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Description Page No.

1. Techniques Of Auditing 1
1.1 Ticking 1
1.2 Casting 1
1.3 Calling Over 1
1.4 Vouching 1
1.5 Verification 1
2. Procedures Affecting Audit 1
2.1 Compliance Procedures 1
2.2 Substantive Procedures 1
2.3 Analytical Procedures 1
3. Conduct Of Audit 2
3.1 Continuous Audit 2
3.2 Internal Audit 2
3.3 Interim Audit 2
3.4 Final Audit 2
4. Terms Of Audit Engagement 3
4.1 Introduction 3
4.2 Audit Engagement Letters 3
4.3 Principal Contents 3
4.4 Audits of Components 3
4.5 Recurring Audits 3
4.6 Acceptance of a Change in Engagement 4
5. Using the Work of Another Auditor 4
5.1 Introduction 4
5.2 Acceptance as Principal auditor 4
5.3 The Principal Auditor’s Procedures 5
5.4 Cooperation b/w auditors 5
6. Using the Work of An Expert 5
6.1 Introduction 5
6.2 Requirements 5
6.3 Understanding The Group 6
7. Organizational Setup of An audit Office 6
8. Commencement of a New Audit 7
8.1 Appointment 7
8.2 Document 7
8.3 Prospectus 7
8.4 Minute Books 7

8.5 contract 7
8.6 Technical Operations 8
8.7 List of Books 8
8.8 System of Accounting 8
8.9 Internal Check 8
8.10 Previous years Audited Accounts and Reports 8
8.11 Audit Repots 8
9. Audit Programme 8
9.1 Preparation 8
10. Audit Notebook 9
10.1 Audit Programme 9
10.2 Audit Review Notes 9
10.3 Audit Queries 9
10.4 Important Balances 9
11. Audit Working Papers 9

1-Techniques of Auditing

Ticking indicates the placing of a mark against an entry in the book to denote that it
has been examined by the auditor for a certain purpose. To ensure consistency, most
of the good auditors use a tick chart which is required to be learnt by the heart by all
the members of the audit staff.

Casting refers to the checking of additions of books accounts and financial statements.
It is essential that arithmetical accuracy be checked so that frauds or errors (if any)
may be detected. This job is normally done by the junior member of audit staff.

A sizable part of the work of audit consistent of the comparison of entries in two or
more books or of an entry in a book with its supporting evidence.

The function of the voucher is to authenticate an entry and the auditor must satisfy
himself that it does exist. It must correspond in date and account to the entry in the

When an auditor has vouched the entries appearing in the books of account, his duty
is not thereby fully discharged. If appointed for audit under the Act, he has to report
whether or not financial statements present true and correct view to the state of the

After the above steps have been performed, the auditor will then be required to submit
his report.

2-Procedures Affecting Audit

2.1-Compliance procedures
These tests are designed to obtain reasonable assurance that those internal controls on
which audit reliance is to be placed are in effect.

2.2-Substantive Procedures
These are designed to obtain evidence as to the completeness, accuracy and validity of
the data produced by the accounting system.

2.3-Analytical Procedures
These are used to describe the analysis of significant ratios and trends including
investigation of unusual fluctuations and items.

3-Conduct of audit:

According to the conduct of audit the following are the types of audit:

3.1-Continuous Audit:
A continuous audit is one where the auditor’s staff is occupied continuously on the
accounts the whole year round, or where the auditor attends at intervals, fixed or
otherwise, during the currency of the financial year and performs an interim audit;
such audits are adopted where the work involved is considerable.

3.2-Internal Audit:
Internal audit as the term implies is an audit conducted within the organization by an
internal auditor appointed by the management of an enterprise. Normally, all large
business organization often set up an internal audit department to exercise an
independent appraisal function within the organization. This department undertakes
examination and evaluation of various accounting, financial and operating activities
of the business enterprise. Internal audit aims at highlight the weak area of in the
organization, besides assisting the management to discharge its responsibilities
effectively. Internal auditor’s work assists the external auditor in fixing the extent of
the necessary work.

