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PROJECT REPORT

ON

NEW STANDARDS ON AUDITING

MASTER OF COMMERCE

ACCOUNTANCY

PART II (SEMESTER-IV)

(2016-2017)

INTERNAL ASSESSMENT

ADVANCED AUDITING

SUBMITTED BY:-

KARTIK JEEVAN PATEL

ROLL NO: - 34

UNDER THE GUIDEANCE OF PROF. NITIN AGARWAL

K. J. SOMAIYA COLLEGE OF ARTS & COMMERCE

VIDYAVIHAR (EAST)

AFFILIATED TO UNIVERSITY OF MUMBAI

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K. J. SOMAIYA COLLEGE OF ARTS & COMMERCE

VIDYAVIHAR (EAST)

CERTIFICATE

(2016-2017).

This is to certify that the project entitled NEW STANDARDS


ON AUDITING is a project work done by KARTIK JEEVAN PATEL,
ROLL NO: - 34 in fulfillment of the requirements for the MCOM in
ACCOUNTANCY (PART-II) (SEMESTER-IV) FOR THE SUBJECT OF
ADVANCED AUDITING During the academic year 2016-2017 is the
original work done of the candidate and completed under guidance of
PROF. NITIN AGARWAL.

Date: -

Place: - MUMBAI

.. ..
Internal Examiner External Examiner
.. .

(Mrs. Sonali Deogirikar) (Dr. SUDHA VYAS)


MCOM Coordinator Principal
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DECLARATION BY STUDENT

I, KARTIK JEEVAN PATEL, ROLL NO: - 34, the student of


MCOM in ACCOUNTANCY (Part-II) (SEMESTER-IV) (2016-2017)
hereby declares that I have completed the project on NEW
STANDARDS ON AUDITING under the supervision of the internal
guidance of PROF. NITIN AGARWAL and that the contents of the
project are not copied from any other source such as earlier projects etc.

The information submitted is true and original to best of my


knowledge.

Thank you,

Yours faithfully,

KARTIK JEEVAN PATEL

ROLL NO: - 34

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ACKNOWLEDGEMENT

I would like to thank all the people who helped me in


undertaking the study and completing the project, by imparting me with
valuable information and guidance that was required at every stage of
my project work.

I would like to thank our principal, Dr. SUDHA VYAS and


MCOM Co-ordinate, for giving me an opportunity and encouragement
to prepare the project.

Last but not the least; I would like to thanks my project guide
PROF.NITIN AGARWAL for guiding and helping me throughout the
preparation of my project, right from selection of the topic till its
completion.

KARTIK JEEVAN PATEL

ROLL NO: - 34

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INDEX

Sr Particular Pg.
No. No.

1 Introduction 6

2 Need For Audit Standards 7

3 SA 200 - Overall Objectives and Conduct of Audit 8

4 SA 200A - Objectives & Scope and Audit of Financial Statements 9

5 SA 210 - Agreeing the terms of Audit Engagements 11

6 SA 220 - Quality Control For An Audit of Financial Statements 13

7 SA 230 - Audit Documentation 15

SA 240 - The Auditors Responsibilities relating to Fraud in an Audit


8 of Financial Statements 17

9 SA 300 - Planning an Audit of Financial Statements 19

10 SA 500 - Audit Evidence 20

11 SA 501 - Audit Evidence - Specific Considerations For Selected items 21

12 SA 505- External Confirmations 22

13 SA 510 - Initial Audit Engagements - Opening Balances 23

14 SA 520 - Analytical Review Procedures 24

15 SA 610 - Using the Work of Internal Auditors 25

16 Conclusion 26

17 References 27

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INTRODUCTION

As long as the business unit was small and was managed by one owner : there
was neither any need for maintaining accounts or Audit. However with the increase
in the size of the business and emergence of partnerships and Joint stock company
organizations there, was separation between ownership and management of
business unit, there arose need for maintaining detailed account of the business
transactions. Books of accounts were maintained by the employees and the owners
like partners in a partnership firm and shareholders in a Joint Stock Company, are to
be assured that these accounts are properly maintained. So, Audit of these accounts
by an independent expert in the field was found necessary. Thus the profession of
Auditors was slowly evolved.

