Activity Based Risk Evaluation Model of Auditing. Basic concepts underlying     ABREMA     

                    

 ABREMA integrates the three descriptive concepts of the audit objective, information misstatements and audit stages, with the two theoretical concepts of cognitive decision making and audit risk. These basic concepts are outlined below.

Note: Links to auditing terms underlying the five basic concepts are organized in a hierarchical manner. For example, the first basic concept (the audit objective) only contains links to terms relevant to that concept; the second basic concept (management assertions) contains links to terms relevant to that concept, plus terms relevant to preceding concepts - in this case, just the first concept. Similarly, the third and fourth concepts contain links to terms relevant to the particular concept as well as relevant links to terms relating to preceding concepts. The last concept (cognitive decision making) contains links to that concept plus relevant links to terms relating to all other concepts. This perspective is particularly useful to students of auditing.

                   

Concept of the audit objective.

 

The objective of the audit of any information prepared by a particular party, including financial statement information prepared by management, is to gather and evaluate evidence of sufficient quantity and appropriate quality in order to form, and communicate to the users of the information, an opinion on the reliability of the underlying assertions made by the party preparing the information, for the purpose of adding credibility to those assertions.

 

Audit objective,

 

The overall objective of the audit of the financial statements of an entity is to gather and evaluate audit evidence of sufficient quantity and appropriate quality in order to form, and communicate to the users of the financial statements, an audit opinion on the reliability of the assertions of management inherent in those financial statements for the purpose of adding credibility to those assertions.

 

Explanation of the meaning of this definition.

 

Principal objective: The principal objective of a financial statement audit has evolved over time (see Brief History of Auditing) until, around 1940, it was accepted as being to provide an opinion on the reliability of a matter that is the responsibility of another party. In a financial statement audit, the financial statements of the entity is the 'matter' that is the responsibility of the other party, and the 'other party' is the management of the entity.

How the objective is achieved: The principal objective noted above may be expanded by including a reference as to how the objective is achieved. Auditors achieve their objective by gathering and evaluating audit evidence. The evidence needs to be of such quantity and quality that the auditor is able to form an opinion on the financial statements. Thus, it may be stated that the objective of the audit of the financial statements of an entity is to gather and evaluate audit evidence of sufficient quantity and appropriate quality in order to form an opinion on the financial statements prepared by management. The word 'quality' refers to the relevance and reliability of the evidence and 'entity' includes entities such as partnerships, trusts, government departments, quasi government organizations as well as corporate entities. The objectives of the audit of financial statements are the same, irrespective of the entity to which the financial statements relate.