Professional Documents
Culture Documents
Index: SR - No. Particulars Signature
Index: SR - No. Particulars Signature
Index: SR - No. Particulars Signature
2 Auditing Standard
3 Summary
4 Bibliography
5 References
BASIC CONCEPTS IN AUDITING
Audit Evidence:
AAS 1 (SA 200) on Basic Principles Governing and Audit, mention audit
evidence as one of the basic principles and requires that the auditor should
information.
reliability.
The evidence may be of varied nature and can assume various forms for
obtained by the auditor by discussing with the officials of the company also
been created within the clients organisation and without its ever going to
transactions had been entered into or who paid or was advanced an amount
its source internal or external; and by its nature i.e., visual, documentary
or oral.
The auditor should evaluate whether he has obtained sufficient appropriate
audit evidence before the draws his conclusions there from. Audit evidence
information.
The principal advantage of an independent audit lies in the fact that the
society is able to get an informed, objective and forth right opinion on the
organisation.
that the shareholders of a company are assured that the funds invested by
them are safe and they are being used for only the purposes for which they
The chief utility of audit lies in ensuring reliable financial statements on the
However, many others make use of the information for different purposes.
their money.
of an entity.
the organisation has been paid to them as bonus and the distribution
institution, etc. and a partnership firm may get its accounts audited to
decide questions such as valuation of goodwill at the time of admission,
The report of an independent auditor is, therefore, the only real safeguard
report, that the risk of people being misled by untrue or fraudulent financial
Preliminary Expenses:
(v)Any other expense incurred to bring into existence the statutory books of
the company.
Preliminary expenses in so far as they have not been written off to date must
be shown separately in the balance sheet of the company under the heading
"Miscellaneous Expenditure".
The auditor should verify these expenses with reference to supporting
case of a company, the auditor should also examine that the reimbursement
financial statements.
reader of financial statements if they are all disclosed at one place instead of
being scattered over several statements, schedules and notes which form
If a change is made in the accounting policies, which has not material effect
expected to have material effect in latter periods, the fact of such change
adopted.
helpful to the reader of financial statements if they are all disclosed at one
ascertainable.
Where such amount is not ascertainable, wholly or in part, the fact should
material effect on the financial statements for the current period, which is
reasonably expected to have material effect in latter periods, the fact of such
is adopted.
phrase true and fair in the auditors report signifies that the auditor is
required to express his opinion as to whether the state of affairs and the
results of the entity as ascertained by him in the course of his audit are
This requires that the auditor should examine the accounts with a view to
verifying that all assets and liabilities, incomes and expenses are stated at
the amounts which are in accordance with accounting principles and
policies, and no material item has been omitted. What constitutes true and
However, section 211(5) of the Companies Act, 1956states that the balance
sheet and profit and loss account of a company shall not be treated as not
disclosing a true and fair view of the state of affairs of the company if they
do not disclose any matters which are not required to be disclosed by virtue
any notification or any order. Therefore the auditor must see that the
The auditor should see, whether the relevant disclosure requirements are
complied with.
Thus, what constitutes a true and fair view is a matter of the auditors
(iv) material liabilities should not be omitted, and liabilities are neither
undervalued or overvalued;
(v) accounting policies have been followed consistently;
(vi) all unusual, exceptional, non recurring items have been disclosed
separately;
AUDITING STANDARDS
against which the quality of audits are performed and may be judged.
territory.
Accountants (AICPA).
AU Section 150 states that there are 10 standards: 3 general standards, 3
standards and replaced AU Section 150 with AU Section 200, which does
companies.
Since the 2002 passage of the Sarbanes-Oxley Act; however, it adopted many
General
The auditor must adequately plan the work and must properly
fraud, and to design the nature, timing, and extent of further audit
procedures.
ISAs
Standards of Reporting
The auditor must state in the auditor's report whether the financial
accounting principles.
should state the reasons therefore in the auditor's report. In all cases
The auditor should clearly indicate the character of the auditor's work,
auditor's report.
Clarity Project
In 2004, a project was begun to clarify and converge the standards with the
being remapped as part of the Clarity Project. In October 2011, SAS 122 was
issued which superseded all previous SASes except 51, 59, 65, 87, and 117-
20. In the interim period, these new AU sections are referred to as AU-C
Process of Auditing
What is the concept and process of auditing? During the 1960s and 1970s,
has been codified in many countries around the world and is often called
accounting criteria. The four concepts in the above statement that require
an explanation are:
3. obtaining evidence
criteria.
Assertions include:
given date
organization
transactions
value
the reader is entitled to assume that the cash both exists and is owned by
the organization.
Existence and ownership are key accounting assertions relating to the asset
category of cash.
liabilities would be those of completeness, that all the liabilities that should
be recorded have been recorded, and valuation, that the liabilities recorded
are valued correctly (i.e. they are not over or under stated).
The assertions for a revenue item such as membership fees would include:
that the fees did not belong to another organization; and completeness, that
communicates this to the reader. The auditing process, on the other hand,
countries including Canada, the UK , the USA and Australia. The criteria
in the spirit of existing standards for those areas where the CICAs
Summary
Once the auditor has obtained sufficient evidence and performed sufficient
Bibliography
The following sources were essential for the preparation of this article:
Loebbecke 1997
Audits 1988
References
Note that AU stands for audit, not separate words. See Alphabet Soup:
A Directors Guide to Financial Literacy and the ABCs of Accounting
and Auditing.