An audit is defined as an examination of accounting records to establish their


reliability and the reliability of statements drawn thereon, It involves verification of
accounting data, to determine their accuracy and reliability. It involves examination
of books of accounts and vouchers. The Institute of Characters Accountants of India
defines Auditing as Independent examination of financial information of any
entity, whether profit oriented or not and irrespective of size or legal form, when
such an examination is conducted with a view to expressing an opinion there on.

view of the importance of the audit, it was felt necessary that there should be
some set standards for the conduct of the audit so that there is some uniformity in
the conduct of audit. Every auditor will conduct the audit In the same manner and
the reader of the audit report can presume that accounts have been properly audited
even though they are audited by anybody.

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NEED FOR AUDIT STANDARDS

To uphold the faith of the public in the profession of auditors. International


Federation of Accounts (IFAC) was established in 1973. Its object was worldwide
development and enhancement of the accountancy profession of high quality in
the public interest. The International Auditing and Standard Board (IAASB) was
established to improve the quality and uniformity of practice throughout the world.
This Board issued International Standards on Auditing (ISA). IT also issued
guidelines on the application of the ISAS.

At national level we have the Institute of Chartered Accountants of India


Establish in 1949 to regulate the profession of Chartered Accountancy in India. This
institute has taken numerous steps to ensure that its members discharge their duties
with due professional care, competence and sincerity. It established Auditing
practices committee or Auditing and Assurance Standards Board in September 1982.
This issues standards on Auditing to be followed by all the Auditors in India. These
standards are mandatory i.e. compulsory and every auditor has to follow them
while auditing the accounts of any business entity

In short Auditing standards represent a codification of the best practices of


the profession, which already exist. These standards help the auditors in proper
discharge of their professional duties. They also promote uniformity in practice as
also facilitate comparability.

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SA 200- OVERALL OBJECTIVES AND CONDUCT OF AUDIT

Integrity, Objectivity & Independence Integrity refers to honesty of the auditor,


objectivity refers to his impartial behaviours and independence implies that he
should not be susceptible to any influence or pressure from the client.


The auditor should maintain the confidentiality of client information and should
not disclose it to third parties unless authorised by the client or when there is
legal or professional duty to do so.


Audit process should be carried out with due professional care i.e. he should
perform his duties diligently and carefully. He should also constantly update his
skills and competence through continuing education. He should obtain
knowledge of latest developments affecting his audit work such as changes in
law, professional pronouncements, etc.


The auditor should exercise reasonable care and skill while relying on the work
of others. This is important because the responsibility of preparing the report on
the financial statements remains with the auditor even though the work is being
performed by others.


The auditor should reasonably assess the adequacy of the accounting system and
related internal controls. He should evaluate the internal control system.


The auditor should review and assess the conclusions drawn from the audit
evidence and knowledge of the entity acquired. He should assess whether
financial information complies with recognized accounting principles.

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SA 200A - OBJECTIVES & SCOPE OF THE AUDIT OF FINANCIAL
STATEMENTS

Financial statements include balance sheet. Profit and loss Account, cash flow
statement and explanatory notes on the same. In short general purpose financial
statements prepared by every business unit at the end of the year. SA 200 A became
operative from 1st April 1985. Financial statements are issued for the use of
shareholders, members, creditors, employees and the public at large.

Objectives of an Audit:

To make sure that financial statements are prepared after following all
accounting policies and practices and legal requirements.

To get convinced that the financial statements represent true and fair view of the
financial position and operating results, of the enterprise. It should be
remembered that the Auditors opinion is only on the financial statements.
Reader should not assume that it is an opinion on the successful management of
the enterprise.

