December 23, 2012

Mr. Mahbubur Rahman Professor, Department of Business Administration, East West University, Dhaka-1219 Subject: Honesty, Integrity and Dedicated Professionalism Can Elevate the Position of an Auditor to be
the Best Economic Guard of an Establishment.

Dear Sir: It gives us a pleasure to submit the project on Honesty, Integrity and Dedicated Professionalism Can Elevate the Position of an Auditor to be the Best Economic Guard of an Establishment as you authorized us to prepare by August 08,2012. It was a fantastic opportunity for us to prepare the report under your guidance, which really was a great experience for us. The data used for preparing the project includes information available from Different book, Institution as well as internet website. We have worked hard and tried our best to prepare the project. We believe that it is encouragement for us to get involved with this process of reporting and a way to enrich our practical knowledge. We will be very much pleased to provide further clarification on this project whenever it is necessary.

Sincerely yours, Sushanta Kumar Roy Mohammad Shaniaz Islam Md. Shakib Chowdhury Afia Ferdous Mousumi (2009-1-10-093) (2009-1-10-102) (2009-2-10-181) (2009-2-10-135) . . ............ . Page 1 of 28

Executive Summary

This Project is prepared as a mandatory requirement for our course requirement for concept of Auditing (ACT427) at East West University. The project is named Honesty, Integrity and Dedicated Professionalism Can Elevate the Position of an Auditor to be the Best Economic Guard of an Establishment In, Auditing is very important and vastly discussed subject. Audits are assessments of the financial ability of a company. Companies prepare financial statements of their activities, which signify their overall performance An Auditors to the economic and ethical leadership the bounding standard or in other conditions provides an auditor in such a way that recognizes him as an effective body. A successful auditor, his conscience is the biggest assets for his profession. The crucial problem is the human heart and its insatiable greed. If the rules and regulations of the supervising institutions could effectively deal with this issue, then society could celebrate the end of accounting scandals, as well as other callous behaviors presently prevailing in all segments of an economy. We have analysis how Honesty, Integrity and Dedicated Professionalism Can Elevate the Position of an Auditor to be the Best Economic Guard of an Establishment.

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Table of Content
Contents Page Numbers

Introduction History of Auditing Definition of Auditing Purpose of Auditing Diagram of Steps in the Audit Cycle Objective of Auditing Advantages of Proper Auditing Who is an Auditor Responsibilities of Auditor Auditor is the most reliable economic guard of an Establishment Honesty, Integrity and Dedicated Professionalism and other Characteristics of an Auditor Example of Audit Failure Conclusion References

4 5-6 7-8 9 10

11-15 16 17-18 19-20 21 22-24

25-27 27 28

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Introduction
In modern present business world, Auditing is an internationally determined and globally talked of issue. Usually, it is a counter check to accounting details so that any error, mistake or frauds can be easily recognized through the technique of auditing. Hence, it is the main resource of advice on efficiency, efficiency and overall economy of an establishment. Auditing starts its journey where accounting end. In modern present society the exercise of an auditors to the economic and ethical leadership the bounding standard or in other conditions provides an auditor in such a way that recognizes him as an effective body. With the enhancing aware recognition of the value of financial data in the ordering of everyday business and economic life, the need of primary economic details is providing a consistently enhancing chance of the accounting profession. The auditors reports have an exclusive prospective to satisfy up with the need for effective and reliable financial material not only because of the reputation or prestige of the certified statements, but also because of the importance generally attached by the business man to the functions of the auditor and his reports. These functions, and the chance of these reports, have in the past been definitely relevant to the character of and changes in business activity. Audits and reviews are methods performed on the financial statements of a company, for the purpose of determining whether the financial statements consist of any material misstatements. Misstatements are generally incorrect figures due to numerical errors, frauds, or errors in interpreting the accounting recommendations. Misstatements are material if they are large enough to make a difference to a user of the financial statements, such as a financial institution or investor. And the person who involved in auditing is known as auditor. It also provides the techniques necessary to evaluate the internal control system of a company and perform operational or compliance audits by internal or external auditors. The beginning concepts of the functions of the auditor were such as to confine him to the duties a mere checker and verifier of debits and credits. As business became more complex in its interrelationships there has been a compensating broadening demand for the acceptance of new and formerly V responsibilities by the auditor.

