Auditing (ACC-309)

Chapter-11 : Auditor’s Position and Audit Program

Outlines:

 Define audit engagement letter. What are the principal contents of an audit
engagement letter?

 What factors should be considered before accepting an audit engagement?

 What are the procedures to be appointed as an auditor in an organization under

companies’ act 1994? And how auditors’ remunerations/audit fees are fixed under
companies’ act 1994?

 What are the Liabilities of an auditor under companies’ act 1994?

 What are the rights and powers of the auditors of a company under companies’ act
1994?

 Define audit program and its contents.

 Advantages and disadvantages of audit program.

 Types of audit program.

Audit engagement letter

The engagement letter will be sent before the audit. It specifies the nature of the contract between the
audit firm and the client and minimizes the risk of any misunderstanding of the auditor's role. Auditing
standards require that the auditor and the client should agree on the terms of the engagement.

The agreed terms must be in writing and the usual form would be a letter of engagement.

The Principal Contents of the engagement letter

The contents of a letter of engagement for audit services should include the following:

The objective and scope of the audit;

The responsibilities of the auditor;
The responsibilities of management;
The identification of an applicable financial reporting framework; and
Reference to the expected form and content of any reports to be issued.

Factors should be considered before accepting an audit engagement:

The auditor should:

 Ask the client for permission to contact the outgoing auditor (reject role if client refuses)
 Contact the outgoing auditor, asking for any reasons why they should not accept appointment.
If a reply is not received, the prospective auditor should try and contact the outgoing auditor by
other means e.g. by telephone. If a reply is still not received the prospective auditor may still
choose to accept but must proceed with care.
 Ensure that the legal requirements in relation to the removal of the previous auditors and the
appointment of the firm have been met
 Carry out checks to ensure the firm can be independent, is competent to do this audit and has
the necessary resources
 Assess whether this work is suitably low risk
 Assess the integrity of the company's directors
 As a commercial organization, the firm should also ensure that this is a desirable client (e.g. right
industry, suitable profit margin etc)
 Not accept the appointment, where it is known that a limitation will be placed on the scope of
the audit.

According to section 210. Appointment and remuneration of auditors:

The appointment of the auditors of a company:
 Every company shall, at each annual general meeting appoint an auditor or auditors to hold office
from the conclusion of that meeting until the next annual general meeting and shall within seven
days of the appointment, give intimation thereof to every auditor so appointed.
 Every auditor appointed under sub-section (1) shall, within thirty days of the receipt from the
company of the intimation of his appointment, inform the Registrar in writing that he has accepted,
or refused to accept, the appointment.
 At any annual general meeting a retiring auditor, by whatsoever authority appointed, shall be
reappointed, unless- (a) he is not qualified for re-appointment; or (b) he has given the company
notice in writings of his unwillingness to be re-appointed; or (c) a resolution has been passed at
that meeting appointing somebody else instead of him or providing expressly that he shall not be
re-appointed
 If an appointment of an auditor is not made at an annual general meeting, the Government may
appoint a person to fill the vacancy.
 The company shall, within seven days of the Governments power under sub-section (4) becoming
exercised, give notice of that fact to the Government; and, if a company fails to give such notice,
the company, and also every officer of the company who is in default, shall be punishable with
fine which may extent to one thousand taka.
 The first auditor or auditors of a company shall be appointed by the Board of Directors within one
months of the date of Registration of the company, and the auditor or auditors so appointed shall
hold office until the conclusion of the first annual general meeting.

The remuneration of the auditors of a company:

In the case of an auditor appointed by the Board or the Government, shall be fixed by the Board or the
Government respectively : and
Subject to clause (a), shall be fixed by the company in the general meeting or in such manner as the
company in the general meeting may determine.
For the purposes of sub-section (10), any sums paid by the company in respect of the auditors expenses
shall be deemed to be included in the expression "remuneration".
 Liabilities of an auditor:
Liability for breach of contract :

An auditor may be liable to a client for breach of contract when he:

o Issues a standard audit report when he has not made an audit in accordance with BAS.
o Does not deliver the audit report by the agreed upon date.
o Violates the client’s confidential relationship.

Liability for Negligence:

In case of audits, the auditor is liable for his negligence. If the company wishes to proceed against its
auditor for his negligence, the following essentials are to be fulfilled:

1. The Company have the capacity to prove that the auditor is negligent;

2. There should be some loss due to the auditor’s negligence;

3. The loss should affect the share holders.

Criminal liability:

If any auditor violates the following sections of Company Act, 1994, it will be considered as
criminal liability. They are as follows:

o Section (200):
An auditor is liable to help an appointed investigator by the Govt. at the time of investigating
the financial position of a company.

o Section (219):
An auditor will be liable if he violates section (213) and section (215) at the time of preparing
audit report and disclosing any document or evidence of a company. Actually who will sign
that audit report or document or evidence, he will be liable.

o Section (331):
At the time of liquidation of a company if any type of fraud of an auditor is detected on the
basis of liquidator’s report from the formation to liquidation of a company, the auditor will be
convicted.
 o Section (332):
At the time of liquidation of a company if an auditor tries to do any fraud or deprive any
person by disfiguring or altering any documents and evidence, he will be convicted.

o Section (333):
At the time of liquidation of a company by the court, if it is proved that auditor did any guilty
regarding any matters of that company, the auditor will be convicted.

o Section (397):
If an auditor intentionally gives any false statement about any important return, statements,
certificate or documents, he will be convicted.