Financial statements are prepared by the management. They should maintain


proper books of the accounts. There should be effective internal control system.
Accounting standards prescribed by the Institute of Chartered Accountants should
be meticulously followed. Assets should be properly safeguarded. Audit of the
financial statements does not relieve the management of its responsibilities in this
regard. That is why, it is said that Auditing begins where accounting ends. i.e. with
the preparation of the final accounts.

Objective of audit of financial statements is to enable an auditor to express an


opinion as to the truthfulness and fairness of financial statements.

The auditors opinion helps to establish reliability of the financial statements.


S.A. 200A has specifically pointed out that The user should not assume that the
auditors opinion is an assurance as to future viability of the enterprise or the
efficiency or effectiveness with which the management has conducted the affairs of

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the enterprise. Thus, the auditor does not give an opinion on the propriety of
business conduct or its future prospects.

Scope of Audit:

Scope of Audit is decided by the terms of engagement of the auditor and


relevant legal requirements, if any. Auditors appointed for different types of
organizations have to perform different types of duties as per the laws applicable to
respective organizations. e.g. Auditor of a bank is expected to perform his duties as
prescribed by the Banking companies Act or Auditor of a co-operative society has to
perform his duties as per co-operative Act etc. where there is no such special law,
scope of his work is decided by the letter of appointment or an agreement entered
into between the client and the auditor. In case where there is a special law
governing the affairs of the concern, the appointing authority can increase the scope
of audit of the Auditor but it cannot be restricted.

Before starting his work, Auditor should go through the prevailing internal
control system in the organization. If he comes across any lacuna or defects in it, he
must suggest suitable changes in it.

Financial statements should disclose information properly. Auditor should


insist that accounting policies should be consistently followed. Information should
be properly classified and suitably presented.

It should be remembered that the Auditor is not a technical expert. He is only


a financial expert. So he should express his opinion only on the financial aspects

Coverage

The auditors work should cover all material items at individual level or at
group level. He should satisfy himself that information contained in the financial
statements and other source data is reliable and sufficient for preparation of financial
statements.

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SA 210 - AGREEING THE TERMS OF AUDIT ENGAGEMENT

An Engagement Letter is a written contract between the auditor and the


client that serves to minimize misunderstanding. Though the objective and scope of
the audit and the auditors obligation are normally laid down in the applicable
statute or regulations and the pronouncements of the ICAI, the audit engagement
letters would be information to the client.

In the interest of both the client and the auditor, the auditor should send an
engagement letter, preferably before the commencement of the engagement. The
engagement letter documents and confirms the auditors acceptance of the
appointment, the objective and scope of the audit and the extent of the auditors
responsibilities to the client.

An engagement letter would normally include-

Objective of audit of financial statements

Managements responsibility for making judgment and estimates that are


reasonable and prudent so as to give true and fair view of the state of affairs of
the entity at the end of the financial year and of the profit or loss of the entity
for that period.

Managements responsibility for maintenance of adequate accounting records


and internal controls for safeguarding the assets of the company and for
preventing and detecting frauds or other irregularities.

The scope of the audit, including reference to the applicable legislation,


regulation and the pronouncements of the ICAI.

Expectation of receiving from management written confirmation concerning


representations made in connection with the audit.

Arrangements concerning the involvement of other auditors and experts in some


aspects of audit.

Basis on which fees are computed.

Any restriction of the auditors liability when such possibility exists.

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Recurring audits

Many a times, the same auditor is appointed or reappointed every year. In


such subsequent or recurring appointments, the parties man consider afresh about
the terms and conditions of engagement. In such cases, a fresh agreement may be
entered into.

While reappointing the same auditor next year, if there are any changes in the
business of the concern, changes in the policies or personal or a legal requirement,
complete information about these matters, should be given to the auditor by the
management.

Changes in Audit Engagement

During the course of audit, if the terms of engagement are changed to provide
a lower level of assurance then the auditor should

1) Examine the reason for such change along with its reasonableness.
2) Consider legal or contractual implications of the change.