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History of Auditing
The origin of auditing goes back to the early times of accounting. Whenever the advancement of civilization brought about the necessity of one man being entrusted to some extent with the property of another, some kind of check upon the fidelity of the former was in place. The ancient Egyptians imposed such a check by arranging that the fiscal receipts should be recorded separately by two officials. In later times, ancient Greeks instituted a system of checking public accounts by means of checking-clerks, every public official having his accounts scrutinized at the expiry of his term of office. Ancient Romans too, as early as the time of the Republic, recognized the salutary distinction between the official who authorizes or orders revenue and expenditure and the official who has the duty of handling cash; and they developed an elaborate system of checks and counter-checks among the various financial officials. In Italy in the middle Ages, the transactions of a cashier appear to have been checked by means of a separate record of them kept by a notary. Auditing existed primarily as a method to maintain governmental accountancy, and record-keeping was its mainstay. It wasnt until the advent of the Industrial Revolution, from 1750 to 1850, that auditing began its evolution into a field of fraud detection and financial accountability. Businesses expanded during this period, resulting in increased job positions between owners to customers. Management was hired to operate businesses in the owners absences, and owners found an increasing need to monitor their financial activities, both for accuracy and for fraud prevention. In the early 20th century, the reporting practice of auditors, which involved submitting reports of their duties and findings, was standardized as the Independent Auditors Report. The increase in demand for auditors leads to the development of the testing process. Auditors developed a way to strategically select key cases as representative of the companys overall performance. This was an affordable alternative to examining every case in detail, and it required less time than the standard audit. During the 18th century industrial revolution brought in large scale production, steam power, improved facilities and better means of communication. This resulted in the origin of Joint stock form of organizations. Shareholders contribute capital of these
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companies but do not have control over the day to day working of the organization. The shareholders who have invested their money would naturally be interested in knowing the financial position of the company. This originated the need of an independent person who would check the accounts and report the shareholders on the accuracy of the accounts and the safety of their investment. The Indian Companies Act, 1913 defined the qualification, power, duties and procedure of appointment of the Auditor. The audit of Joint Stock Company made compulsory by this Act. Educational qualification certificate were issued by the central and state governments to those who undergone the prescribed course. In the year 1949, Chartered Accountants Act was passed. Company act 1956 further elaborated the provisions related to the auditing and accounts of the companies. Now a person to do the auditing must be qualified as per the standards of the Institute of Chartered Accountants of Bangladesh. Moreover, from the time of ancient Egyptians, Greeks and Romans, the practice of auditing the accounts of public institutions existed. Checking clerks were appointed in those days to check the public accounts. To locate frauds as well as to find out whether the receipts and payments are properly recorded by the person responsible was the main objective of Auditing of those days.

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Definition of Auditing
Auditing is a division of financial management concerned with assessing the internal financial status of a business. Audits are assessments of the financial ability of a company. Companies prepare financial statements of their activities, which signify their overall performance. These financial statements are analyzed by auditors, who assess them according to the industrys generally accepted standards. They are analyzed for accuracy and fairness in their reporting. Companies are expected to complete their audits, as the results are very important to the business's popularity and success. Audits are very valuable to external company affiliates, such as shareholders and investors, because they provide an extra reassurance of their choice in investment strategies when issues occur. Audits are conducted to manage and confirm the correctness of a companys accounting procedures. It evolved as a business necessity once it became evident that a standardized form of accountancy must exist to avoid fraud. It has designed into a standardized yet complicated area that is considered as an important procedure in the management of business finance. The word Audit is originated from the Latin word audire which means to hear. In the earlier days, whenever there is suspected fraud in a business organization, the owner of the business would appoint a person to check the accounts and hear the explanations given by the person responsible for keeping the accounting funds. In those days, the audit is done to find out whether the payments and receipt are properly accounted or not. Moreover, Auditing is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users. In fact, audit is an examination and verification of a companys financial and accounting records and

