reached derived from the knowledge of certain economic factors do not occur.

Example:

When the authority has estimates of the minimum gross profit margins that can be expected from a commercial or industrial activity and the taxpayers' returns report lower than expected margins.

In the case of the shoe store trade where the authority expects that the gross profit margin should be less than 40% and in the taxpayer's annual income tax return this business line.

He finds that his gross profit margin is 15%, it is to be expected that income is being omitted or costs are being increased, unless special sales plans had happened, perfectly demonstrable where the merchant reduced his gross margin of utility.

But these promotions cannot last the whole year because the business would simply stop being.

Audits Consequences of other Audits (compulsory).

One of the most common auditing procedures in Tax Auditing is known as the compulsa. Compulse, you can understand applying the confirmation technique more deeply.

Compulse: Compare copies of documents against their original, is to apply the techniques of confirmation, declaration and certification by an authority legally empowered to do so. §

To understand this concept, let's look at the following example:

Company A buys merchandise from Company B for 15 million pesos covered by 27 invoices; sells 12 million pesos in services to company C in 19 invoices, both volumes of transactions carried out during the year 2000.

The tax auditor who is intervening in company A requests COMPULSA by mail to company B to inform him how much he sold to company A and to company C he requests that he also certify by mail, inform him how much the amount of the services that he received was provided by company A in both cases also for fiscal year 1995.

Company B reports that it actually sold to Company A what it reported.

The company Con responds to the auditor. Given this circumstance, the tax auditor decides to appear at the address of company C to request to verify the aforementioned information and they find that in the accounting records of this company the record of the payment of the 19 invoices for services provided to company A actually appears., only that instead of 12 million it has a cost of 22 million pesos, when comparing the original of these invoices with the fiscal copy of the same in the possession of company A, the auditor finds that 2 of these were altered by the company C to increase its costs precisely by 10 million pesos.

Faced with this clear evidence of evasion of both VAT for crediting a tax higher than that to which he is entitled, as well as ISR for increasing the amount of his authorized deductions, he orders an audit of company C.

Classification of Internal Audit.

Objective.

The objective of the Internal Audit is to support the members of the organization in the performance of their activities, for which the Internal Audit provides them with analysis, evaluations, recommendations, advice and information regarding the reviewed activities.

The objective of the Internal Audit is to promote effective control at a reasonable cost.

Scope.

The scope of the Internal Audit considers the examination and evaluation of the adequacy and efficiency of the internal control system of the organization and the quality of execution in the performance of the assigned responsibilities.

The scope of the Internal Audit:

Review of the veracity and integrity of financial and operational information and the means used to identify, measure, classify and report that information Review the systems established to ensure compliance with policies, plans, procedures and legal regulations that may have a significant impact in operations and in reports and determine if the organization complies with such systems Review the measures to safeguard assets and if they are adequate to verify the existence of such assets Assess the economic aspect and the efficiency with which the resources are being used Review those operations or programs that tend to ensure that the results are in accordance with the established objectives and goals and if those operations and goals, programs are being carried out as planned.

Operational Audit.

The Operational Audit is an activity whose fundamental purpose is to provide a better service to the administration, providing it with comments and recommendations that tend to improve the efficiency of an entity's operations.

Even though custom has assigned the name of Operational Audit, in the exercise of his practice the operational auditor must not only review the operation itself, it will have to extend to the function of that operation.

Example:

If the billing operation is reviewed, it starts in the shipping department and concludes when the invoice is sent for collection, at this time the auditor must make sure that it is indeed received and has automatically reached the credit and collections operation.

The Operational Audit must be a given operational function, in the example the Billing function will be called Operational Audit.

The Operational Audit is a great challenge to the professional capacity of the Public Accountant as an Operational Auditor.

For a good execution of this technique requires:

Entering other disciplines such as: Systems Analysis, Industrial Engineering (to review costs and production), Marketing (to review sales), Industrial Relations, etc.

With the above conclusion the question may arise as to how an individual, such as the operational auditor, who does not have any specific training in a certain area, can be helpful. The answer to this question rests on the control aspects, that is, it requires a clear definition of the objectives, as well as having elements to compare what is being done against those objectives in order to determine deviations and analyze and evaluate these in order to take corrective measures according to the circumstances.