If the auditor is of the opinion that change in terms of engagement is reasonable


he should issue audit report according to the changed terms. However, if he is of the
opinion that change in terms of engagement is unreasonable and is not allowed by
the client to continue the original engagement, he should withdraw and
communicate the reasons of withdrawal to the Board of Directors or to shareholders.

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SA 220 QUALITY CONTROL FOR AN AUDIT OF FINANCIAL
STATEMENTS

This standard deals with maintaining Quality in the audit work. Quality is
important in every walk of life and the Audit cannot be an exception to it. Audit
plays a very important part in any business activity and importance of quality

control in the same, need not be over emphasized.

Audit is a group task. It involves following four types of people.


The Auditor means a person with final responsibility for the entire audit work
and audit report.


Audit Firm means either the partners of a firm providing audit services or a
sole practionner providing Audit services. In practice audit firms are more
common than individuals providing such services. This may be due to some
inherent advantages in the partnership firm specially in such types of
professions.


Personnel means all partners and professional staff engaged in the audit work
of the firm or in other words, the staff actually performing the job.


Assistants means personal involved audit, other than the Auditor i.e. Persons
like Articled clerks or regular employees in the audit firm.


All these persons in the group have to follow the rules of quality control to
produce quality job.

st
This standard SA220 was made effective from 1 April 1999 in its revised form.

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The objectives of quality control policies

1) Every Audit Firm should adhere to the principles of Independence, Integrity,


Objectivity, confidentiality and professional behaviour as stated in SA 200. The
Auditor should be an independent person. He should not have any vested
interests in the firm whose books & accounts he is auditing. He must not disclose
secret information about the firm to outsiders. As it is said, the Auditor should
have his eyes and ears open but his mouth shut. His professional behaviour
should be of a highest degree.

2) The firm should have necessary skills and competence. Personnel in the firm
should be duly qualified as per legal requirements and are competent to
undertake the work of audit.

3) The Auditor should discuss about the work with all his Personnel from time to
time. As and when there is any important matter, he may also discuss the matter
with the outside experts in the field. There is nothing wrong in consulting or
discussing the matter with the outside experts. He should not a make it a
prestige issue. Quality of the work to be performed is of utmost importance.

4) While distributing the work amongst different assistants, Auditor should see
that the right job is allotted to a right person. Every person to whom a particular
job is allotted, should be properly qualified and competent to perform that job.
Each one should be allotted, as far as possible, the job of each choice, so that he
can do it sincerely and with utmost interest. Work should be a pleasure for
everyone.

5) Lastly the above quality control policies should be properly monitored.

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SA 230 AUDIT DOCUMENTATION

This standard deals with documentations to be prepared for Audit of


Financial Statements. Documentation refers to the working papers prepared and
obtained by the Auditor. They are to be retained by him. During the course of audit,
auditor collects number of papers, they are called documents or working papers and
they are to be retained carefully in a file.

Utility or usefulness of working papers:

Documentation means the evidences on the basis of which the auditor draws
his final conclusions. The auditor should maintain such evidence to show that the
audit was performed in accordance with the set procedure prescribed by different
SAs (Standards On Auditing). These papers also prove that necessary legal
requirements have been properly fulfilled. These documents assist the audit team to
prepare their audit plan. As per SA 220 on quality control, supervision and review of
audit work is necessary. Documentation facilitates the work of supervision and
review of audit work. This paper also facilitates the work of audit of the auditor in
subsequent years. They are also useful for controlling the quality of the audit work
done.
In case of recurring audits, the auditor may divide the working papers into
two parts permanent file and current file.

Permanent File

Should contain information which is of continuing interest and relevance to


succeeding audits. Most of the information contained in this is collected in the first
audit and is updated for each subsequent audit. It normally includes the following
information:

Information regarding legal and organisational structure of the entity.

Extracts of important legal documents, agreements, minutes relevant to the


audit.

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Record and evaluation of internal control reports.

Analysis of significant ratios and their trends.

Record of communication with the retiring auditor.

Notes regarding significant accounting policies.

Current File

Contains information relating to and relevant to the audit of current period.


Following information is normally included in the current audit file:

Correspondence relating to acceptance of annual reappointment.