supporting documents by a professional, such as a Certified Accountant. Again, an audit is an IRS examination of an individual or corporations tax return, to verify its accuracy.
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There are three types of audits: correspondence audits (the IRS mails a request for additional information), office audits (an interview is conducted at a local IRS office), and field audits (an interview is conducted at a taxpayers place of business, for a corporate tax return). Since there is always the chance of an audit, experts recommend keeping good records to support all the information in a return. The reason detailed and accurate bookkeeping is so important is that the burden of proof is on the filer, not the IRS. As Audit is an international subject, thus a precise definition of the term Auditing is difficult to give. For this reason we have tried to mention some of the definitions given by some scholars. These are: According to Montgomery, a well known author, auditing is a systematic examination of the books and records of a business or the organization in order to ascertain or verify and to report upon the facts regarding the financial operation and the result thereof. Spicer and Pegler expanded the above definition as follows: An audit may be said to be such an examination of the books, accounts and vouchers of a business as well enable the auditor to satisfy that the Balance Sheet is properly drawn up, so as to give a true and fair view of the state of affairs of the business and whether the Profit or Loss for the financial period according to the best of his information and the explanations given to him and as shown by the books, and if not, in what respect he is not satisfied. R. K. Mautz defines auditing as being concerned with the verification of accounting data, with determining the accuracy and reliability accounting statement and reports.
It is clear from the above definitions that auditing is the systematic and scientific examination of the books of a accounts and records of a business so as to enable the auditor to satisfy himself that the Balance Sheet and the Profit and Loss Account are properly drawn up so as to exhibit a true and fair view of the financial state of affairs of the business and profit or loss for the financial period. According to Lawrence R. Dicksee, an audit is an examination of accounting records undertaken with a view to establishing whether they correctly and completely reflect the transactions to which they relate. In some instances, it may be necessary to ascertain whether the transactions themselves are supported by authority. Page 8 of 28

Purpose of Auditing
The main purpose of an audit function is to provide verification of records, procedures or functions in a sufficiently independent manner from the institution or subject being audited in order to add its value and improve its operations. Now, lets have a look over some specific purpose of auditing, that we have discovered through our research on a team. These purposes are mentioned below with proper explanation: Detection of any error, mistake or fraud in the books of accounts and other relevant records of a business audited. Identification of information that is essential to develop an overall picture of the institution/local authority. Identification of any weaknesses or administrative flaws which otherwise would not be identified due to the unwillingness or inability by the insiders of the institutions or organization. Identification of strengths and weaknesses of the administrative structures in order to inform prescribed decisions on overall strengthening of the institution to the authority. Providing baselines on which reforms can be assessed. Performing an independent assessment of an action, function, or system, in order to determine the effectiveness of that action, function, or systems ability to control risk.

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Figure: Steps in the audit cycle

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Objectives of Auditing
As there are several objectives of auditing, thus to have better understand we will divide its objectives into two wide classification. These categories are: Primary Objectives and Secondary Objectives. Primary Objectives: To figure out and judge the reliability of the financial statement and the supporting accounting records of a particular financial period is the main purpose of the audit. As per the Indian Companies Act, 1956 it is mandatory for the organizations to appoint a auditor who, after the examination and verification of the books of account, disclose his opinion that whether the audited books of accounts, Profit and Loss Account and Balance Sheet are showing the true and fair view of the state of affairs of the company's business. To get a true and fair view of the companys affairs and express his opinion, he has to thoroughly check all the transactions and relevant documents of the company made during the audited period. Which will help the auditor to report the financial condition and working result of the organization. While carrying out the process of audit, the auditor may come across certain errors and frauds. But detection of fraud or errors is not the primary objective of the audit. They are come under the secondary objectives of audit. Audit also disclose whether the Accounting system adopted in the organization is adequate and appropriate in recording the various transactions as well as the setbacks of the system. Secondary Objectives: In order to report the financial circumstances of the business, auditor has to assess the books of accounts and the relevant documents. In that process he may come across some errors and frauds. We may classify these errors and frauds as below: 1. Detection and prevention of Errors 2. Detection and prevention of Frauds. Detection and prevention of Errors: Following types of errors can be detected in the process of auditing. Clerical Errors
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Errors of Principle

Clerical Errors: Due to wrong posting such errors may occur. Money received from Microsoft credited to the Semens's account is an example of clerical error. Even though the account was posted wrongly, the trial balance will agree. We can classify clerical errors as below: i. ii. iii. Errors of Commission Errors of Omission Compensating Errors.

Clerical Errors: Due to wrong posting such errors may occur. Money received from Microsoft credited to the Semens's account is an example of clerical error. Even though the account was posted wrongly, the trial balance will agree. We can classify clerical errors as below: i. ii. iii. Errors of Commission Errors of Omission Compensating Errors.

Errors of Commission: These errors are errors caused due to wrong posting either wholly or partially of in the books of original entry or ledger accounts or wrong totaling, wrong calculations, wrong balancing and wrong casting of subsidiary books. For example Rs. 5000 is paid to Microsoft for the supply of windows program and the same is recorded in the cash book. While posting the ledger the Microsoft's account is debited by Rs. 500. It may be due to the carelessness of the accountant. Most of these errors of commission are reflected in the trial balance and can be identified by routine checking of the books. Errors of Omission: When there is no record of transactions in the books of original entry or omission of posting in the ledger could lead to such errors. Sales not recorded in the sales book or omissions to enter invoices in the purchase book are examples of Errors of Omission. Errors due to entire omission will not affect the trial balance. Errors due to partial omission will affect the trial balance and can be detected.

