Auditing Standards

Session Objectives
„ To define auditing standards
„ To discuss different auditing
standards
„ To outline the Auditing Standards of
the CAG of India
 Auditing Standards
„ Auditing Standards
„ aim to improve the auditing practices.
practices
„ provide a framework for the auditing steps
and procedures.
„ Conducting audit in accordance with
standards gives necessary assurance to
people making use of the financial
statements and audit reports.
reports
 Auditing Standards of the CAG
of India
„ 2.1 Auditing Standards prescribe the norms of
pprinciples
p and ppractices, which the Auditors are
expected to follow in the conduct of Audit. They
provide minimum guidance to the Auditor that
h l determine
helps d i theh extent off auditing
di i steps andd
procedures that should be applied in the audit and
constitute the criteria or yardstick against which
the quality of audit results are evaluated.
 IFAC Standards
„ The accounting bodies of various countries established the
International Federation of Accountants (IFAC) in 1977
„ To develop and enhance a co-ordinated worldwide
accountancy profession.
„ International Auditing Practices Committee (IAPC) – A
standing
t di committee itt off the
th Council
C il off IFAC assigned
i d with
ith
the specific responsibility and authority to issue standards
on auditing and related services.
„ The IFAC has issued a number of International Standards
on Auditing (ISAs)
 ICAI Standards
„ The Institute of Chartered Accountants of India
(ICAI) issued a number of Auditing and
Assurance Standards (AASs).
(AASs)
„ Based on the corresponding ISAs issued by IFAC,
these AASs take into consideration the applicable
l
laws, customs,
t usages andd business
b i environment
i t
in India.
„ These Standards have a significant
g effect on the
way audit of companies is conducted in India.
 INTOSAI Standards
„ The Auditing Standards Committee of the
International Organisation of Supreme Audit
Institutions (INTOSAI) issued
„ Auditing Standards (1992)
„ Code of Ethics for auditors in the public sector (1998)
„ Thoughh nott mandatory,
Th d t th
they reflect
fl t a “best
“b t
practices” consensus among the Supreme Audit
Institutions (SAIs)
„ Each SAI is required to judge the extent to which
the Standards are compatible with the achievement
of its mandate
 Four Parts of the Auditing Standards of
the CAG of India

BASIC POSTULATES

FIELD
GENERAL REPORTING
STANDARDS
STANDARDS STANDARDS
 Basic Postulates-I
„ Compliance to INTOSAI Auditing Standards
„ Existence of a ppolicy
y byy which the standards are followed
for the various types of audit carried out by the IAAD to
ensure that the work and products are of high quality.
„ Application of Auditor
Auditor’ss Judgment
„ Impracticability of a code of rules, sufficiently elaborate to
cater to all situations and circumstances
„ Auditor’s judgment in determining the auditing procedures
necessary in the circumstances to afford a reasonable basis
for his opinion and the content of his report.
„ Application of standard audit practices issued by the
Institute of Chartered Accountants for auditing the financial
statements of public sector enterprises
 Basic Postulates-II
„ Promoting Public Accountability
„ to safeguard the financial interests of the State and to uphold
and promote public accountability and sound and economical
financial management practices.
„ To evaluate the system of internal control including adequacy
of information control, evaluation and reporting systems
within the Government.
„ M
Management responsibility
ibili for
f correctness andd sufficiency
ffi i off
the form and content of the financial reports and other
information.
„ Consistent application of acceptable accounting
standards should result in the fair presentation of
the financial position and the results of operations.
operations
 Basic Postulates-III
„ Confidentiality of Information gathered during Audit
„ Information about an audited entity acquired in the course of
fie Auditor's work must not be used for purposes outside the
scope of audit and formation of an opinion or in reporting not
in accordance with the 'Auditor's
Auditor s responsibility.
responsibility It is essential
that Audit maintain confidentiality regarding audit matters and
the information obtained while carrying out audit
engagements.
engagements
„ All Audit Activities to be within the CAG’s Mandate
„ The term 'Audit' includes Financial Audit, Regularity Audit
and Performance Audit. The CAG is empowered to decide the
nature, scope, extent and quantum of audit including the form
and content of the audit reports
p in respect
p of audit to be
conducted by him or on his behalf.
 Basic Postulates-IV
„ Continuous improvement of techniques for auditing the
validity
lidi off performance
f measures
„ to improve and develop new techniques and methodologies to
assess whether reasonable and valid pperformance measures are
used by the audited entity.
„ auditors to acquaint themselves with techniques and
methodologies of other relevant disciplines.
disciplines
„ Avoidance of conflict of interest between the auditor and
the auditee
„ need to maintain independence and objectivity. The application
of appropriate general auditing standards assists the CAG in
satisfying these requirements
 General Standards
General standards common to auditors and audit
institutions:
„ The auditor and the audit institutions must be independent.
„ The auditor and the audit institutions must possess the required
competence.
competence
„ The auditor and the audit institutions must exercise due care and concern
in complying with these auditing standards
General auditing standards for the audit institutions:
„ They should adopt policies and procedures to
„ Recruit personnel with suitable qualifications
„ Develop and train employees
„ Prepare manuals and instructions concerning the conduct of audits
„ Maintain optimum level of skills
„ Review the efficiency and effectiveness of internal standards and
procedures
 General Standards for SAI-I
Independence
„ Independence from the legislature,
legislature independence from
the executive, and independence from the audited entity.
Competence
„ Auditor to possess required professional competence.