Extracts of important matters in the minutes of board and general meeting as


relevant to audit.

Audit plan and audit programme.

Analysis of transactions and balances.

Evidence regarding supervision and review of work of assistants.

Copies of letters or notes concerning audit matters communicated to or


discussed with client.

Copies of communication with other auditors.

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SA 240 THE AUDITORS RESPONSIBILITIES RELATING TO
FRAUD IN AN AUDIT OF FINANCIAL STATEMENTS

The auditor is appointed to verify the correctness of the accounts. It is his


duty to detect and prevent errors and frauds. He has to certify that the statements of
accounts i.e. balance sheet, profit and loss account, cash flow statements and other
accompanying documents, do not have any misstatements and they reflect true and
fair view of the financial position of the concern.

However, we cannot say that the account statements prepared by the auditor
after auditing the accounts are hundred percent correct and all the errors and frauds
have been detected and set right. After all the auditor is also a human being and
there are possibilities of errors and frauds in the account statements even after they
are audited. They may be noticed subsequently. After all the auditor is not an
insurer. This standard on audit deals with the responsibility of the auditor if errors
or frauds are subsequently noticed in the statement of accounts.

Misstatements in the account statements are due to errors and frauds in the
accounts. So, let us now consider the difference between errors and frauds.

Though both falsify the accounts, there is a basic difference between the two.
Errors are committed by the employees inadvertently due to lack of knowledge of
principles of accounts or through oversight etc. but the frauds are committed by the
employees, management or other third parties connected with the concern
intentionally to make some illegal gain.

Frauds and Errors:

Misstatements in financial statements can arise from frauds and errors.


Error in context of audit has been defined by S.A. 240 as unintentional
misstatement in the financial statements. Management may get involved in

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committing frauds to obtain an illegal advantage or personal gain. Fraud
generally involves either misappropriation of assets that may be called as
employee fraud or manipulation of books of accounts that is referred to as
management fraud.
Employee Fraud Generally involves the theft of assets. Mostly cash or goods
of the firm, computer hardware, etc. Transactions are recorded in such a
manner so as to conceal theft.
Management Fraud - It involves manipulation of accounts by the upper level
management for the purpose of deliberately misrepresenting the firms
financial position or results of operation to evade taxes, to receive higher
remuneration, to show better management performance, etc. This is called
Window Dressing.

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SA 300 PLANNING AN AUDIT OF FINANCIAL STATEMENTS

A simple definition of planning is thinking in advance or thinking before


doing. Planning is necessary, in all works of life and auditing cannot be an
exception. Planning or thinking before doing, helps us in a number of ways. When
we think in advance, we can collect all necessary men and material to complete the
job.
Audit planning amplifies the basic principle stated in S.A. 200, i.e. the
auditor should plan his work to enable him to conduct an effective audit in a
efficient and timely manner.

Objectives of planning:

1) To ensure that appropriate attention is paid to important areas of audit.


2) To ensure prompt identification of potential problems.
3) To ensure speedy completion of work.
4) To ensure proper co-ordination of work.

Factors to be considered while planning:


Complexity of the audit
Environment in which the entity operates
Previous experience of the auditor with his client
Knowledge of the clients business

Audit planning involves:


Development of an overall plan for the expected scope of audit
Development of an audit programme showing the nature, timing and extent
of audit procedures.

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SA 500 AUDIT EVIDENCE

Audit evidence refers to any information, verbal or written, obtained by the


Auditor, during the course of audit to arrive at the conclusion on which he bases his
opinion on financial statements. E. g. sales invoices, purchase invoices, bank balance
certificate issued by the bank, correspondence with third parties etc are examples of
evidences.
This standard is made effective from 1st April, 2009 in its revised form.

Procedure to obtain evidence


The auditor obtains evidence through the compliance and substantive procedures.

Compliance procedures to test whether the internal control exists and is
operating effectively, that the internal control system has operated in the
same way throughout the year.