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Compensating Errors are errors committed in such a way that the net result of these errors on the debit side and credit side would be nullifying the net effect of the error. For example, Ram's account which was to be debited for Rs. 5000 was credited for Rs. 5000 and similarly, Sita's Account which was to be credited for Rs. 5000 was debited for Rs. 5000. These two mistakes will nullify the effect of each other. Unless detailed investigation is undertaken such errors are difficult to locate as both the sides of the trial balance are equally affected. Errors of Principle: While recording a transaction, the fundamental principles of accounting is not properly observed, these types of errors could occur. Over valuation of closing stock or incorrect allocation of expenditure or receipt between capital and revenue are some of the examples of such errors. Such errors will not affect the trial balance but will affect the Profit and Loss account. It may occur due to lack of knowledge of sound principles of accounting or can be committed deliberately to falsify the accounts. To detect such errors, the auditor has to do a careful examination of the books of account. Detection and Prevention of frauds: To get money illegally from the organization or from the proprietor frauds are committed intentionally and deliberately. If it remains undetected, it could affect the opinion of the auditor on the financial condition and the working results of the organization. Therefore, it is necessary for the auditor to exercise utmost care to detect such frauds. It can be committed by the top management or by the employees of the organization. Frauds could be of the following types:

1. Misappropriation of cash 2. Misappropriation of goods 3. Falsification or Manipulation of accounts 4. Window dressing 5. Secret Reserves Misappropriation of Cash: Since the owner has very limited control over the receipt and payments of cash, misappropriation or defalcation of cash is very common

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especially in big business organizations. Cash can be misappropriated by various ways as mentioned below: a. Recording fictitious payments b. Recording more amount than the actual amount of payment c. Suppressing receipts d. Recording fewer amounts than the actual amount of payment. There should be strict control over receipts and payments of cash known as "Internal check system" to prevent such frauds. The auditor should check the Cash Book with original records, bills register, invoices, vouchers, counterfoils or receipt books, wage sheets, salesman's diary, bank statements etc. in order to discover such frauds. Misappropriation of goods: Companies handling with high value goods are pray to this kind of misappropriation. Without proper records of stock inward and stock outward, it is difficult for the auditor to find out such fraud. Periodical and surprise checking of stock and maintaining the proper record of inward and outward movement of stock can reduce the possibility of such fraud. Falsification or manipulation of accounts: In order to achieve certain specific objectives, accounts may be manipulated by those responsible persons who are in the top management of the organization. They prepare accounts such a manner that they disclosed only a fake picture not the true picture. Some of the ways used in manipulating the accounts are as follows: 1. Inflating or deflating expenses and incomes 2. Writing off of excess or less bad debts. 3. Over-valuation or under-valuation of closing stock. 4. Charging excess or less depreciation 5. Charging capital expenditures to revenue and vice-versa 6. Providing for excess or less doubtful debts. 7. Suppressing sales and purchase or showing fictitious sales and purchases etc.

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Window dressing: is the way of presenting the financial data in a much better position than the original position. It is known as window dressing. Some of the reasons for doing window dressing are as follows: 1. To win the confidence of share holders 2. To obtain further credit 3. To raise the price of shares in the market by paying higher dividend so that shares held may be sold 4. To attract prospective partners or shareholders. 5. To win the confidence of shareholders. Secret Reserves: In secret reserves, accounts are prepared in such a way that they disclose worse picture than actually what they are. The objectives of preparing accounts in this way are: 1. To conceal the true position from the competitors. 2. To avoid or reduce the tax liability 3. To reduce the price of shares in the market by not paying dividend or paying lower dividend so that the shares may be bought at a much lower price. It is very difficult to detect such frauds since these frauds are committed by those persons in the organizations who are at the top positions like directors, managers, financial controllers etc. To detect these kinds of frauds, the auditor must be vigilant and should make searching inquiries to arrive at the true position.