3.3-Interim Audit:
Interim audit is one that relate to interim period and not to the full accounting period.
It is conducted between two regular audits. It lies between final and continuous audit.
It is conducted to know the reliability of the financial statements of the company for a
part of the year. For example, if the directors of the company desire to pay the interim
dividend, as a rule, the dividend only can be paid only out of profit and profit shall be
determines only after the completion the financial year, so the directors may want to
know the figure of profit which the company earned up to that date.
Hence to get assurance about the reliability of financial statements and keeping in
view some interim purpose, Board of Directors may decide to get the account audited
by the independent auditor.

3.4-Final Audit:
A final audit is one where the auditor undertakes the audit work only at the end of the
financial year. In such a case, the audit work commences after all the accounts are
closed and balance sheet and trading and profit and loss accounts are prepared. The
auditor visits his client only once a year and completes the entire work in only one
The final audit is very useful in case of a small concern. But in case of large business
it takes more time to check accounts and submit their report, and therefore, final audit
is not sufficient for large business houses.

4-Terms of Audit Engagement
According to ISA 210 these terms should be considered regarding to engagement.

1) The purpose of ISA to establish standards and provide guidance on:

a) Agreeing the terms of the engagement with the client

b) The auditor’s response to a request by a client to change the terms of a
engagement to one that provides a lower level of assurance.

2) The auditor and client should agree on the terms of the engagement. The
agreed terms need to be recorded in an audit engagement letter or other
suitable form of contract.

4.2-Audit engagement letters:

It is in the interest of both client and auditor that the auditor sends an engagement
letter, preferably before the commencement of the engagement, to help the avoiding
misunderstanding with respect to the engagement. It involves the acceptance of the
appointment, the objective and scope of the audit.

4.3-Principal contents:
The form and content of audit engagement letter may vary for each client, but they
would generally include reference to:
1) The objective of the audit of financial statements.
2) Management’s responsibilities for the financial statements.
3) The scope of audit, including regulations and legislations.
4) The form of any reports or other communication of result of the engagement.
5) Unrestricted access to whatever records, documentation and other information
requested in connection with the audit and
6) Management’s responsibility for establishing and maintaining effective
internal control.

4.4-Audits of the components:

The auditor of the parent entity is also the auditor of the subsidiary, branch or
division. Then we have to send a separate engagement letter to the component include
the following:
1) Who appoint the auditor of components?
2) Whether a separate auditors report is to be issued on the components.
3) Legal requirements.
4) Degree of ownership by parent.
5) Degree of the independence of the component’s management.

4.5-Recurring audits:
On recurring audits, the auditor should consider whether circumstances require the
terms of the engagement to be revised and whether there is a need to remind the
client of the existing terms of the engagement.

4.6-Acceptance of a Change in Engagement:
An auditor, who, before the completion of the engagement, is requested to change the
engagement to one which provides a lower level of assurance, should consider the
appropriate of doing so.

5-Using the Work of another Auditor

ISA 600 is in respect of Using the Work of another Auditor and is currently effects.
This is given below:

1) When the principal auditor uses the work of another auditor, the principal
auditor should determine how the work of the other auditor will affect the

2) “Principal Auditor” means the auditor with the responsibility for reporting on
the financial statements of an entity when those financial statements include
the financial information of one or more components audited by another

3) “Other Auditor” means an auditor, other than the principal auditor, with
responsibility for reporting on the financial information of a component which
is included in the financial statement audited by the principal auditor. Other
auditors include affiliated firms, whether using the same name or not, and
correspondents, as well as unrelated auditors.

4) “Components” means a division, branch, subsidiary, joint venture, associated

company or other entity whose financial information is included in financial
statements audited by principal auditor.

5.2-Acceptance as Principal Auditor:

1) The auditor should consider whether the auditor’s own participation is

sufficient to be able to act as principal auditor. For this purpose the principal
auditor would consider:

2) The materiality of the portion of the financial statements which principal

auditor audits;

3) The principal auditor’s degree of knowledge regarding the business


4) The risk of material misstatements in the financial statements of the

components audited by the other auditor;

5.3-The Principal auditor’s Procedures:
1) The principal auditor should perform procedures to obtain sufficient
appropriate audit evidence, that the work of the other auditor is adequate for
the principal auditor’s purposes, in the context of specific assignment.