Substantive procedures tests designed to obtain evidence to verify balance of
an account or a specific financial statement assertion i.e. to check whether an
asset exists or not, that an event has occurred and pertains to the entity during
the period under audit, that there are no fictitious items recorded, etc.

Reliability of evidence:

External evidence is more reliable than internal evidence. Reliability of
internal evidence depends upon the strength of related internal control
system.

Evidence obtained by the auditor himself through physical examination,
observation, inspection, etc is more reliable than that obtained from the entity.

Documentary evidence is more reliable then oral representations.

Techniques of Audit Evidence


Inspection Observation
Enquiry Confirmation
Computation Analytical Review
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SA 501 AUDIT EVEDENCE SPECIFIC CONSIDERATIONS FOR
SELECTED ITEMS

The purpose of the Audit Standard is to establish standards on the auditors


responsibilities, audit procedures and provide additional guidance to what is
contained in S.A. 500 i.e. Audit Evidence. It comprises of the following parts:

1) Attendance at physical inventory counting : Inventory or closing stock


constitutes one of the major items in the financial statements. So, the Auditor should
collect sufficient satisfactory evidence about the same. When inventory is under the
custody and control of a third party, the auditor would ordinarily obtain direct
confirmation from the third party/ arrange with the entity for sending requests for
such confirmations as to the quantities and condition of inventory held on behalf of
the entity.

2) Inquiry regarding litigation and claims : Litigation and claims against the
business may have material effect on the financial statements. So, the Auditor should
collect sufficient and reliable evidence about the cases pending in different courts,
either filed by or against the firm and their financial implications. When litigation or
claims have been identified by the management or when the auditor believes they
may exist, and are likely to be material, the auditor may seek direct communication
with the entitys lawyers and such other professionals.

3) Valuation and disclosure of long term investments: Long term investments


are material to the financial statements. So, the Auditor should obtain sufficient and
appropriate audit evidence regarding their valuation.

4) Segment information: There should be appropriate disclosure of segment


information. So, the Auditor should perform audit procedures and obtain
appropriate audit evidence for proper disclosure of segment information.

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SA 505 EXTERNAL CONFIRMATIONS

External confirmation is the process of obtaining and evaluating audit


evidence through a direct communication from a third party in response to a request
for information about a particular item affecting assertions made by management in
the financial statements.

External confirmation in the process ordinarily consists of the following:


1) Select the items like debtors, creditors, bank balances, etc for which confirmations
are required.
2) Design the form of confirmation requests.
3) Communicate the requests to the third party concerned.
4) Obtaining the response from the third party.
5) Evaluating the information or non-receipt of confirmations.

Written confirmation from the third party is more reliable evidence as they
are not related to the unit. Such a method will reduce the risk of the Auditor. A letter
is sent to the third party and he is requested to send his confirmation when such
information is received by the Auditor, he evaluates it on the basis of his
professional scepticism and past experience in the field of audit. This method is
normally used in the following cases:-

Confirmation of balances in the accounts of debtors and creditors or accounts


payable and account receivable. They may also be asked to send the details of all
or some major transactions.

Banks are requested to confirm the balance in the clients account.

Stock held by others like goods in the hands of the consignee or goods in the
custody of the seller who has not yet delivered them. etc.

Title deeds of properties with the third parties. The client may keep the title
deeds of properties in a bank locker for safe custody or he may borrow money
from a third party by depositing such title deeds with him.

Balance of loans from the lenders

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SA 510 INITIAL AUDIT ENGAGEMENTS OPENEING BALANCE

Opening balance means the balance which existed in the beginning of the
period; it is the same which was the closing balance in the immediately previous

period.

Auditors responsibility regarding opening balances:


1) The closing balances of the preceding period are correctly brought forward to
the current period. This can be done if the auditor compares and checks the
opening balance with the closing balances of the previous period.

2) Auditor should consider whether any misstatement in opening balances is


materially affecting the financial statements of the current period.

3) Accounting policies followed in preceding period area also being followed in


current period.

