Cotabato State University

Graduate School

Basic Principles of Auditing

As a

Major Requirement of the Fiscal Management in Education

For

Master’s Degree Program Master of Arts in Education Major in

Administration and Supervision

By:

Mohaimah D. Samporna

Princess Julie Ann R. Bayogos

 Basic Principles Governing an Audit

Auditing is a systematic and scientific procedure of inspection of the

financial statements of an organization. And like any scientific procedures,
the audit also has certain principles and rules that govern it. These
principles are the Standards of Auditing or the Auditing and Assurance
Standards (AAS).

SA- 200 describes the nine basic principles that govern the procedure of
auditing. It lists out the roles and responsibilities of the auditor and his
general code of conduct during an audit.

1] Integrity, Independence and Objectivity

The auditor has to be honest while auditing, he cannot be favoring the

organization. He must remain objective throughout the whole process; his
integrity must not allow any malpractice.

Another important principle is independence. So the auditor cannot have

any interest in the organization he is auditing, which allows him to be
independent and impartial at all times.

An auditor should be honest, sincere, impartial and free from

bias. He should be a man of high integrity and objectivity

2] Confidentiality

The auditor has access to a lot of sensitive financial information of the

organization. It is important that he respect the confidential nature of such
information and documents.

He cannot disclose any sensitive information to any third party unless it is a

requirement by law. And he must also be very careful with documents,
certificates etc. that the organization entrusts to him.

The auditor should respect confidentiality of information acquired during

the course of his work and should not disclose the information without the
prior permission of the client, unless there is a legal duty to disclose.
3] Skill & Competence

The auditor must be experienced and trained in the procedures of

auditing, i.e. must be qualified as an auditor. And as a professional, he
must be up to date on recent changes, announcements, rules etc.

If necessary he can undergo training and workshops to stay up to date with

the recent auditing and accounting procedures. For example, after GST was
introduced, auditors had to update their knowledge.

The auditor must acquire adequate training and experience. He should be

competent, skillful and keep himself abreast of the latest developments
including pronouncements of ICAI on accounting and auditing matters.

4] Work Performed by Others

The scope of audit at times can be very vast. So an auditor has

employees, delegates and other people who work under him.

However, the auditor will continue to be fully responsible for the work done
by these people working for him. So the auditor must carefully supervise
and review such work and be reasonably sure of the accuracy of such work.

If the auditor delegates some work to others and uses work performed by
others including that of an expert, he continues to be responsible for
forming and expressing his opinion on the financial information.

5] Documentation

In most cases the auditor maintains an audit notebook, an audit plan

and auditing file. It is important the auditor keeps a record of important
documents with respect to his audit work, as it is evidence of the work the
auditor has done. And the client is inclined to these documents and files if
he wishes to inspect the work.

The auditor should document matters which are important in providing

evidence to ensure that the audit was carried out in accordance with the
basic principles.
6] Planning

An audit plan allows the auditor to plan out his work and enables him
to be more efficient and timely. Every audit plan is different as it has to be
customized according to the type of organization, the kind of business they
conduct, the scope of the audit, the efficiency of the internal controls etc.
The auditor also handles the following: Accounting system and policies,
internal control system of organization, and determination of audit
procedures and coordinating audit work.

The auditor should plan his work to enable him to conduct the audit in an
effective, efficient and timely manner. He should acquire knowledge of
client’s accounting system, the extent of reliance that could be placed on
internal control and coordinate the work to be performed.

7] Audit Evidence

The auditor must collect enough evidence to support his final opinion.
This collection of such evidence is done by compliance and substantive
procedures. There are two sources of this evidence – internal and external.
Also, external sources of evidence are always more reliable.

The auditor should obtain sufficient appropriate evidences through the

performance of compliance and other substantive procedures to enable him
to draw reasonable conclusions to form an opinion on the financial
information.

8] Accounting Systems and Internal Controls

The auditor has to assure that the accounts of the organization are
accurate and represent a true and fair picture of the financial status of the
company. Also, the auditor must ensure that all material information has
been recorded in the accounts. Testing the internal controls system is also
important as it helps determine the same.

The management is responsible for maintaining an adequate accounting

system incorporating various internal controls appropriate to the size and
nature of business. He auditor should assure himself that the accounting
system is adequate and all the information which should be recorded has
been recorded. Internal control system contributes to such assurance.

9] Audit Conclusions and Reporting

After the auditor collects all evidence he must now form his opinion on
the basis of the following criteria: All relevant accounting standards were
applied at all times, Financial statements are in compliance with all
regulations and statutory requirements, and All material information has
been disclosed.

On the basis of the audit evidence, he should review and assess the audit
conclusions. He should ascertain:

 As whether accounting policies have been consistently applied;

 Whether financial information complies with regulations and statutory

requirements; and

 There is adequate disclosure of material matters relevant to the

presentation of financial information subject to statutory
requirements.

The auditor’s report should contain a clear written opinion on the financial
information. A clean audit report

indicates the auditor’s satisfaction in all respects and when a qualified,

adverse or a disclaimer of opinion is to

be given or reservation of opinion on any matter is to be made, the audit

report should state the reasons thereof.
References:

 (Ved)
 (top)

 https://www.taxdose.com/basic-principles-governing-an-audit/