Financial Audit.

Whoever has reliable, truthful, timely, complete information acquires a power of attorney. Power to do, to change things and situations, to make better and well-supported decisions.

A navigator cannot decide directions to reach a destination if he does not have instruments that inform him of the situation or place where he is and the elements available to achieve his purpose.

An administrator will not achieve the objectives, goals and mission of his organization if he does not have at his disposal the basic and indispensable information elements that help him and support his decisions.

From this arises the vital importance of Financial Auditing as an element of the administration that helps and assists in obtaining and providing accounting and financial information and its complementary operational and administrative information, the basis for knowing the progress and evolution of the organization as a point of reference to guide your destiny.

Objectives of the Audit of the Financial Statements.

In order for financial information to be accepted by third parties, it is necessary for an Independent Public Accountant to stamp the seal of reliability on the financial statements through his or her written opinion in a document called Opinion.

Opinion:

Document in which the Independent Public Accountant expresses his opinion on the figures presented in the Financial Statements of an entity in the sense if they are reasonable or not.

The financial information of an economic entity is presented through Financial Statements that are basically made up of:

Statement of Financial Position or Balance Sheet Statement of Income Statement of Variations in Stockholders' Equity Statement of Changes in Financial Position

Statement of Financial Position or Balance Sheet:

Document that presents the financial situation of a company at a certain date, including its resources, represented as assets and the accounts of said resources, represented by obligations or contributions from the owners or owners, it is a static financial statement to be prepared to a specific date.

Statement of income:

Document that presents the result obtained from the operations carried out by a company in a given period, including the income generated, the costs and expenses incurred to obtain them, presented by difference between the profit or loss for the year. It is a dynamic financial statement by referring to a period.

Statement of changes in stockholders' equity.

They are movements at a certain date of the entity's equity identified as the Statement of Changes in Stockholders' Equity.

Statement of Changes in the Financial Situation.

Document that presents the origin of the company's resources and the application of the same during a certain period, classifying them by source and destination. It is a dynamic financial statement by referring to a period.

Characteristics of Financial Information.

Utility: it is the quality of adapting to the user's purpose, that is, that the financial information is channeled according to the user's requirements, plans, objectives.

It is based on:

Your informative content: make it clear, specific and concise Your opportunity, have it at the right time to make decisions

Reliability: Characteristic by which the user accepts it and uses it to make decisions based on it. It is based on the quantification process having the characteristics of:

Objectivity; that the figures reflected in the financial information are real Verifiability: that the financial information has the capacity to be verified, to take into account whether the figures obtained agree with the real situations.

Provisionality: It means that the general user of financial information uses this means to:

Decision-making being able to provision and foresee the future of the economic entity in question, taking into account that financial information is a means and not an end.

Who is interested in the Judgment of the Financial Statements?

The opinion of the Financial Statements implies that these have been diagnosed based on:

the guidelines and regulations already established by the business, the tax provisions, the proper application of the accounting technique, the generally accepted accounting principles, the study and evaluation of internal control, the auditing standards and procedures,

Therefore, the figures that are determined in the financial statements will be those that are attached to reality and given that the economic entity in question has credibility and public faith in that information, there are several nuclei of society that are interested in the good operation of the business, with the certification of a public accountant who has the powers to dictate the company, these nuclei are the following:

To the owners and / or Because they are fully interested in knowing the results of the economic entity, as well as the fulfillment of the objectives, to have great confidence and security of their contributions and investments and continue investing even with their dividends. Managers and officials. Because they are interested in the excellent conduct of the business, to know in what conditions it is and if the established objectives are being fulfilled by comparing what is real with what is planned or programmed, also because based on this they will make the corrective decisions that they consider pertinent and inform shareholders of their performance and its results. To the Board of Directors.Because it guarantees the Board of Directors the correct administration of the entity in accordance with its goals and objectives. The Because oversee and safeguard the proper administration of the entity. To credit and financial institutions, as well as insurance bonding companies. Because they are interested in the economic entities handling audited financial statements giving credibility to the figures that make them up since for some circumstance the services of some circumstance are required the services of any of these institutions are required and that is where they request this class of information, determining the amount according to the payment capacity, as well as obtaining the security and guarantee of the credits according to the productivity of the entity.