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Advantages of Proper Auditing

It is compulsory for all the organizations registered under the companies act must be audited. There are advantages in auditing the accounts even when there is no legal obligation for doing so. Some of the advantages are listed below: 1. Audited accounts are readily accepted in Government authorities like income Tax Dept., Sales Tax dept., Land Revenue departments, banks etc. 2. By auditing the accounts Errors and frauds can be detected and rectified in time. 3. Audited accounts carry greater authority than the accounts which have not been audited. 4. For obtaining loan from financial institutions like Banks, LIC, HUDCO, HDFC, IFCI etc., previous years audited accounts evaluated for determining the capability of returning the loan. 5. Regular audit of account create fear among the employees in the accounts department and exercise a great moral influence on clients staff thereby restraining them from commit frauds and errors. 6. Audited accounts facilitate settlement of claims on the retirement/death of a partner. 7. In the event of loss of property by fire or on happening of the event insured against, Audited accounts help in the early settlement of claims from the insurance company. 8. In case of joint Stock Company where ownership is separated from

management, audit of accounts ensure the shareholders that accounts have been properly maintained, funds are utilized for the right purpose and the management have not taken any undue advantage of their position.

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Who is an Auditor?
An official whose job it is to carefully check the accuracy of business records. An auditor can be either an independent auditor unaffiliated with the company being audited or a captive auditor, and some are elected public officials. The term is sometimes synonymous with "comptroller." Auditors are used to ensure that organizations are maintaining accurate and honest financial records and statements. In addition to that, an individual qualified (at the state level) to conduct audits. An auditor may be an internal auditor (an individual whose primary job function is to audit his or her own company) or an external auditor (an individual from outside the company, who typically is employed by an auditing firm who handles many different clients). An auditor is an individual qualified at the state level to perform financial and accounting audits. An auditor examines, corrects and verifies the accuracy of financial accounts related to businesses, non-profit organizations and government agencies. The auditor is expected to perform an unbiased evaluation. An auditor can be an internal employee or an external consultant. There is also the IRS auditor, who conducts an inspection of a taxpayer's return or other related transactions to verify accuracy. An IRS auditor conducts three major types of audits: correspondence, office and field. Because there is always the chance of an auditor showing up at the door, it is recommended that good records are kept to support all data contained within a return. An auditor may also perform array of additional services such as budget analysis, financial and investment planning, some legal services and technology consulting. Often an auditor is required to have at least a bachelor's degree in accounting, business administration or another related field. In many cases, Auditors can work for many different entities, such as the IRS or a state government. Auditors are also found in the private sector at accounting firms. There are both internal and external auditors; internal auditors are usually employees or

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contractors with the company they are auditing, while external auditors generally work either directly for or in conjunction with governmental agencies. The work of an auditor is to check the financial accounts or the procedures and policies of an organization for efficiency and accuracy. There are two types of auditors: external and internal. An external auditor examines finances and is usually a qualified accountant, while an internal auditor commonly focuses on efficiency and policy. As an external auditor, his or her work involves the examination of company accounts, collection and interpretation of figures, identification of risks and problems of the business, assessment of the financial reporting systems of the company, establishment of good working relationships with clients, and making of recommendations for improvements.

