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http://www.friendsmania.net/forum/b-com-part-2-auditing-notes/

Audit Programmes and Procedures

* Audit Programme

* Kinds of Audit Programme

* Contents of Audit Programme

* Advantages of Audit Programme

* Disadvantages of Audit Programme

Definition

Audit programme is a list of work to be done by an auditor. The time

period is started for completing the work. The duties are assigned to audit

staff. The procedure that will help to verify each time of financial

statements. The duplication of work is avoided and an pace of audit work.

The auditor is able to have control over the audit staff and their work.The cost of audit remains in line with the audit fee. The auditor can handle

audit of many concerns at the same time. Every aspect of financial

activities require audit program. The combination of all such programs is

considered as master audit programme. The auditor can make changes from

time to time in order to meet the requirements of nature and size of

business.

Kinds of Audit Programme

1. Standard Audit Programme

This type of audit programme is preprinted and suitable for all purposes. It

saves time and gives added assurance that no important procedure will be

overlooked while in the opinion of some others, this type of audit

programme is too much mechanical. Due to complexities in the business

conditions system of accounting and internal control system, it is not


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possible to follow a standard audit programme.

2. Modified Standard Audit Programme

These type of audit programme contain the usual audit procedures, common

to most business and provide space for other specific procedures applicable

to the business under examination. This modification of the audit steps and

the insertion of the steps that are peculiar to the audit in questions, make

the audit programme a modified standard audit programme.

3. Tailor-Made Audit Programme

This is individually written programme prepared specially for each audit. It

is known as tailor made because a tailor cuts the cloth according to the

body of every person. The auditor should take care of such a programme so

that no important steps is overlooked or missed. It lists the procedures to

be followed on any specific engagement indication any departure from

normal practices and specifying the extent of the test of transaction.Contents of Audit Programme

1. Name

The audit programme contains the name of client. The auditor can write the

name of business. There is a need of complete address of the concern in

case of public limited company.

2. Objects

The audit programme contains the objects of the business enterprise.

There are various objects of any business unit. A small business has few

objects while large companies have many objects.

3. Date

The audit programme contains the date of start of an audit. The auditor

can consult the client before fixing the audit date. It must be convenient

to the management. The audit programme can show the details of audit

work date wise.

4. Duration

The audit programme contains the time limit of starting and completing the


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work. The duration of audit period may be one month. The size of audit

work becomes the basis of duration.

5. Accounting System

The audit programme contains information about accounting system. Theauditor can examine the accounting system and procedure in operation. The

understanding of accounting system helps to develop the audit programme.

6. Internal Check

The audit programme contains the effectiveness of internal check system.

The effective internal check is helpful for auditors. He can apply test

checking due to proper internal check system. If the system is not good it

increases the duties of audit staff.

7. Old Reports

The audit programme keeps the contents of old audit report. The auditor

can pay attention to old reports. The weakness reported in previous reports

must not be repeated in present accounting records. It is the duty of the

audit staff to note the performance of management.

8. Checking Books

The audit programme contains the details of checking accounting books. The

number of books kept is stated in the programme. The books aredistributed among audit clerks so that whole data may be examined.Advantages of Audit Programme

1. Supervision of Work

The editor can judge the efficiency of his audit team with the held of an

audit program. He is in a position to know the progress of the work. He can

see at any time that what part of the work has been completed and what

remains to be done.

2. Division / Distribution of Audit Work

The division of audit works is very useful for the audit staff for

maintaining the difference of works among senior or junior clerks according

to their ability and skill so that the work is divided to get better results.

3. Systematic and Uniformity of Work

Audit program helps in setting all the things in advance. So the systematic

and uniformity of work is necessary to achieved the desire.


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4. Basic Instrument of Training

Audit program is infact a training instruments for the audit staff and also

very useful for the new auditors. It provides training and guidance to him.

So, it is rightly called the basic instrument for training for the staff atthe right time of need.

