The ABCs of Auditing
by MARY E. BENITEAU Staff Accountant, Dallas Office
Presented before the Dallas Chapter of The American
Society of Women Accountants—December 1962
THE FIRST PARAGRAPH of the independent Certified Public Account-ant's short-form report rendered in connection with his examination
of the financial statements of a company reads:
I have examined the balance sheet of the ABC Company as of December
31, 1962 and the related statements of income and retained earnings for the year then ended. My examination was made in accordance with generally accepted auditing standards, and accordingly
included such tests of the accounting records and such other auditing procedures as I considered necessary in the circumstances.
In this paragraph, generally known as the scope paragraph, the independent CPA tells what was examined—the balance sheet and the statements of income and retained earnings of the ABC Company
and how his examination was made—in accordance with generally
accepted auditing standards. Let us review some of the steps taken by the independent CPA in making his examination of the financial statements in accordance with generally accepted auditing standards.
TYPES OF AUDITS
The purpose of an audit will determine the nature of the audit to be made. The audit is made in order to report on the financial statements of a company to various interested parties—stockholders or owners, creditors, management, or governmental agencies. Generally
there are two types of audits. One is a general audit in which an examination is made of the balance sheet of the company as of a given date and the statements of income and retained earnings for the period then ended. The other type is known as an examination of financial position, covering an examination of the balance sheet only. An examination of financial position differs from a general audit in that the auditing procedures consist of an examination of the asset and liability accounts as of a certain date, and no comprehensive examination of the income and expense accounts or of the transactions
during the period ended is made. In addition to these two