2) The principal auditor might also, discuss with the other auditor the audit
procedure applied, review a written summary of the other auditor’s procedures
or reviews working papers.

3) The principal auditor should consider the significant findings of the other

5.4-Cooperation between Auditors:

The other auditor, knowing the context in which the principal auditor will use the
other auditor’s work, should cooperate with principal auditor.

6-Using the Work of an Expert

ISA 620is in respect of Using the Work of an Expert. This is effective for Audit of
Financial Statements for period beginning on or after December 15, 2004 which is
given below:

1) The purpose of this ISA is to establish standards and provide guidance on
using the work of an expert as audit evidence.

2) When using the work performed by an expert, the auditor should obtain
sufficient appropriate audit evidence that such work is adequate for the
purposes of the audit.

3) “Expert” means a person or firm possessing special skill, knowledge and

experience in a particular field other than accounting and auditing.

4) The auditor’s education and experience enable the auditor to be

knowledgeable about business matters in general, but the auditor is not
expected to have the expertise of a person trained for or qualified to engage in
the practice of another profession or occupation, such as an actuary or


The group engagement partner is responsible for the direction, supervision and
performance of the group audit engagement in compliance with professional standards
and regulatory and legal requirements, and whether the auditors report that is issued is
appropriate in the circumstances.

6.2.2-Terms of engagement:
The group engagement partner shall agree on the terms of the group audit
engagement in accordance with proposed standards.
6.2.3-Overall audit strategy and audit plan:
The group engagement team shall establish on overall group audit strategy and shall
develop a group audit plan.

The group engagement partner shall review the overall group audit strategy and group
audit plan.

6.3-Understanding the group:

The auditor is required to identify and assess the risk of material misstatement
through obtaining the understanding of the entity and its environment . the group
engagement shall:

a) Enhance its understanding of the group its components and environment

including group wide controls ,obtained during the acceptance or continuance

b) Obtain and understanding of the consolidation process including the

instructions issued by group management.

7-Organizational Set Up Of An audit Office

An auditor is required to have a sound organizational set-up in his office. Suggested

organizational chart is given the chapter. This organizational chart has been developed
on the assumption set-up will be different if the auditor were to deal in tax,
Management Consultancy and Cost consultancy also.
If the magnitude of work is big, the audit department will be divided into several
sections. Each section will be under the charge of a qualified assistant (i.e. chartered
Accountant). An audit manager is required to be there who will distribute the audit
work amongst the staff in liaison with the qualified assistants (generally called as
Principals). Besides this, he should maintain a record of the following:
1) Allocation of jobs amongst the senior in charge of the jobs.
2) Daily posting of audit staff to various jobs.
3) Audit work to be done (classified as monthly audit/inspection, quarterly, half
yearly and yearly audits).
4) Details of jobs where targets are involved.
5) Dates as and when cash count and physical stock check (annual/monthly or
surprise) are to be conducted.
6) Audit jobs to be started, in progress and completed.

In order to ensure that the above record is maintained efficiently, audit completion
register and audit work register should be maintained.
The audit manager should also maintain an up-to-date list of the clients. It is generally
advisable to review it periodically, specially marking new audit jobs undertaken.
Generally one or two jobs should be allocated to a senior who would be assisted by a
semi-senior and a few junior members of the audit staff in the conduct of the audit
work. The senior would be accountable to the qualified principal for getting the audit

work finalized who would then submit his work to the auditor to go through in the
synthesis of final stage and reporting.
The auditor should also keep and use job Completion register. This should include a
snapshot of the total jobs in hand. From this register a periodical summary should be
prepared indicating jobs completed and jobs still in hand (making separately in
progress, to be shortly taken up and arrears, if any).

8-Commencement of a New Audit

Before the commencement of a new audit the following instructions must be given by
the auditor to his client:

1) A complete list of books use together with a list of employees engaged upon them
with their respective duties, a note on the system of book-keeping in operation
and a statement of the system of the internal control in practice should provide to
the audit staff.
2) All the books of original entry should be totaled and all the ledgers should be
balanced and ruled off. The final trial balance and the draft final account should
kept ready for the audit and the examination.
3) All supporting vouchers to all books should be kept properly arranged.