5. Fixation of Responsibility

Audit programmes fixed the responsibilities of the staff. If any error or

fraud remains undetected the responsibility of negligence will fall on that

particular assistant who has performed that job and no one can blame on

each other.

6. Several Audit May be ControlledThe auditor controls the audit of various companies at the same time. In

the absence of audit program he cannot supervise them effectively.

7. Easy Transfer

The principle auditor can transfer to any other person easily. If one

assistant is unable to continue the work given to him it can be given to

another person. Audit program guides him that what is done and what is

remaining.

8. Final Review

Before signing the report, Final Review is made and for this purpose also

auditing program is very useful and any deficiency or missing in steps can

be identified and completed.

9. Useful For Future

The audit programme is very useful in the future. On completion of an

audit. It serves the purpose of audit record that may be useful for future

reference. In case of auditor is appointed for the same concern in anyfuture time the auditor can use the same audit programmes with some

changes.

10. Progress of Audit Work

Audit programme is useful to note the progress of work. Audit programme

is a timetable, which can show the work done on any particular date. The

pace of work is going on with the passage of time. The adjustment can be

made if there is more work and less time and vice versa. In this way work

can be completed in time.


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11. Supervision of Audit Staff

Audit programme is beneficial for auditor. He can supervise the activities

of audit staff. He can use the audit programme as basic of supervision.

Every part of audit work can be complete as per schedule. He can controlthe activities of audit staff through observation and direction when the

audit work can be complete in time.

12. Audit Staff Needed

Audit programme is helpful to determine the number of persons needed to

do the work. The staff requirement is essential for every auditor. The

shortage of staff means slow progress. The exact number of senior and

junior audit clerk can be determined. In this way an auditor is able to

handle the audit work properly.

13. Same Work

The benefit of audit programme is that new instructions are not issued due

to change in staff. The nature of work remains the same. The audit clerks

can know their job just by reading the written programme. The time is

saved due to written instructions.

14. Time Table

The benefit of audit programme is that work is complete with in statedtime period, the saving of time means saving of labour. The saving of time

means saving can control the cost of audit due to fixed time. He can

arrange audit work of other business concerns.

15. Responsibility for Poor Work

The benefit of audit programme is that auditor can fix responsibility for

negligence. Audit programme is a timetable of whole audit work to be done

by auditors. Every staff member is given some sort of duty to do the audit

work. The staff is responsible for completing of work. The performance isnoted and responsibility if fixed poor work.

16. Guide To Audit Assistants

The merit of audit programme is that it serves as a guide to audit

assistants. The junior audit staff can start and complete the audit work

with the help of audit programme. There is no need to repeat the

instructions every time. Moreover it serves as a guide for future. The new

audit programme can be developed can be developed on the basis of old

work.


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17. Dealing with New Clients

The merit of audit programme is that it helps to deal with client. The

spare time of audit staff can be used for doing with new clients. The whole

year time can be divided. The auditor can audit the accounts if variousconcerns under audit programme.

18. Proof for Audit Work Done

The merit of audit programme is that auditor can use it as proof for work

done. In court of law the auditor can avoid liability for negligence. Audit

programme is a permanent record of an audit process. The audit programme

shows the work performed date-wise. In this way he cannot be held

responsible for carelessness.Disadvantages of Audit Programme

1. Not Comprehensive

Auditors may have covered the whole fie but I cannot be said with

certainty that all the necessary work has been done.

2. Rigidness

Audit program looses its flexibility. While each business have a separate

problems. So audit program cannot be laid down for each type of business.

3. No Initiative

It kills the initiative of capable persons. The assistant cannot suggest any

improvement in the plan.

4. Too Mechanical

Such audit program is too mechanical that it ignores many other aspects

like internal control.

5. Large Concerns / Not Suitable for Small Concerns

Audit programme is helpful in large business concerns. It has been proved

that audit program is not suitable for small business concerns.

6. New Problems Over Looked

In the audit programme there is no chances to accept the changes with the

passage of time new problems arise that may be over looked.

7. Changes


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The drawback of audit programme is that changes in it are not acceptable.