Due Care
„ Auditor to exercise due care in specifying, gathering and
evaluating evidence,
evidence and in reporting findings, findings
conclusions and recommendations.
 General Standards for SAI - II
Quality Assurance Review
„ IAAD should have an appropriate quality assurance system in
place.
„ Establish systems and procedures to confirm satisfactory
operation of internal quality assurance processes;
„ Ensure the quality of the audit report; and
„ Secure improvements and avoid repetition of weaknesses.
O h General
Other G l Standards
S d d for f Audit
A di Institutions
I i i
„ System of training to enable auditors to perform their task
effectively and also to define the basis for the advancement of
auditors and other staff.
„ Manuals and instructions concerning the conduct of audit
„ Continuous Skill Development
p within the IAAD
 General Standards for SAI - III
„ Standards with ethical significance
„ A ditor should
Auditor sho ld avoid
a oid conflict of interest with ith the
audited entity to preserve the auditor’s independence.
„ The auditor must exercise due care and concern in
complying with the auditing standards.
„ The auditor should at all times maintain absolute
integrity and devotion to duty.
„ Auditors should not disclose information obtained in
the auditing process to third parties, either orally or in
writing.
 Field Standards-I
„ Planning to ensure that an audit of high quality is
carried out in an economic, efficient and effective way
andd in
i a timely
ti l manner;
„ Supervision of audit work at each level;
„ Review of documented work by a senior member of
the audit team;
„ Evaluation of the reliability of internal control;
„ Testing compliance with applicable laws and
regulations in case regularity (financial) audit;
 Field Standards-II
„ Design of audit steps and procedures to provide
reasonable assurance of detectingg errors,
irregularities, and illegal acts having a direct and
material effect on the financial statement
„ Competent, relevant and reasonable evidence to be
obtained to support the auditor's judgment and
conclusions;
l i
„ Compliance to acceptable accounting standards for
financial reporting in regularity (financial) audit;
 Field Standards: Planning
„ Auditor to
„ Understand the entity
„ Consider the form, content and users of audit opinions,
conclusions or reports;
„ Specify the audit objectives and the tests necessary to meet them;
„ Identify key management systems and controls, assess risk, set
materiality levels;
„ R i the
Review h internal
i l audit
di off the
h audited
di d entity
i andd its
i workk
program;
„ Determine the most efficient and effective audit approach;
pp ;
„ Provide for a review; and
„ Provide for appropriate documentation of the audit plan and for
the proposed fieldwork
fieldwork.
Field Standards: Supervision and Review
„ The work of the audit staff at each level and each audit
phase to be properly supervised during the audit to
ensure:
„ audit team has a clear and consistent understanding of
audit plan;
„ Audit is carried out in accordance with auditing standards
and practices;
„ Any deviation from the audit plan is done after due
authorisation;
„ Working papers contain adequate evidence supporting all
conclusions recommendations and opinions;
conclusions,
„ Audit objectives are achieved; and
„ Audit report includes audit conclusions, recommendations
and opinions
opinions, as appropriate.
appropriate
Field Standards: Documentation

„ Adequate documentation must be made to:

„ Confirm and support the auditor's opinions and reports;
„ Increase the efficiency and effectiveness of the audit;
„ Serve as a source of information for preparing reports;
„ Serve as evidence of the auditor's compliance with
Auditing Standards;
„ (Facilitate planning and supervision;
„ Help the auditor's professional development;
„ Help
l to ensure that
h delegated
d l d workk has
h been
b satisfactorily
if il
performed; and
„ Provide evidence of work done for future reference.
 Reporting Standards-I
„ Audit Reports must satisfy the basic
criteria for reporting:
„ Completeness
„ A
Accuracy
„ Being convincing, concise and constructive
„ Cl i
Clarity
„ Timeliness
Reporting Standards - II

„ Audit to report on
„ compliance with laws and regulations and on
internal control
„ Fraud,, illegal
g acts and other noncompliance.
p
„ Audit follow-up standard requires auditors to
report
p whether satisfactory y action was taken or
not, on the audit reports
 Reporting Standards: Internal Control
Report on Deficiencies in Internal Control to point out
„ Absence of appropriate segregation of duties;
„ Absence
Ab off appropriate
i reviews
i andd approvals
l off transactions,
i
accounting entries or systems output;
„ Inadequate provisions for the safeguarding of assets;

„ Evidence of failure to safeguard assets from loss, damage or

misappropriation;
„ Evidence of system failure;

„ Evidence of intentional override of internal control by those in

authority;
„ Evidence of failure to pperform tasks that are ppart of internal
control;
„ Absence of a sufficient level of control consciousness within the
Organisation;
„ Failure to rectify deficiencies in internal control identified earlier.
 Reporting Standards: Form and Content
of Audit Reports
„ Form
„ Title
„ Signature and Date
„ Audit objectives and scope
„ Addressee
„ Content
„ Completeness
„ Identification of Subject matter
„ Legal basis
„ Compliance with standards
„ Compliance with laws and regulations
„ Timeliness
„ Emphasis of matter
„ Adverse opinion or disclaimer, if any
Assignment
„ A5_S16