The auditor of a newly-established limited company should carry out the following
preliminary work before commencing the actual audit:

He should ascertain whether his appointment is in order. He should obtain a certified
true copy of the resolution of Board of Directors or shareholders and keep it is in the
permanent audit file. I an auditor is being appointed in place of the retiring auditor he
should see that the requirements if the Companies Ordinance, 1984, have been
compiled with.

A copy of the Memorandum and Articles Association should be obtained and studied
carefully. Particulars affecting the auditor in relation to account books and internal
procedures relating ti relevant matters should be noted.

Relevant matters affecting the accounts and allied information should be examined.

8.4-Minute Books:
He should go through the directors and shareholders minute books and job down
notes of important decisions.

Service contracts concerning the terms of appointment and the scope of authority in
respect of officers of the company should be scrutinized. All material contracts
entered into by the company with the outsiders should be procured and studied.
Important matters should be noted.

8.6-Techonical Operations:
He should acquaint himself as far as possible with the technical operations of the
company. It is advisable that he should visit works before starting the audit.

8.7-List of Books:
He should obtain a list of books –statutory, statistical and accounting, which are in use
together with names and duties of various clerks who are to write them up.

8.8-System of Accounting:
A note on the system of accounting employed by the company should be obtained.

8.9-Internal Check:
He should ascertain whether the whole internal check system on operation appears in
black and white in some accounting manuals. If so, he should go through the same
and carefully note any loopholes. The system, whatever exists in practice, should be
tested in all practical aspects.

8.10-Privious Years Audited Accounts and Reports:

With the exception of a new company, the auditor should examine the last balance
sheet for the for the purposes of checking the opening entries for the period under
audit. The previous year auditor’s report should also be inspected and if ant
qualifications are contained in it, the possibility of their being applicable the year
under audit should be carefully examined.

8.11-Audit Report:
He should then draft an audit programme and commence the work of audit.

9-Audit Programme
An audit programme is a written scheme of the exact details of the work to be done by
the auditor and his staff in connection with a particular audit. It is generally contained
in the audit notebook and is variably in black and white. A space is also provided in
the audit programme against each of the work to be done so that each audit clerk,
responsible for any portion of the particular work, may put done his signature or
initial. One audit program is prepared for one audit. The details of the audit
programme will depend upon the adequacy or otherwise of the system of internal
control, special provisions of Memorandum and Articles of Association affecting the
duties of an auditor and the nature of the business etc.

The audit programme must be developed with due care and skill. Particular attention
should be given to the following:
1) Exact scope oh the duties of an auditor.
2) Books of original entry and ledgers in use.
3) The system of book-keeping employed, and its weaknesses (if any).

4) System of internal check and the extant of its reliability.
5) General nature and routine of the business.
The audit programme should not be very rigid; it must be capable of being reviewed
in view of changing circumstances.
A similar audit programme is required to be prepared in respect of all books of
original entries and ledgers. The scope of contents of the audit programme should
cover all the routine checking and vouching.

10-Audit Notebook

It is a book in which a permanent record is kept of the following:

10.1-Audit Programme:
It has already been explained at length earlier.
10.2-Audit review notes:
During the conduct of the audit, certain points do crop up which need further
elucidation and discussion with the management. Therefore notes are taken during the
conduct of work. A record of the progress of the disposal of audit notes is also
10.3-Audit Queries:
During the conduct of the audit, all those vouchers which remain insufficiently
vouched are to be noted in query list of the audit notebook.

10.4-Important Balances:
A note of the important closing balances particularly in respect of cash and bank
should be noted so that after the work has been done in alteration of any of the closing
balances may be made difficult.

11-Audit Working Papers

Working papers are the connecting link b/w the client’s records and the audited
accounts. These include all the evidence gathered by the auditor indicating what work
has been done by him and the procedure he has followed in verifying a particular
asset or liability. These provide a permanent historical record logically arranged in
order, in which each item appears in the balance sheet. These also serve as a great
guide to the staff to whom the work of audit has been assigned after the previous year
audit. These would come to the help of the auditor in future in case the client files a
suit against the auditor’s negligence.