The nature of activities of concern may change. There is a need to adjust

the changes in the programme. A master programme cannot be drafted.

8. RevisionThe demerit of audit programme is that there is no revision in it. The

business changes from year to year. The working may expand or contract.

The audit programme requires adjusting itself to the changing

circumstances.

9. Types

The demerit of audit programme is that is not suitable for all types of

business concerns. A small business may have few books of accounts. It is

not necessary to prepare audit programming for small concerns.

10. Staff

The accounting staff can know the working of audit. The auditor applies

various methods for checking the accounting books. Having knowledge of

auditing the accounting staff can devise means to record the transaction.

In this way they can avoid their responsibility.

11. Negligence

The demerit of audit programme is that it provides protection to inefficientaudit assistant. The junior auditors can protect themselves due to weakness

of audit programme. The clerks feel responsibility for the duties stated in

the programme.

12. Errors

The drawback of audit programme is that it may fail to located error. The

errors of principles cannot be detected, as the double entry is complete in

such case. No doubt the location of errors and fraud is the responsibility

of management. But owner depends upon auditors to protect their rights.


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Internal Audit & Internal Check

B-Com Part 2 Auditing Notes

Internal Check

* Internal Audit

* Objectives of Internal Audit

* Essentials of Internal Audit

* Functions of Internal Audit

* Advantages of Internal Audit

* Limitations of Internal Audit

Internal Audit

Internal audit is an evaluation and analysis of the business operation

conducted by the internal audit staff. (Who are employees of the

business). It is the part of over all system of internal control established in

an organization.

Internal audit is the independent appraisal of activity with in an

organization for the review of accounting, financial and other business

practices as protective and constructive arms of management. It is a type

of control which functions by measuring and evaluating the effectiveness of

other type of controls.


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Professor Walter B. Meigs define internal audit

Internal auditing consist of a continuous, critical review of financial and

operating activities by a staff of auditors functioning as full time salaried

employees.

Objectives of Internal Control

1. Proper Control

The purpose of internal control is to keep proper control over business

activities. When there is proper control there is maximum efficiency. The

internal control can determine the degree of control over work.

2. Accounting System

The purpose of internal audit is to evaluate the accounting system. It is

concerned with checking proper authority for transactions like purchase,retirement and disposal of fixed assets. The voucher can be compared with

entries on order to determine that figures are facts.

3. Help Management

The purpose of internal audit is to help the management. Internal auditor

can point out the weaknesses. The internal audit can be used as a tool to

correct the situation. The management functions can be performedproperly.

4. Working Review

The purpose of internal audit is to review the working of business. The

working of current year can be reviewed in detail just the successful area

of working. There is a need to locate the weak points. The corrective

measures can be taken for proper working.


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5. Asset Protection

The purpose of internal audit is to protect the assets. The proper recordof assets must be there. Internal auditor can examine the valuation,

verification and possession. The purchase and sale of assets must be made

under properly authority.

6. Internal Check

The purpose of internal audit is to evaluate the internal check system.

There is division of duties among the emp is to loyees. When all staffmember are working properly it means there is effective internal check

system. The work of an auditor is reduced. He can apply test checks to

complete audit duty.

7. Fair Statements

The purpose of internal audit is to detect the error in the accounting

records. The work of internal audit can help the management to see thataccounting record is in order.

8. Check Error

The purpose of internal audit is to detect the errors in the accounting

records. The work of internal auditor goes side by side there fore there

are minimum chances of errors. The accounting staff can rectify mistake to

prepare accounts at the end of year in order to help the external auditor.

9. Detect Fraud

The purpose of internal audit is to detect frauds in the books of

accounting. As the work of accounting staff is over the internal audit is

started. Accounting staff remains alert because there is no time gap

between recording and checking. Thus detection of fraud is possible with it.


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10. Determine Liability

The purpose of internal audit is to determine liabilities of employees. The

duties are divided among the staff. It is easy to note the negligence on thepart of employees. The internal audit can pin point the person responsible

for carelessness.