To the Ministry of Finance and Public Credit. He is also interested in the Financial Statements being audited for the following reasons: For formality and regulatory aspects, it is necessary that every public accountant who issues audited financial statements must comply with a specific date that is clearly marked by the Federal Tax Code as to the delivery date To monitor compliance with the regulatory, tax, operational and administrative provisions to validate the financial statements by stating sanctions against those accountants who do not adhere to the aforementioned provisions.

To take into account the performance of economic entities from an economic point of view, because they have financial resources via taxes.

To be sure that taxpayers have declared their taxes in a timely, correct and fair manner.

To the Federal and Municipal State:

For the correct obtaining of data.

For statistical purposes, the economic planning of the country in the short, medium and long term.

As well as the timely payment of their contributions with the public treasury.

To the workers:

To know the result of the entity's operations and ensure compliance with the profit sharing and that these are carried out based on the reasonableness of the financial statements and if they are not satisfied despite being ruled, request a review before Conciliation and Arbitration who acts fully in defense of the workers.

To suppliers and creditors:

Because they are interested in the liquidity and reasonableness of the audited Financial Statements since that credibility translates into providing more or less credit to companies, that is, constantly determining and monitoring the credit limit or freezing it.

To investors:

Because they are interested in the excellent performance of the economic entity, backed by audited financial statements, because in this way they will be in a position to analyze, invest or not invest in a certain type of company.

To the Ministry of Economy and the Ministry of Foreign Relations.

Due to those companies that have links with the imports and exports of their products, giving credibility and confidence to the economic entity in question.

To the general public.

To have knowledge if a certain economic entity has a good image of commerce, if there are good services, products and to know if they have quality.

Accounting principles.

They are basic concepts that establish:

The delimitation and identification of the economic entity.

The bases of quantification of the operations and

Presentation of quantitative financial information

Through the Financial Statements.

Classification of Accounting Principles.

Those that identify and delimit the economic entity and its financial aspects:
1. Entity.Realization.Accounting Period.
Those that establish the bases to quantify the operations of the economic entity and its presentation.
1. Economic duality Original historical value Business in progress.
The principle that refers to information.
1. Enough disclosure.
General system requirements:
1. Relative Importance Comparability.

Entity

Economic activity is carried out by identifiable entities that constitute combinations of human resources, natural resources and capital, coordinated by an authority that makes decisions aimed at achieving the entity's goals.

Accounting is interested in identifying the entity that pursues particular economic purposes and that is independent from other entities.

Therefore, the personality of a business is independent of those of its shareholders or owners and its financial statements should only include the assets, securities, rights and obligations of this independent economic entity.

The entity can be a natural person or a legal person or a combination of both of them.

Realization.

Accounting quantifies in monetary terms the operations carried out by an entity:

With other participants in the economic activity and Certain economic events that affect it.

The economic operations and events that the accounting quantifies are considered carried out by them when:

A) A carried out transactions with other economic entities.
1. Internal transformations have taken place that modify the structure of resources or their sources. Economic events external to the entity or derived from its operations have occurred and whose effect can be reasonably quantified in monetary terms.

Accounting period.

The need to recognize periods of companies and the financial situation of the entity, which has a continuous existence, requires dividing its life into conventional periods.

Operations and events as well as their derivative effects that can be quantified are identified with the period in which they occur, therefore, any accounting information must clearly indicate the period to which it refers.

Generally speaking, costs and expenses should be identified with original income regardless of the date it is paid.

Original Historical Value.

The transactions and economic accounts that the accounting quantifies are recorded according to:

The amounts of cash that are affected, their equivalent

The reasonable estimate that is made at the time these figures are considered for accounting purposes should be modified in the event that subsequent events occur that make them lose their meaning, applying adjustment methods in a systematic way, which preserve the impartiality and objectivity of accounting information.

If the figures are adjusted for changes in the general price level and are applied to all the concepts that may be modified that make up the financial statements, it will be considered that there has been no violation of this principle.

However, this situation must be duly clarified in the information that is produced.

