Skip to main content

Basic Principles Governing an Audit

 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.

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.

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.

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.

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.

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.

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.

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.

9] Audit Conclusions and Reporting

After the auditor collects all evidence he must now form his opinion on the basis of the following criteria,

  1. all relevant accounting standards were applied at all times

  2. financial statements are in compliance with all regulations and statutory requirements

  3. all material information has been disclosed


Other related items:
Labels:

Comments

Post a Comment

Popular posts from this blog

Difference between Vouching , Verification and Valuation

  Difference between Vouching , Verification and Valuation  Vouching Verification Valuation Meaning Vouching is a process of comparing the entries in the books of accounts with the bonafide vouchers Verification is a process which proves the existence, ownership and title to the assets Valuation is a process which certifies the correct value of the assets and liabilities at the date of balance sheet. Subject Matter Vouching is made of the entries recorded in the books of original entry and their posting in the ledger Verification on the other hand is made of assets and liabilities appearing in the balance sheet at the end of the year Valuation is also made of assets and liabilities appearing in the balance sheet at the end of the year By whom Vouching is done by the senior auditor and audit clerks. Verification on the other hand is done by the auditor himself or his associates Verification on the other hand is done by the auditor himself or his associates When Vouching is done after th
Post a Comment
Read more

Banking system of India - Theory

#Reserve Bank of India is the central bank of the country and regulates the banking system of India. The structure of the banking system of India can be broadly divided into scheduled banks, non-scheduled banks and development banks. Banks that are included in the second schedule of the Reserve Bank of India Act, 1934 are considered to be Scheduled banks .  All scheduled banks enjoy the following facilities: Such a bank becomes eligible for debts/loans on bank rate from the RBI Such a bank automatically acquires the membership of a clearing house. All banks which are not included in the second section of the Reserve Bank of India Act, 1934 are Non-scheduled Banks. They are not eligible to borrow from the RBI for normal banking purposes except for emergencies. Scheduled banks are further divided into commercial and cooperative banks. 1.Commercial Banks The institutions that accept deposits from the general public and advance loans with the purpose of earning profits are known as Comme
Post a Comment
Read more

Position of an Auditor with regards to Valuation of the Asset

It is the duty of the auditor not only to verify the physical existence and ownership of the asset but also its valuation as shown in the Balance Sheet. He should not only check the arithmetical accuracy of the assets appearing in the Balance Sheet but should also make inquiries through information and explanation to know the correct state of affairs. The auditor has to be very careful and cautious while examining the valuation of various assets especially the current assets such as inventory, bills receivable, accounts receivable etc. As far as fixed assets are concerned, the same are valued on the basis of their historical costs and less proper amount of depreciation. An auditor may rely on the directors of the company or on the certificates of other professionals in respect of valuation of the assets, provided he uses reasonable care and skill. In matters relating to valuation of assets the auditor must adhere to the generally accepted principles of valuation, commercial practices a
Post a Comment
Read more