Auditor

Internal Auditor

External or independent Auditor

Figure: Types of Auditor

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Responsibilities of Auditor
Approved auditors, through the annual audit, perform a critical role in maintaining the honesty and integrity of the audit system which is the fastest growing segment of the business industry. In this role, approved auditors identify and report relevant matters associated with a report and accordingly provide a strong positive influence on trustees. It is recognized that many auditors adopt best practice and also provide guidance to their clients on how to get things right. As a professional auditors are required to follow a range of codes of practice, standards and requirements. Auditors work closely with the professional accounting bodies in relation to the requirements and in providing guidance for approved auditors. Together auditors are committed to maintaining and improving the performance of approved auditors. In addition to helping and supporting approved auditors, Companies identify those auditors who fail to 'adequately and properly' perform their duties and work with the professional associations to improve their performance. Although all those who perform quality audits may not be members of ICAB, there are still underlying principles which apply to the ethics of audits. In performing an audit, the auditor should always strive to be objective in judgment and pronouncements. Only the facts should enter into the assessment of whether conformance exists between criteria and established programs. The auditor should express an opinion on a subject only when it is based on adequate knowledge and honest conviction. In all cases, the facts should speak for themselves. Opinions, when given, should be solidly grounded in objective evidence. The leader of an audit team serves as a supervisor and should always be willing to recognize good work and offer constructive criticism for improvement in performance. The lead auditor must demonstrate through actions how the audit team should act. A leader must demonstrate leadership and set good examples. The team leader should require the team to comply fully with the rules, regulations and customs of the organization under audit. This entails compliance with the working hours, dress, lunch hours and other requirements. Team members should attempt to blend into the environment in which they are auditing. Any action which makes the team stand out will reduce its effectiveness in dealing with the audited organization.
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In dealing with any problem between the team and the audited organization, the team leader must demonstrate fairness to both parties. The leader must deal with objectivity in obtaining the facts and settle any personality conflicts. If there is significant doubt remaining as to verification of the facts or the correctness of the finding, and additional evaluation fails to eliminate the doubt, the item should be dropped or offered in terms which acknowledge the degree of uncertainty at the post-audit (exit) conference. This type of action demonstrates the objectivity and fairness of the audit. Should personality conflicts occur between members of the audit team, the team leader has the responsibility to step in immediately and resolve the conflict? The resolution should take place in private and be resolved to the benefit of the entire audit team and organization being audited. It should be the clearly defined policy of any audit team that there are no surprises involved with the audit at any time. Ethical audits require full disclosure of any finding (or observation) with responsible members of the audited organization to test its validity prior to formal exposure at the post-audit (exit) conference or formal audit report. The team leader must assure that he (or she) and the team members maintain their integrity. They should not accept gifts or entertainment of a nature or degree that might possibly prejudice the audit or affect the relationship between the two organizations (auditee and audit team). If members of the audited organization offer to take the audit team to lunch, it is the team leader responsibility to clarify the rules by which the lunch is accepted, such as limiting the time away from the audited facility. During the conduct of the audit, auditors often have access to proprietary information of the audited organization. Auditors have a moral obligation not to divulge this information to anyone. Divulging proprietary information is a violation of this moral obligation and is not in the best business or professional interest of either organization (auditee or audit team). The disclosure betrays a trust and, in so doing, gains a reputation that is not conducive to building better business relations for his/her company or for himself (or herself).

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Auditor is the most reliable economic guard of an Establishment

In todays world; auditing has become an incorporated segment of the association. All association wants auditing not only for avoidance and recognition of fake but in addition for organizational effectiveness. Auditing plays an essential part to appropriately finish the accounting records and timely preparation of the consistent financial information. Internal audit moreover helps organization to defend the the arranged and effectively accomplish of the business property and maintaining

including adherences to the management policies. The manner of auditing is becoming easier day by day because of using computer aided audit. The computer aided audit tools and technique software is simplifying and automating the audit process. The auditor is now able to find any kind of fraud or material misstatement through the use of CAATTs software. Government audit also helps the government to find whether the resources are use effectively and efficiently. They evaluate the data and directly report to the Comptroller and Audit general of Bangladesh. Also to guard the shareholder, creditor and supplier from any kind of fraud, every corporation must verify their financial report by an external auditor. The external auditor must be an independent man also has to be a member of the ICAB in Bangladesh. In modern business advancement audit is one of the core factor to be considered. Because auditing provides support to the whole organization in such a way that it serves both the external and internal users. For internal users it provides information to manager to make judgment and for external user it provides guarantee that the financial report is all right and out of any kind of material misstatement. An auditor is the most reliable economic guard against fraud. Auditors tasks are performed to ascertain the validity and reliability of information; also to provide an assessment of a systems internal control. The goal of an auditor is to express an opinion on the person or organization or system in question, under evaluation based on work done on a test basis. Due to practical constraints, an audit seeks to provide only reasonable assurance that the statements are free from material error. Hence, statistical sampling is often adopted in audits. In the case of financial audits, a set of financial statements are said to be true and fair when they are free of material misstatements- a concept influenced by both quantitative and qualitative factors.
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Honesty, Integrity and Dedicated Professionalism and other Characteristics of an Auditor

There are many features which an auditor should have. Following are the essential features of an auditor. Honesty: An internal auditor must not embellish, or leave out, any information in the final report. An auditor could have an inclination to leave out information from testimonials which reveal that a certain employee, or department, is ineffective, which could lead to a dismissal or termination. Yet, the point of the auditor's report is to advise on how to become more effective, and this might require termination. Integrity: The word integrity implies complete honesty together with strength of mind. Integrity and keeping its flag flying up should be kept by an auditor as a guiding inflexible rule. He must be tactful and scrupulously honest. He must possess qualities of withstanding and resisting the influence in the course of discharge of his duties. Dedicated Professionalism: The dedicated professionalism refers to