Business in progress.

The entity is presumed to be in permanent existence, unless otherwise specified, so the figures in its financial statements will represent:

Systematically obtained historical values or modifications of them.

When the figures represent estimated values of liquidation, this should be clearly specified and will only be acceptable for general information when the entity is in liquidation.

Economic duality.

This duality is made up of:

The resources available to the entity for the realization of its purposes. The sources of said resources, which in turn, are the specification of the rights that exist over them, considered as a whole.

The double dimension of the accounting representation of the entity is essential for a proper understanding of its structure and relationship with other entities.

The fact that modern registration systems appear to eliminate the arithmetic need to maintain equality of charges and payments does not affect the dual aspect of the economic entity considered as a whole.

Enough Disclosure.

The accounting information presented in the financial statements must contain:

In a clear and understandable way. Everything necessary to judge the operating results and financial situation of the entity.

Relative importance:

The information that appears in the financial statements must show the important aspects of the entity that can be quantified in monetary terms.

Both for the purposes of the data that enter the accounting information system, and for the information that results from its operation, the following must be balanced:

The detail and multiplicity of the data, with the usefulness and purpose requirements of the information.

Comparability:

The uses of the accounting information require that quantification procedures be followed that remain in time.

The accounting information must be obtained by applying the same principles and particular quantification rules for:

By comparing the Financial Statements of the entity, to know its evolution. By comparing the Financial Statements of other economic entities to know its relative position.

When there is a change that affects the comparability of the information, it must be justified and it must be clearly stated in the information presented, indicating the effect that said change has on the accounting figures.

The same applies to the grouping and presentation of information.

Decision making.

It is important to highlight the responsibility of the independent public accountant when issuing his opinion through an opinion, on the reasonableness of the figures presented in the financial statements because it provides reliable and useful information, so that interested persons can make decisions about.

The audit may be performed for the purpose of obtaining an independent point of view on the financial position of the company, possibly different from that presented by the directors of the business.

Other times audits are done to meet special requirements or needs, among which may be:

Business expansion projects, capital increase, business merger projects with others, needs to obtain credit to level the existing economic situation.

To increase the sales or production activities, the modification of the policies of the accounts receivable, the adequate management of bank and investment accounts.

The insurance of our fixed assets.

Adequate payment planning to meet our obligations, proper management of our inventories, solid internal control, among many other needs to make excellent decisions for the proper functioning of the economic entity in question.

For example and just to mention some of the aspects for decision-making, let's take the case of an account examination, following the audit guidelines, which is done for the purpose of studying the expansion of the business and the convenience of a capital increase..

There may be two aspects, the capital conversion, of liabilities that have been created due to the storage of merchandise to face the development of sales activities or it may be that the capital increase is necessary to face a certain difficult situation that arises. created due to the extension of credits, according to which the company may have accounts receivable in such an amount that prevents it from carrying out its operations with relief.

In the latter case, the expansion or expansion has taken place and the problem lies in studying the situation so that it can be appreciated by the interested parties (not by the auditor) if it is appropriate to maintain the existing position of large inventories or a high portfolio of accounts receivable. because the business itself demands it.

In these cases, emphasis should be placed on examining inventories or examining accounts receivable to see if their growth is not due to inefficiency of the operation, that is, to the storage of slow or zero-moving merchandise or maintenance of accounts receivable of doubtful realization.

It would also be necessary to study the rhythm of purchases with respect to warehousing and sales, in terms of inventories and also the granting of credits, in terms of sales efforts and what is being carried out.

In the case, to follow another example, that the expansion had not been carried out, that is, when large storage has not been incurred, nor accumulation of accounts receivable, if not that there is a project to increase activities through a Obtaining additional capital, surely the examination of accounts would have to be extended to the study of customer requests, to ascertain whether there is indeed a demand so great that it cannot be met due to lack of resources.

The above are only situations that aim to explain how, in certain cases, in which audits are carried out for not general but specific purposes, it is necessary to give some emphasis to some aspects to obtain information that can be of great use for the best decision that take each and every one of those responsible for the economic entity, taking into account of course the degree of participation and responsibility that each one of them has in said entity.