The rights and powers of the auditors of a company:

 Every auditor of a company shall have a right of access at all times to the books and
accounts and vouchers of the company (213:1).
 Every auditor of a company shall be entitled to require from the officers of the
company such information and explanation as the auditor may think necessary for
the performance of his duties as auditor (213:1).
 The auditor shall, in particular, inquire into particular issues regarding loans and
advances, transactions represented merely as book-entries, sale of securities,
treatment of personal expenses and share allotment. (213:2)
 Every auditor of a company shall be entitled to receive notice and attend the general
meeting (217).
 The auditor shall make a report to be presented in the annual general meeting of the
company on the accounts, examined by him (213:3).
 Where a company has a branch office, the accounts of that office shall, be audited
by the company's auditors at their option, or where the branch office is situated in a
country outside Bangladesh, the accounts of the office shall be audited either by the
company's auditor or by a person duly qualified to act as an auditor of the accounts
of the branch office in accordance with the laws of that country, if so decided by the
shareholders in a general meeting (214).
 Only the person appointed as auditor of the company, or where a firm is so
appointed in pursuance of the proviso to sub-section (1) of section 212, only a
 partner in the firm practicing in Bangladesh shall put his signature on the auditor's
report, or any other document required of the company by law to be signed or
authenticated by the auditor (215).
 Every auditor of a company shall be entitled to receive remuneration. (210:10).

Meaning and contents of audit program

An auditor prepares a plan after the selection of senior and junior staffs allocating the jobs to them,
mentioning when to start, how to do the work etc. This plan is known as audit program. An auditor
should include all the procedures in written form, objectives of each sector and all the directions which
are to be given to the staffs which help to control their works and helps to implement such programs
into action.

Following points/contents should be included in audit program:

* Detail information of works of all the junior staffs like audit of bank/ cash book, purchase book, sales
book etc.

* Auditor should prepare audit program considering the nature of client.

* Separate list of work assigned to assistant should be prepared by the auditor.

* Audit program should fix the time period to complete job assigned to the assistants.

* Assistant should sign after the completion of his/her job.

Advantages of Audit Program
1. Audit program saves time and labor
All the directions which are to be given to assistants are clearly stated in the audit program which helps
to complete the task in time. Audit program also helps to conduct the audit of the business in coming
years which saves time and labor.

2. Audit program increases efficiency

All the responsibilities of auditor are divided among the number of staffs considering their skill and
intelligence which helps to complete the work of audit properly and helps to increase efficiency.

3. Audit program helps to control

An auditor can compare the work performed by the assistants on the basis of audit program which
helps to control their work if there are any deficiency.

4. Audit program helps to maintain uniformity

Works are divided among the assistant staffs; so there is no any chance of leaving non audited
statements. If the work of audit is performed on the basis of audit program every year, uniformity can
be maintained in the work of audit which helps to compare the report of various years.

5. Audit program helps to make responsible

Work of assistant is clearly defined in the audit program and assistant puts signature in the completed
work. So, if any work is left out, assistant can be made liable for such work.

6. Audit program helps to maintain continuity

Audit program clearly shows the completed task and procedures of doing work. So, if any staff leaves
the job or remains absent, new staff can easily continue the job of audit.

7. Audit program helps to present as proof

Auditor can present audit program as proof if he/she has been accused of negligence and can get
clearance from such accusation. Audit program can be presented in the court also.
Disadvantages of Audit Program
Even though audit program has number of advantages, it is not free from limitations. Some of the
major disadvantages of audit program are as follows:

1. Audit program harasses to staffs

All the staffs should perform task within the limitations given in audit program. So, staffs cannot use
their knowledge and caliber which harasses to them.

2. Possibility of being unsuitable

Nature and size of business differs. Different organizations may have their own problems. So, similar
type of program may not be applicable to all. Also, the program which is prepared at the beginning of
the year remains unsuitable.

3. Audit program increases the chance of fraud

Staffs of the client get information about the audit program in advance which increases the chance of
committing frauds. Similarly, it harasses the audit staffs so they perform the work of audit carelessly
which also increases the chance of committing frauds.

4. Audit program is unsuitable to small concern

Small concern has less transactions and work of audit can be completed in short period of time. So,
audit program is not essential to audit such concern.

5. Exclusion of problems of new technology

New techniques and technologies are used in the work of accounting. Such technology creates the
problem in the work of audit but such problems and remedial measures are not included in the audit
program.

Types of Audit program

1. Fixed Audit Program

Generally, auditor prepares audit program on the suggestions and recommendation of assistant staffs
but such program can not be changed during the course of audit which is known as fixed audit
program. Such program, due to pace of time or change in the situation and size of the client needs to
change even though it can not be changed. Fixed audit Program can be used in all the organizations.     

2. Flexible Audit Program

An audit program which can be changed as per the need, time, nature of business and auditing standard
is known as flexible audit program. Such program should be reviewed on the recommendations and
suggestions of assistants. Such change can be made due to change in number of work, nature of
business, change in management and their feelings. It is just taken as helping part and assistants can
use their knowledge, caliber and intelligence.