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S16 : Auditing Standards. Session Objectives  To define auditing standards  To discuss different auditing standards  To outline the Auditing Standards.

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Presentation on theme: "S16 : Auditing Standards. Session Objectives  To define auditing standards  To discuss different auditing standards  To outline the Auditing Standards."— Presentation transcript:

1 S16 : Auditing Standards

2 Session Objectives  To define auditing standards  To discuss different auditing standards  To outline the Auditing Standards of the CAG of India

3 Auditing Standards  Auditing Standards  aim to improve the auditing 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.

4 Auditing Standards of the CAG of India  2.1 Auditing Standards prescribe the norms of principles and practices, which the Auditors are expected to follow in the conduct of Audit. They provide minimum guidance to the Auditor that helps determine the extent of auditing steps and procedures that should be applied in the audit and constitute the criteria or yardstick against which the quality of audit results are evaluated.

5 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 committee of the Council of IFAC assigned with 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)

6 ICAI Standards  The Institute of Chartered Accountants of India (ICAI) issued a number of Auditing and Assurance Standards (AASs).  Based on the corresponding ISAs issued by IFAC, these AASs take into consideration the applicable laws, customs, usages and business environment in India.  These Standards have a significant effect on the way audit of companies is conducted in India.

7 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)  Though not mandatory, they reflect a “best 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

8 BASIC POSTULATES GENERAL STANDARDS FIELD STANDARDS REPORTING STANDARDS Four Parts of the Auditing Standards of the CAG of India

9 Basic Postulates-I  Compliance to INTOSAI Auditing Standards  Existence of a policy by 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’s 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

10 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.  Management responsibility for correctness and sufficiency of 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.

11 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 responsibility. It is essential that Audit maintain confidentiality regarding audit matters and the information obtained while carrying out audit 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 in respect of audit to be conducted by him or on his behalf.

12 Basic Postulates-IV  Continuous improvement of techniques for auditing the validity of performance measures  to improve and develop new techniques and methodologies to assess whether reasonable and valid performance measures are used by the audited entity.  auditors to acquaint themselves with techniques and methodologies of other relevant 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

13 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.  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

14 Independence  Independence from the 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, and in reporting findings, conclusions and recommendations. General Standards for SAI-I

15 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. Other General Standards for Audit Institutions  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 within the IAAD General Standards for SAI - II

16 General Standards for SAI - III  Standards with ethical significance  Auditor should avoid conflict of interest with 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.  Auditors should not disclose information obtained in the auditing process to third parties, either orally or in writing.

17  Planning to ensure that an audit of high quality is carried out in an economic, efficient and effective way and in a timely 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-I

18  Design of audit steps and procedures to provide reasonable assurance of detecting 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;  Compliance to acceptable accounting standards for financial reporting in regularity (financial) audit; Field Standards-II

19 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;  Review the internal audit of the audited entity and its work program;  Determine the most efficient and effective audit approach;  Provide for a review; and  Provide for appropriate documentation of the audit plan and for the proposed fieldwork.

20 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;  Audit objectives are achieved; and  Audit report includes audit conclusions, recommendations and opinions, as appropriate.

21 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 to ensure that delegated work has been satisfactorily performed; and  Provide evidence of work done for future reference.

22 Reporting Standards-I  Audit Reports must satisfy the basic criteria for reporting:  Completeness  Accuracy  Being convincing, concise and constructive  Clarity  Timeliness

23 Reporting Standards - II  Audit to report on  compliance with laws and regulations and on internal control  Fraud, illegal acts and other noncompliance.  Audit follow-up standard requires auditors to report whether satisfactory action was taken or not, on the audit reports

24 Reporting Standards: Internal Control Report on Deficiencies in Internal Control to point out  Absence of appropriate segregation of duties;  Absence of appropriate reviews and approvals of transactions, 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 perform tasks that are part of internal control;  Absence of a sufficient level of control consciousness within the Organisation;  Failure to rectify deficiencies in internal control identified earlier.

25 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


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