In conclusion, we can affirm that the auditor's work has a great effect on the performance of economic entities because if the stakeholders who make decisions are based on the auditor's final examination (report), they can make decisions that give them a degree of certainty. in the future.

Objectives and nature of the Audit of the Financial Statements.

Because it is necessary and of primary importance that those interested in financial information count on said information to be useful and reliable for making adequate decisions.

By virtue of the financial statements being an instrument used by the Administration of a company to disclose information of an economic nature about the entity, it is advisable for an independent professional to review its content, through an audit, to determine its degree of reliability.

Given that the results of an audit generally transcend not only with the person who hires this service, but also with the general public, that is why due to this social responsibility, the auditor must base his work on both the employment of a mature judgment and the application of a specialized technique such as observing certain guidelines that allow their performance to meet minimum requirements of professional quality.

The purpose of examinations of financial statements is to express an independent professional opinion as to whether these statements present the financial position, results of operations, variations in stockholders' equity and changes in the financial position of an entity in accordance with Accounting Principles applied on a consistent basis.

The auditor's opinion for being independent from that of the Administration and the result of the application of the standards, which control the quality that the work and information issued by this professional must meet, which allows credibility to be incorporated into the content of the financial statements examined.

The content and preparation of the financial statements is the responsibility of the entity's Administration.

While the auditor is responsible for forming and expressing an opinion on the Financial Statements, the responsibility for their preparation and their explanatory notes rests with the management of the entity.

The responsibility of the Administration influences the maintenance of accounting records and adequate controls, the selection of accounting policies, as well as the safeguarding of the entity's assets.

The audit of Financial Statements does not relieve the Administration of its responsibilities.

In order for the auditor to form an opinion on the financial statements, he must cover the important aspects thereof, for which he must obtain reasonable assurance through the application of audit procedures that the information shown in the accounting records that served as the basis for its preparation is sufficient, reliable and that it is adequately disclosed in them according to its importance and in accordance with accounting principles applied on a consistent basis.

Since it is not practical to examine the totality of a company's operations, the auditor should apply its review procedures, based on selective tests.

The scope or extent of the tests to which the examination of the financial statements should be subjected, as well as the nature and timing of the review procedures, should be determined by the auditor in accordance with his or her criteria, based on the following aspects:

The results obtained from the study and evaluation of the internal control.

The importance of the balances or items to examine.

The probable risk of error that the financial statements under review may contain.

The criterion is essential in all work of the auditor, both when determining its review procedures, and when evaluating the judgments adopted by the administration in the preparation of the Financial Statements.

The objective of the Financial Statements Audit is not to discover errors and irregularities, so due to the characteristics of its performance and the limitations offered by any internal control system, there is an unavoidable risk that some errors or irregularities may remain undiscovered. However, the responsibility of the auditor arises from the fact that the same should have been detected and were not, for not having complied with the generally accepted auditing standards.

Any indication that an error or irregularity may have occurred causing a significant distortion in the financial statements subject to examination, would oblige the auditor to expand his review procedures to confirm or dispel his assessments, since his opinion on the reasonableness of the these same states.

Audit Fundamentals.

Since the beginnings of Public Accounting in our country, members of the profession felt the need to come together not only to unify their professional practice and self-impose a series of ethical and technical standards, but also to protect the interests of their services and of the general public.

1917	The First professional group is formed, which was called the Association of Public Accountants, with 11 members.
October 6, 1923	The Institute of Certified Public Accountants of Mexico was established, the purpose of which was to bring together the members of the profession.
	With the growth of the profession and the birth of the General Law of Professions, the birth of regional groups of accountants originated.
1965	The Mexican Institute of Public Accountants acquired the character of a national body with the purpose of representing the national accounting population.
1977	Obtains official recognition from the Federation of Professional Associations.
October 30, 1987	Statutes and regulations of the IMCP

Fundamental objectives of the IMCP:

Advocate for the unification of criteria and achieve the implementation and acceptance of standards, principles and basic procedures of ethics and professional performance by its associates.

To fulfill this objective, the IMCP has a National Executive Committee, which includes a Legislation Vice-presidency to coordinate and monitor the work of commissions that issue fundamental provisions regarding:

Professional Ethics Accounting Principles Audit Standards and Procedures.