application all the techniques learnt from education, professional degree, training etc. in related business. Every employs of an entity must apply their knowledge and experience at their works so that the tasks they do are properly done. Every employee should undertake works which he or she can expect to compete with professional competence and with reasonable time. Again, employees should conduct himself and refrain from any conduct which might bring discredit to the profession. If this is ensured then productivity of the entity will increase and fraudulent activity will reduce. Because, if employees use the professional techniques at their work, every transition will be properly recorded and transferred to proper books of account. As a result there reduces the potential to misplace a record, misstate a transition and theft. This dedicated professionalism is also important for the auditor who provides a reliable report
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on the validity of an entitys financial statements. Because, without applying professional techniques frauds and errors cannot be determined. Qualification: For a professional auditor it is necessary that he should be a charted accountant. In Bangladesh, he needs to have membership of Institute of Chartered Accountants of Bangladesh, ICAB. Know of Taxation Law: It is also a professional quality of an auditor. He must own a sound working knowledge of taxation laws of the country. This is helpful in checking the correct return of income etc. Knowledge of Business/Mercantile Law: He should be quite familiar with the company and mercantile laws. It is the professional quality of an auditor to be aware of mercantile law and he should have a complete knowledge of Contract Act, Sales of Good Act, Agency, Negotiable instruments Act, Partnership Act etc should have a thorough training in business organization, management and finance. He should have an understanding of the general principles of economics and business statistics. Maintain Secrecy: It is another basis personal quality of an auditor. In the business world there is a keen competition and if the auditor does not care of the secrecy of the business, then the client of the auditor has to face a lot of difficulties. So, the auditor must maintain the entire secrecy among the clients. He should never compromise his principles without being rigid in his attitude. Up-to-Date Knowledge: An auditors knowledge of auditing must be up to date. He must know the techniques of auditing. He must have the knowledge of other subjects relating to auditing. Bold and Courageous: Auditor should be bold and courageous person so that none can influence him. He should possess the courage to face the difference of opinion between him and client on any issue.

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Budget preparation: The auditor has a quality of preparing the budget according to the facts and figures of previous year, the estimates are established for the next year. The auditor can check that these budgets are prepared according to their facts with correct data.

Independence: Independence is the personal quality of an auditor. This quality is desirable for independent opinion on business activities. He cannot be influenced directly or indirectly by other people. An auditor must be independent at time of programming investigation and reporting. He cannot change his program due to management interference.

Vigilance: This is also the quality of an auditor. By this quality the auditor can discover the errors and frauds. The auditor can also watch and check that if according staff has made any fraud or error. Because he has to be alert so that he cannot avoid errors and frauds in order to exhibit a good performance in audit work.

Judgment: An auditor must have the qualities of judgment. Judgment is involved in selecting depreciation, provision for bad debts, inventory valuation. The auditor can apply professional knowledge, experience and ethics to make decisions in relevant areas.

Prudence: Prudence is the personal quality of an auditor. He can be asked to give advice on financial matters. He can be allowed to suggest improvement in accounting methods and techniques. There is a need to use prudence for guiding the businessman when he is asked to do so.

Foresightedness: Auditor has not to work for a day or two in auditing profession, so he should work by keeping eyes on future as well. Audit plan mad by an auditor for one industry is helpful in future while conducting the audit of similar industries.

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Goodwill Maker: Auditor helps to make the status of a company where he conducted audit. On the basis of audited accounts that company can easily take loans, can deal insurance agents/supplies, creditors etc.

Example of Audit Failure

To do the job of auditing an auditor must possess all the above mentioned characteristics along with the honesty, integrity and dedication to professionalism. But in some cases if they fail to maintain all the requirements they should have, then there can be disastrous situation for the audited as well the auditor. On the other hand, only because of maintaining all the rules and regulations given by the audit standards, an auditor can be one best audit firm around the world. In the following section, we will discuss the consequences of audit failure as an example of ENRON. Consequence of audit failure can be devastating. It can not only bankrupt the company but also harm the entire economic system. The best example of audit failure is Enron. The Enron scandal was a corporate scandal involving the American energy Enron Corporation and the auditing firm Arthur Andersen that was revealed in October 2001.the scandal eventually led to the bankrupt of Enron, at that point, the largest in American history. Arthur Anderson, which at the time was one of the five largest accounting firms in the world, was dissolved. Enron was formed in 1985 by Kenneth lay. Several years later, when Jeffrey skilling was hired, he instituted mark-to-market accounting and developed a staff of executives that would later bring the downfall of the company. Along with chief financial officer Andrew fastow and other executives, the company used accounting loopholes, special purpose entities, and poor financial reporting to hide billions in debt from failed deals and projects. Enrons audit committee failed to follow up on high-risk accounting issues and Anderson was pressured by the company to ignore accounting practices.

