Principles of Audit

Principles of Audit and Assurance

1. E-Content:BasicPrinciplesGoverninganAudit:
https://youtu.be/6MMCoPm-gJ0?t=89
Basic Principles Governing an Audit Principles Governing
an Audit
AuditingandAssurancestandardsgivethebasicprinciplesanauditorhastofollow
whileconductinganauditoffinancialstatementsofanyorganization.
1.IntegrityObjectivityandIndependence
Anyprofessionalshouldbestraightforward,honestandsincereinhisapproach.Anauditorisa
professionalwhoisgivenaccesstoentirefinancialrecordsoftheorganizationheisauditing.He
isalsoentrustedwithfundsofotherpersonsforthepurposeofaudit.So,heshouldshowahigh
standardofintegrityandmaintainaseparateaccountfortheamountentrustedtohim.
Hisopinionsshouldbebasedonevidencesratherthanonpersonalintuitions.Peoplein
theorganizationshouldnotdoubthisindependence.
2.Confidentiality
Theauditorshouldmaintainastrictconfidenceoftheinformationacquiredinthecourse
ofaudit.Theinformationshouldnotbedisclosedtoathirdparty.Ifthereisalegalor
professionaldutytodisclosecertaininformation,hemaydosowithspecificauthority.The
auditorshouldnotusetheinformationforhispersonalgainsorfortheadvantageofthethird
party.
3.SkillandCompetence
Theauditorrequiresspecializedskillandcompetencetoperformhisauditwork.Theauditreport
hastobepreparedwithduecare.Astheprofessionallyqualifiedpersonsactasauditors,their
specializedknowledge,skillsandcompetenceacquiredthroughstudyandformalcourse
helpthemperformflawlessly.Theauditoralsoneedstoconstantlyupdatehisskilland
competenceinthefieldofaccountingandauditing.Skillandcompetenceacquiredbythe
auditorshouldbeappliedwithduecare.
4.WorkPerformedbyOthers
Anauditorcandelegateworktoassistantsorusetheworkperformedbyothers.While
delegatingwork,heshouldgiveproperdirectionstoperformthework.Heshouldalsosupervise
andreviewtheworkappropriately.
Anauditormayhavetorelyontheworkandreportofanotherauditor.Thenheshouldensurethe
adequacyofthenatureandpurposeofthework.Hecanrelyontheopinionorworkofanexpert
withduecaution.

2. 5.Documentation
Adequatedocumentationservesasanevidenceoftheauditperformed.Itwillsupportthefact
thattheauditwascarriedoutinaccordancewithbasicprinciples.Maintenanceof
workingpapersisusefulinplanning,performance,supervisionandreviewofaudit.Therefore,
theauditorisrequiredtodocumentmattersinsupportoftheauditworkperformedbyhim.
6.Planning
Properplanningenablestheauditortoconductaneffectiveauditinanefficientand
timelymanner.Plansshouldbemadetocover,amongotherthings
acquiring knowledge of the clients’ accounting system, policies, and internal
control procedures.
establishing the expected degree of reliance to be placed on internal control.
determining and programming the nature, timing and extent of the audit procedures to be
performed, and
co-ordinating the work to be performed. Plans should be revised depending upon
the audit needs.
7.AuditEvidence
Theauditorbeforeexpressinghisopiniononthefinancialstatements,conductstestsandapplies
audittechniquestocollectevidence.Byevaluatingtheevidencescollected,hedraws
conclusionsaboutthefinancialstatements.
Theauditorappliescomplianceprocedurestoevaluatetheeffectivenessoftheinternalcontrol.
Tofindouttheaccuracyandvalidityofthetransactions,heteststhedetailsofthetransactions
andanalysestheratiosandtrendsoftheexpensesandincomeovertheperiod.These
proceduresarecalledsubstantiveprocedures,Thus,auditevidencesareoftwotypes:
1.testsofdetailsoftransactionsandbalancesand
2.analysisofratiosandtrendsincludingtheenquiryofunusualfluctuationsanditems.
8.AccountingSystemandInternalControl
Dependinguponthesizeandnatureofbusiness,themanagementshouldmaintainanadequate
accountingsystemincorporatingappropriateinternalcontrols.Theaudittechniquesto
beadoptedandtheextentofsubstantiveprocedurestobefolloweddependonthereliabilityof
theinternalcontrolsystem.
Thereliabilityoftheinternalcontrolsystemdependsonitseffectiveness,Therefore,itis
thedutyoftheauditortoevaluatetheeffectivenessofinternalcontrolsregardingaccounting
system.Theauditorisabletoidentifythepossibleareasofmaterialmisstatements.

3. 9.AuditConclusionsandReporting
Conclusionsaredrawnfromtheauditevidencecollectedandfromhisknowledgeofthebusiness
oftheentity.Theauditorshouldreviewandassesstheconclusionssodrawn.
Theauditorgiveshisopinioninthefromofauditreport.Theformorcontentofthe
reportshouldcomplywithrequirementsasprescribedunderanyagreementorrelevant
statutoryrequirements.