Audit Standards and Procedures Committee. (CONPA).

One of the oldest and most important committees of the Institute is the Committee on Auditing Standards and Procedures, named like this since 1971, with the fundamental purpose of determining the recommended audit procedures for the examination of the financial statements that are submitted to the opinion of the Certified Public Accountant.

This purpose was expanded to 4 main objectives that are:

Determine the auditing standards to which the independent public accountant who issues third-party opinions must be subject in order to confirm the veracity, relevance or relevance and sufficiency of the information Determine the audit procedures for the examination of the financial statements that are submitted to the opinion of the public accountant Determine procedures to be followed in any audit work, in a broad sense, carried out by the public accountant when acting independently.Make the practical recommendations that are necessary as complements to the technical pronouncements of a general nature issued by the committee itself, taking into account the particular situations that are most frequently presented to auditors in the practice of their profession.

Integration of the Audit Standards and Procedures Committee (CONPA)

The members of this commission will be proposed for membership by the National Executive Committee of the Institute, with the indication of who will occupy the positions of President and Secretary, in accordance with a procedure established in the corresponding regulations.

Once this requirement is satisfied, the official appointment of its members will be made, who will carry out their positions for a period of 2 years.

To be a member of the Commission, certain quality requirements must be met, such as:

Enjoy professional prestige in the performance of their activities.

Have at least 6 years of professional performance.

Be the head of the technical area or have a prominent position in the entity where it is developed.

Be a partner of the firm to which he belongs in the performance of Independent Public Accounting.

Have acted as an exhibitor or lecturer in courses or seminars or have been a professor in Educational Institutions where the Accounting career is taught.

CONPA can be classified as follows:

Auditing Standards Auditing Procedures Other Statements

The Auditing Standards are the minimum quality requirements relating to the personality of the auditor, the work performed and the information provided as a result of said work.

The Auditing Standards are subject to have compulsory, a special approval procedure established in the statutes themselves.

The audit procedures are the set of research techniques applicable to an item or group of facts or circumstances examined by which the public accountant obtains the necessary foundations to support their opinion.

The audit procedures and other recommendations of a practical nature that are included constitute the unanimous or majority opinion, where appropriate, of the members of the committee regarding the best way to carry out the phases of the audit work, to obtain sufficient evidence., competent and in general, to perform said work in a satisfactory and professional manner.

Said procedures and recommendations must be applied in the performance of the audit work. This application must be made in the auditor's opinion in accordance with the circumstances, bearing in mind that departing from them without a justified reason constitutes a lack of compliance with the rules relating to the execution of work.

The other statements are the means through which this commission makes known policies, programs, studies, examples, options, guides, etc.

This Commission, which, regardless of the obligation to regulate the performance of the Public Accountant as an independent auditor who ensured the quality of its services, is committed to promoting and sponsoring the publication of material elements that contribute to the professional development of the Public Accountant in the field of audit, to maintain and increase its technical capacity, to integrate a high-level professional doctrine adapted to the circumstances and special modalities of this work in our country.

Relative importance.

The Relative Significance represents the accumulated amount of errors and deviations from accounting principles that the Financial Statements could contain if, in the auditor's opinion and in light of the existing circumstances, it is probable that the judgment or decisions of the people they trust are affected. in the information contained in said statements.

The quantified effect must be judged in relation to the Financial Statements taken as a whole, however, some qualitative aspects must also be considered, such as:

An inappropriate disclosure or presentation, the importance of a specific item for the company in particular, for example: the inventories of an industrial company, the fact that the error or deviation affects several items of the Financial Statements.

The auditor should establish the limit of materiality based on his professional judgment, considering the needs or expectations of a normal and reasonable user of the audited Financial Statements.

As already indicated in the aspects that must be considered to determine the relative importance, both quantitative and qualitative factors must be included, however the result must be quantified whenever possible, in order to judge its effect on the Financial Statements.

For example: the fact that the properties are mortgaged may in itself be an important fact, however, if the value of said properties is very low, it may not be necessary to disclose it in the audited financial statements or even to investigate the possible existence of liens on said assets.

