Auditing and assurance standards

Auditing and Assurance Standards

1. By Gayathiry D

2. Auditing and Assurance Standards Auditing and Assurance Standards Overview, Standard-setting process-Role of International Auditing and Assurance Standards Board - Auditing and Assurance Standards Board in India- Audit planning- Audit programme - Audit Evidence - Control of quality of audit work - Audit working papers- Audit files-Permanent audit-current audit files-Ownership and custody of working papers.

3. STANDARD - SETTING PROCESS

4. Role of International Auditing and Assurance Standards Board The responsibilities of the AASB include the following: 1. developing and maintaining high-quality auditing, other assurance and related services standards, for both the private and public sectors, to respond to emerging needs of decision makers and assurance providers; 2. ensuring that a rigorous due process is followed in developing auditing, other assurance and related services standards, including providing opportunities for input by all those affected by the standards; 3. communicating effectively with those affected by, and interested in, auditing, other assurance and related services standards; and 4. using its volunteer, staff and financial resources efficiently, effectively and economically. 5. Until 2002, the IAASB was known as the International Auditing Practices Committee (IAPC).

5. Auditing and Assurance Standards Board in India The Institute of Chartered Accountants of India is a member of the IFAC and is committed to work towards the implementation of the guidelines issued by the IFAC. The Institute of Chartered Accountants of India constituted the Auditing Practices Committee (APC) in 1982. The main function of the APC is to review the existing auditing practices in India and to develop Statements on Standard Auditing Practices (SAPs) so that these may be issued by the Council of the Institute. While formulating the SAPs in India, the APC gives due consideration to the international auditing guidelines issued by the IAPC and then tries to integrate them to the extent possible in the light of the conditions and practices prevailing in India. While formulating the SAPs, the APC takes into consideration the applicable laws, customs, usages and business environment in India. In July, 2002, the Auditing Practices Committee has been converted into an Auditing and Assurance Standards Board (AASB) by the Council of the Institute, to be in line with the international trend. A significant step has been taken aimed at bringing in the desired transparency in the working of the Auditing and Assurance Standards Board, through participation of representatives of various segments of the society and interest groups, such as, regulators, industry and academics. The nomenclature of SAPs have also been changed to Auditing and Assurance Standards (AASs). The AASs will apply whenever an independent audit is carried out; that is, in the independent examination of financial information of any entity, whether profit oriented or not, and irrespective of its size, or legal form (unless specified otherwise) when such an examination is conducted with a view to expressing an opinion thereon.

6. Audit Planning The objective of the auditor is to plan the audit so that it will be performed in an effective manner Planning is required to complete the audit effectively within the specified time. Audit planning is a process of deciding in advance what is to be done, who is to do it, how it is to be done and when it is to be done by the auditor in order to have efficient and effective completion of work.  Audit planning can be done only when, the auditor is having knowledge of the business of the client.

7. Factors Affecting Audit Planning   The following factors should receive due consideration while planning:   Size of the company and nature of its operations. Accounting system, internal control and adherence to standard.   Environment in which the company operates.   Previous experience with the client; and   Knowledge of client’s business. Benefits (or) Advantages of Audit Planning  An efficient and effective audit plan provides the following benefits: Accomplishment of Objectives: Audit plan ensures that it provides right means to accomplish audit objectives. Further it also ensures that appropriate attention is devoted to important areas of audit.   Identification of Problems: A well drawn and established audit plan helps in identifying potential problems.  Timely Completion of Work: It ensures that work is completed properly within the specified time and no important area is left out. It also ensures that all important areas of management receive attention.  Facilitates Coordination: It facilitates coordination of the audit work done by auditors and other experts.  Better Audit Work: It helps in improving the quality of audit work and provides promptness and perfection in audit performance.

8. Audit evidence is the information auditors obtain in performing their audit work in order to form the basis of their opinion on financial statements. In this case, auditors have responsibilities to gather sufficient appropriate evidence on which to base their audit opinion.  Audit evidence Definition “The auditor is required to obtain sufficient appropriate evidence to enable him to draw reasonable conclusions there from on which to base his opinion on the financial information” by AAS 5 issued by ICAI. Types of Audit Evidence Characteristics of objective evidence Unbiased Factual First hand Traceable Impersonal

9. “Quality Control for Audit Work” lays down standards on the quality control. (a) policies and procedures of an audit firm regarding audit work generally; and (b) procedures regarding the work delegated to assistants on an individual audit. Quality Control for Audit Work Factors to be Considered for incorporating quality control in Audit work (a) Professional Requirements (b) Skills and Competence (c) Assignment (d) Delegation (e) Consultation (f) Acceptance and Retention of Clients (g) Monitoring Free flow of communication between audit assistants

10. Audit Working Papers  It written paper and document containing details about accounts which are under audit, analysis, summaries and comments built up by an auditor during the course of a particular audit engagement. Definition  Institute of Chartered Accountants of India defines audit working paper as, “working paper must include audit program, queries, explanations given for the queries, schedules for the important items like depreciation, inventories, confirmation from third parties, certificates issued by the management, banks,etc ..”. Contents of Audit Working Papers In general audit working papers consists of the following: 1. Schedule of Debtors, Creditors and bank statement. 2. Correspondences and balance confirmations from Debtors, Creditors and bankers. 3. Correspondences from legal advisors and statutory authorities. 4. Certificates of officials with regard to bad debts. 5. Certificate from valuers for valuing stock-in-trade and investments. 6. Certificate confirming cash balance. 7. Certificate from authorized person with regard to outstanding assets and liabilities, contingent assets and liabilities etc. 8. Bank Reconciliation statement. 9. Adjusting entries. 10. Copies of the minutes of the meeting of directors and shareholders.

11. Objectives of Audit Working Papers 1. Planning and Organizing Audit Work 2. Support for Auditor’s Opinion 3. Division of Labour 4. Use as a Permanent Record Basis for Evaluation and Training of Audit Staff Importance (or) Advantages Of Audit Working Papers 1. Planning the Audit Work Helps in Fixing Responsibility 3. Helps in Drawing Conclusions 4. Helps in Preparing Audit Report Documentary Evidence 6. Permanent Record

12. Audit File Audit file is a file used for preserving written statement of necessary matters relating to audit.