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