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Enrons auditor, Arthur Andersen, was accused of applying reckless standards in their audits because of a conflict of interest over the significant consulting fees generated by Enron. In 2000, Arthur Andersen earned $25 million in audit fees and $27 million in consulting fees (this amount accounted for roughly 27% of the audit fees of public clients for Arthur Andersens Houston office). The auditors methods were questioned as either being completed for conflicted incentives or a lack of expertise to adequately evaluate the financial complexities Enron employed. Andersens auditors were pressured by Enrons management to defer recognizing the charges from the credit risks as the special purpose entities became clear. To pressure Andersen into meeting Enrons expectations, Enron would occasionally allow accounting firms Ernst & young or price water house coopers to complete accounting tasks to create the illusion of hiring a new firm to replace Anderson. In the aftermath of the scandal, many executives at Enron were indicated for a variety of charges and were later sentenced to prison. Andersen was found guilty in a state court, but by the time the ruling was overturned at the U.S. Supreme Court, the company had lost the majority of its customers and had shut down. Employees and shareholders received limited returns in lawsuits, despite losing billions in pensions and stock prices. In 2002, the Sarbanes-Oxley act was passed as a result of the first admissions of fraudulent behavior made by Enron. The act expanded criminal penalties for destroying, altering, or fabricating records in federal investigations or for any attempt to defraud shareholder. Enrons shareholders lost &74 billion in the four years before the companys bankrupt (&40 to &54 billion was attributed to fraud). As Enron had nearly &67 billion that it owed to creditors employees and shareholders received limited, if any, assistance aside from Enron. To pay its creditors, Enron held auctions to sell its assets. Many executives at Enron were indicated for a variety of charges and were later sentenced to prison. Enrons auditor, Arthur Anderson, was found guilty in a state court, but by the time the ruling was overturned at the US Supreme Court, the firm had lost the majority of its customers and had shutdown. Employees and shareholders received limited returns in lawsuits, despite losing billions in pension and stock prices. As consequences of the scandal, new regulations and
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legislations were enacted to expand the reliability of financial reporting for public companies. One piece of legislation, the Sarbanes-Oxley Act., expanded repercussions for destroying, altering or fabricating records in federal investigations or for attempting to defraud shareholders .The act also increased the accountability of auditing firms to remain objective and independent of their clients. From the above discussion it is found that honesty, integrity and dedicated professionalism are part and parcel for every organization to be sustained and successful l. Any sort of fraudulent activity will, today or someday in future, cause failure for the business. In the case of auditors, honesty, integrity and dedicated professionalism play a crucial role in correctly preparing audit report on the true financial position of the entity being audited and the entitys compliance with the international accounting principles and company policies. If auditors fail in this case, audit failure may occur resulting in a very devastating situation both for the entity being audited and the auditor itself. This audit failure may cause the company loose customers and ultimately be bankrupt.

Conclusion
On the entire, it may be said that to get a successful auditor, their conscience is the greatest belongings for their career. The crucial problem is the human heart as well as its insatiable greed. If the rules and regulations on the supervising corporations could successfully take care of this issue, after that society could observe the conclusion associated with accounting scandals and various callous behaviors presently prevailing in all segments of an economy. Basically, in this particular report we have tried using the levels best to indicate how to build transparency as well as enhance accountability with crucial administrators and decision makers inside the business being audited. Positive findings of an independent audit can go a long way in building public trust in the organization, while negative findings can serve to catalyze change.. Consequently the auditor is the most reliable economic guard to check the day today financial transaction of an entity. Although currently situation it has been seen that there are several auditors which are attempting to unethical practice which might be only give advantage to them but it provides
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negative influence in the economy. Some recent studies indicate that auditor at times follow many unlawful activities which may result the dissatisfaction to the external users of audit report like investors as well as country faces economic destruction only because of those fraud activities. Thats why now a day honesty, integrity and dedicated professionalism is cry of the business world which is the only way of ensuring quality audit and by which an auditor can promote himself/herself from the current position to the next desired position

References

http://highered.mcgraw-hill.com http://www.accountanttown.com http://www.ehow.com http://iamsam.hubpages.com http://www.cof.org http://www.investopedia.com http://www.investorwords.com http://www.legal-explanations.com

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