The auditor will need to consider whether the accounting policies followed in
the preceding year, were appropriate and that those policies are consistently
followed in the current period. If there is a change in the accounting policy, the
auditor should ensure that they are adequately disclosed.

If the auditor finds that there are any misstatements in the prior period financial
statements which are likely to affect, this years financial statements, he should
perform additional audit procedures, and determine their exact impact on this years
financial statements. If he finds that, similar misstatements are there in this years
financial statements also he should communicate them to the management and get
the statements duly corrected.

If the auditor fails to collect sufficient audit evidence regarding opening balances
he may give qualified opinion or add a disclaimer to this effect.

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SA 520 ANALYTICAL REVIEW PROCEDURES

Analytical procedures mean the analysis of significant ratios and trends


including resulting investigation of fluctuations in relationships that are inconsistent
with other relevant information or which deviate from predicted amount .

Different methods may be used here. Sometimes very simple methods may be
used but where necessary even advanced statistical techniques may also be
employed: such study may be made for the whole unit or its components like
different divisions departments etc.

The auditor selects the suitable method based on his past experience. After all
this is a professional judgement.

Analytical procedures include the following types of tests: -

1. Trend analysis: Here financial information of the firm may be compared with
the information of the previous years.

2. Comparative data analysis: Entitys financial information may be compared


with anticipated results.

3. Predictive estimate analysis: Here the relationships between different figures


anticipated by the auditor are studied.

4. Inter firm analysis : Key financial ratios of the entity are compared with other
Firms of the same size in the industry or with the average of the industry as a
whole.

5. Financial ratio analysis: Relationships among different financial information is


studied e.g. gross profit turnover ratio etc.

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SA 610 USING THE WORK OF INTERNAL AUDITORS

The main objective of the internal audit function varies from organization to
organization. Following are the general objectives of internal audit:
1) To review and report on the internal control system. This is normally done by
the internal audit department. Such a review is necessary to detect the errors
and frauds and safeguarding of assets of the enterprise
2) The management sets the standards to measure an entitys economical and
efficient use of resources and the internal auditor is responsible for:
i) Assessing whether the standards are understood and are being met
ii) Identifying deviations and their causes and corrective actions taken
iii) Identifying conditions such as under utilisation of facilities, non-
productive work, procedures which are not cost justified and
corrective action taken.
3) To review management information system i.e. identification, measurement,
classification and reporting of financial and operating information.
4) The internal auditor has a responsibility to examine and verify physical
existence and condition of assets of the entity.

Difference between internal and external auditor


According to S.A. 610:

The external auditor is solely responsible for his audit report. However much of
the work done by the internal auditor may be useful to him in determining the
nature, timing and extent of his auditing procedures.

The external auditor should evaluate the internal audit function. If based on
such evaluation, the auditor concludes he can rely on the internal audit his
procedures will be less extensive than otherwise required.

He should not rely on internal audit function without evaluating it.

The report of the external auditor is his sole responsibility. That responsibility is
not by any means reduced because of his reliance on the internal auditors work.

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CONCLUSION

An audit is defined as an examination of accounting records to establish their


reliability and the reliability of statements drawn thereon, It involves verification of
accounting data, to determine their accuracy and reliability. It involves examination
of books of accounts and vouchers. The Institute of Characters Accountants of India
defines Auditing as Independent examination of financial information of any
entity, whether profit oriented or not and irrespective of size or legal form, when
such an examination is conducted with a view to expressing an opinion there on.

view of the importance of the audit, it was felt necessary that there should be
some set standards for the conduct of the audit so that there is some uniformity in
the conduct of audit

In short Auditing standards represent a codification of the best practices of


the profession, which already exist. These standards help the auditors in proper
discharge of their professional duties. They also promote uniformity in practice as
also facilitate comparability. They cover the basic principles and essential procedures
to apply those basic principles that relates to judgement or behaviour.

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REFERENCES

www.wikipedia.org

www.caclubindia.com

www.investopedia.com

Advances Auditing Textbook Dr. Varsha Ainapure

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