In cases of uncertainty whose future result is not capable of being reasonably estimated by management, the auditor should judge whether it is possible that a loss in excess of materiality may be originated in order to include appropriate disclosures.

Administrators and professional ethics.

When an organization, be it of a commercial or civil nature, grows and its promoters are unable to manage them directly, it is necessary to delegate the administration in person or organizations that perform this function.

In this way, the positions that, depending on the nature of the organization in question, are called administrator, director manager, president, etc. Or another name that denotes the character of MANDATORY for the execution of the company's object.

LEADER	PRINCIPAL
Those who perform the administration function instead of the principal.	Stay away from immediate business management.

AUDITOR
In charge of monitoring the activity of the leaders. Types of commands: Administration. Surveillance.

It is essential to resort to the external or independent auditor, that is, people who are not subject to obey the company officials and can consequently issue sound judgments, opinions or impartial opinions about the result of the review carried out.

To perform this function, the services of public accountants are used, who, given their eminently professional nature, not only know technical procedures applicable to the case, but their activity is subject to very well-determined ethical standards for their performance.

The Public Accountant has the concept that his work benefits not only the client who entrusts him with a job, but also transcends the general public who take advantage of it for their own purposes.

The accountant does not officially have public faith, not as in the case of notaries, but if he has the public's trust, and this is intangible, it will depend on the good opinion or fame that others form of him, it turns out that he can only develop as you acquire and build on this reputation based on your professional mastery of your experience and your character qualities, especially your truthfulness.

Difference between CP and an employee.

Certified Public Accountant

Employee

He is a professional because he publicly practices his profession.

He enjoys absolute independence of judgment when carrying out his work.

He receives his professional fees as remuneration.

He attends to his duties in exchange for a predetermined salary.

It is of great importance to highlight that the opinion of the public accountant must be impartial. This is one of the most important professional characteristics and undoubtedly the one that accountants keep the most importance and zeal.

Given the nature of the economic and financial activities that constitute the medium where the public accountant practices his profession, it is very common to find conflicting interests not only between debtors and creditors but mainly between them and the treasury.

In no case, is the accountant allowed to take part for the benefit of any of the parties or even the one that directly represents the interests of his client, since he must remember that the very essence of his profession is based on the spirit of equity. Any deviation undermines the reputation of the entire profession.

The public accountant bases his personality on two essential elements:

Professionalism. It refers to academic training, elements of culture in general, professional experience, Human Quality. It presupposes the existence of moral norms, within these ethics is implicit.

The integrity, education and honesty of the public accountant will surely be the bases of their activity and in which they will contribute to a greater degree to form a solid professional formation.

The IMCP, in its capacity as a national body, has approved the Code of Professional Ethics to which all members must abide, as well as the members of the affiliated associations and which contain the ideal standards of conduct for a public accountant before his client and his colleagues. and society in general.

Audit techniques and procedures.

The immediate purpose of the audit work is to provide the accountant himself with the elements of judgment and sufficient evidence to be able to express his opinion in an objective and professional manner.

It is therefore the personal and indeclinable responsibility of the auditor himself to determine the nature, timing and scope of the audit procedures to be applied, which he deems necessary.

Audit procedures:

They are the set of techniques and research applicable to an item or to a group of facts and circumstances related to the financial statements subject to examination, through which the public accountant obtains the bases to support his opinion.

Since the auditor generally cannot obtain the knowledge he needs to support his opinion in a single test, it is necessary to examine by several techniques of simultaneous or successive application.

Nature of audit procedures:

The different systems of organization, control, accounting and, in general, the details of business operations, make it impossible to establish rigid test systems for the examination of financial statements.

For this reason, the auditor must decide which audit technique or procedure or a set of them will be applicable in each case, in order to obtain the certainty that supports his objective and professional opinion.

Extension or scope of audit procedures:

Since the operations of the company are repetitive and form large quantities of individual operations, it is generally not possible to make a detailed examination of all the individual transactions that make up a global item.

For this reason, when the requirements of multiplicity of items and similarity between them are met, the procedure of examining a representative sample of the individual transactions is used to derive from the examination of such a sample a general opinion on the overall item. selective.

