Auditing Standards By Ankur Mittal

Auditing Standards

Unit VIII

Introduction • Auditors through the world have developed their own practices • These practices have been codified by regulating inst like ICAI so that all members uniformly follow these practices • This gives auditing profession integrity, reputation & dedication in audits

Nature of auditing standards • Pronouncements by institutions who regulate audit • These can be by way of standards, statements, guidance, notes, codes of conduct/ethics • It is binding on any member • If unable to adhere to such Stds during audit it needs to be stated

Qualities • Independence – a state of mind to act on own • Integrity – Acting honestly or in a trustworthy manner • Competence & Skill – Capable of handling an audit, should have required qualification, exp. Adequate knowledge of business conducted by the company • Objectivity – Impartial & unbiased and depends on integrity

Continued… • Due diligence & care – Not to be negligent in his duties. Documentation of audit to prove auditor has exercised his care • Confidentiality – No to reveal vital information about the business of the client to any other person

Qualification & Disqualification • As per companies act auditor should be a CA or a firm of CAs within the meaning of CAs Act 1949 • Foll are not qualified for appt as auditors: - A body corporate - An officer or employee of the co - A partner - A person who is indebted to the co for more than Rs.1000 or who has given guarantee - A person who holds any share or stock in the co

Continued… • A person who is not eligible to act as auditor in company’s subsidiary • If an auditor after appt is subject to any of the above disqualifications • In case of govt companies the auditor is appt by the Comptroller & Auditor General of India

Auditing Standards of ICAI • International Federation of Accountants (IFAC) was established in 1973 • Objective - “worldwide development and enhancement of the accountancy profession” • In India’s response to this standard, Auditing Practices Committee, or the Auditing and Assurance Standards Board, as it is known from September, 1982 was set up

An overview of AAS • AAS 1 – Acc to this standard basic principles in audit are: - Integrity, objectivity & independence - Confidentiality in audit work - Possession of skills & competence to undertake audit - Proper documentation & planning - Obtaining sufficient evidence during audit - Evaluation of acc system & internal control - Providing an opinion after audit is done

• Objective and scope of the audit of FS – Acc to this standard the scope of an audit is: - Auditor’s appt or engagement letter - Internal control system of the org - Other tests and audit procedures to obtain evidence • AAS 3 Documentation – This Std provides how an audit is to be documented and why it is important to preserve audit working papers • AAS 4 Responsibility for fraud & error – Std states tht St. auditor has no primary liab if he fails to detect frauds & error in Fs

• Audit Evidence – Auditor has to collect sufficient & appropriate evidence in an audit. Various techniques of collecting evidence has to be provided. • Risk Assessment & IC – To evaluate control system & assess audit risk of giving wrong opinion. • Audit Planning – Audit is to be planned properly. Details of audit program mentioned here. • Responsibility of Joint auditors – What should be the extent of reliance on other persons statement is discussed here

• Audit Materiality – Materiality of any matter in FS are subject to audit, regarding which auditor has to report. • Analytical Procedures – An evidence technique. The standard provides more details on how and when to use this technique. • Audit Sampling – Sampling is resorted in audit to save time and money. How & where to use sampling is provided in this standard • Going concern – When is assumption is not considered by auditor is provided here.

• Quality Control – How quality work is to be achieved is stipulated here • Audit of Acc Estimates – AE means an approximation of the amount of an item in the absence of a precise means of measurement, like provision for taxation • Subsequent events – Discusses abt AS4 & the manner of audit of the same • Knowledge of business – Auditor to have sufficient knowledge of the business & FS • Initial Engagements – How auditor has to deal with opening balances, Carried fwd from previous year • Related Parties – AS 18 “Related party Disclosure”

• Audit Consideration – Purpose of this std is to establish stds for an auditor whose client uses a service organization. • Comparatives – They are corresponding figures for previous years or periods appearing in FS • Terms of Audit Engagements – Terms of the client to be agreed by auditor & his response to a change of terms • Communications of audit matters – Auditor to communicate matters of governance with concerned persona

• A’s report on FS- Report prepared as a result of audit performed • Auditing in a Computer Information Systems Environment – Procedures to be followed in audit of CIS environment • External Confirmation – This is a mode of collecting evidence. • Engagements to compile Finan Information – Responsibilities when asked to compile FS • Engagements to review FS, Engagements to perform agreed upon procedures (same as above)

Auditing Standards of Various International Bodies • International Federation of Accountants is a premier institution engaged in regulation of accounting & auditing profession • In this mission IFAC has established Int Auditing & Assurance Standards Board to develop high quality auditing and assurance stds

AS of Institute of Internal Auditors of US • In june 1999 the IIA’s board approved Professional Practices Framework • All IIA members & certified Internal Auditors follow The Institute’s Code of Ethics • The code of ethics together with Institute’s Professional Practices provide guidance to internal auditors