The relationship of the transactions examined with respect to the total that forms the universe is known as: "Extension or scope of the Audit procedures" and its determination is one of the most important elements in the planning and execution of the audit.

Timeliness of audit procedures.

The time when the audit procedures are to be applied is called timing.

It is not essential and sometimes it is not convenient to perform the audit procedures related to the examination of the financial statements as of the date they are performed.

Some audit procedures are more useful and are best applied at an earlier or later date.

Audit Techniques.

They are the practical methods of investigation and tests that the public accountant uses to verify the reasonableness of the information that allows him to express his professional opinion.

The Audit Techniques are the following:

General Study: It is the appreciation of the physiognomy or general characteristics of the company, its financial statements and the significant or extraordinary items and important items.

This technique serves as an orientation for the application of other techniques, so it should generally be applied before any other.

The General Study should be applied with care and diligence, so its application is recommended by the auditor with preparation, experience and maturity to ensure a sound and comprehensive professional judgment.

Analysis: Classification and grouping of the different individual elements that make up an account or a certain item, in such a way that the groups constitute homogeneous and significant units.

The analysis is generally applied to accounts by items of the Financial Statements to know how they are integrated and are as follows:

Analysis of Balances: there are accounts in which the different movements that are recorded in them are compensation for each other.

Example:

Customer account, credits for payments or returns or bonuses, are total or partial compensation of sales.

In this case, only those items that are part of the account balance can be analyzed.

The detail of these items and their classification into homogeneous and significant groups is what constitutes the analysis of balances.

Analysis of movements: On other occasions, account balances are formed not by offsetting items but by accumulating them:

Example:

In the income statement and some movement accounts, it may not be feasible to relate the creditor movements against the debtor movements for particular reasons or it is not convenient to do so, in this case

the account analysis must be done by grouping, according to homogeneous concepts.

Inspection. Physical examination of the tangible assets or documents, in order to verify the existence of an asset or a transaction registered or presented in the Financial Statements.

On various occasions, especially with regard to asset balances, accounting data are represented by tangible assets, credit instruments or other types of documents that constitute the materialization of the data recorded in accounting.

In the same way, some of the operations of the company or its working conditions can be protected by titles, documents or special books in which in a reliable way there is evidence of the operation carried out in all these cases, the authenticity of the balance of the account, of the operation carried out or circumstance that is to be verified by means of the physical examination of the goods or documents that protect the asset or the operation.

Confirmation: Obtaining a written communication from an independent person from the company examined and who is in the possibility of knowing the nature and conditions of the operation and therefore confirming in a valid way.

This technique is applied by requesting the audited company to address the person requesting confirmation, to reply in writing to the auditor, giving the information requested by the auditor and can be applied in different ways:

Positive: Data is sent and they are asked to answer whether they are compliant or not. Negative: Data is sent and they are asked to answer both whether they are compliant or not. Indirect, blind or blank: I don't know They send data and information on balances, movements and any other data is requested for the audit.

It is generally used to confirm liabilities to Credit Institutions.

Investigation: Obtaining information, data and comments from the officials and employees of the company itself.

With this technique, the auditor can obtain knowledge and form a judgment on some balances or operations carried out by the company. Example: Collection of information on debit balances by the Dept. Credit and Collection.

Declarations:

Declaration in writing with the signature of the interested parties, of the result of the investigations carried out with the officials and employees of the company.

This technique is applied when the importance of the data or the results of the investigations warrant it.

Even though the statement is a convenient and necessary auditing technique, its validity is limited by the fact that it is data supplied by people who participated in the operations carried out or who had interference with the formulation of the financial statements that are examined.

Certification:

Obtaining a document in which the truth of a legalized fact is assured, usually with the signature of an authority.

Observation:

Physical presence of how certain operations or events are carried out.

The auditor will verify the way in which certain operations are carried out, visually realizing how the company's personnel carry them out.

Example: observation of physical inventories.

Calculation:

Mathematical verification of some games. There are items in the accounting that are results of computations performed on predetermined bases, the auditor can ensure the mathematical correctness of these items by independently calculating them.

In applying this calculation technique, it is advisable to follow a different procedure from that originally applied in the games.