11. Help in Independent Audit

The purpose of internal audit is to help an independent audit. The external

auditor can rely on internal auditor and there is no need of cent percent

checking. In this way there is saving of time and money due to internalaudit.

12. Performance Appraisal

The purpose of internal audit is to check the performance appraisal. The

management must achieve the targets fixed in budgets and plans. The

internal audit is a tool to evaluate the working of each management

function.

13. Provide Suggestions

The purpose of internal audit is to provide suggestions for improvement of

business activities. The internal audit staff can suggest the ways and means

to remove the difficulties. Anyhow the audit cannot compel the management

to implement suggestions.

14. New Ideas

The purpose of internal audit is to seek new ideas relating to procedures,

marketing, financing and other business matters. The internal audit staff

can provide new ideas about various business matters. The viable ideas can

be put in to practice for the benefit of business.


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15. Use of Resources

The purpose of internal audit is to determine the proper use of resources.

The misuse of resources can increase the cost of doing the business. The

proper use of resources means there is efficiency on the part ofmanagement.

16. Accounting Policies

The purpose of internal audit is to examine the accounting policies. The

understanding of accounting system and procedure is helpful to device the

effective audit plans procedures. The internal auditor may find any

weakness in the internal control. He can comment on the accounting policies.

17. Special Investigation

The purpose of internal audit may be to conduct special investigation about

any business matter. Internal audit can be used as a tool to note the

effectiveness of management function.Essentials of Internal Audit

1. Planning

Planning is an essential feature of internal audit. The auditor can plan to

check the accounts system. The plan may relate to accounting functions like

purchase, sales, income, expenses and shares. The planning includes degree

of risk and extent of audit. It also states the nature of audit work.

2. Controlling

Controlling is an essential feature of internal audit. The auditor examine

the operation of accounting system. He can control audit work through audit

programme. The whole work is distributed among audit staff.

3. Recording


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Recording is an essential feature of internal audit. The auditor can record

the facts and figures in order to express his views in the business

activities. The auditor notebook and audit working papers are used to

record the information.

4. Independence

Independence is essential element of internal audit. An employee of the

company does the work of internal audit. Management must not influence

him. He must be free in developing audit programme, audit investigation and

audit reporting.

5. Staffing

Staffing is an essential part of internal audit. The trained staff is needed

to conduct internal audit. The reasonable number of persons can perform

the work of examination. The inadequate and untrained staff cannot serve

the purpose of checking efficiency of managers.

6. Training

The internal audit staff must be trained. In order to achieve better results

there is a need of training in audit work. Proper arrangements should be

made to provide training to internal audit staff.

7. Relationship

The internal audit staff must have friendly relations with management,external audit staff and consultants. There is a need of complete harmony

among various groups of people.

8. Evidence

Evidence is essential part of internal audit. The evidence must be reliable,

relevant and sufficient. The business documents are sources of entries in

accounting books and records. The reliable can be seen through signature of


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manager. The relevant documents show the name of concern.

9. Due Care

Due care is an essential part of internal audit. The auditor must use skill,

care and judgement. He should have technical knowledge, honesty and

integrity.

10. Reporting

Reporting is an essential part of internal audit. The auditor can inform the

management through audit report. It may be long or short report. Thefinding of the auditor is put before the management. There is a need to

act upon the advice of the internal auditor for better result.

Functions of Internal Audit

The function of internal audit is concerned with analysis of internal check.

The internal auditor can look in to the duties of each employee. Allemployees are provided jobs on the basis of their abilities.

2. Application of legal Requirements

The function of internal audit is the examining of the application of legal

requirements. The accounts are prepared under certain legal framework.

The Company's Ordinance 1984, the Stock Exchange and Security Rules

1971, the Banking Companies Ordinance 1962, The Insurance Act 1938.


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The Modaraba Ordinance 1980 and similar other laws are followed for

preparing finance statement.

3. Verification of Accuracy

Verification of accuracy is a function of internal audit. The accuracy of

accounting books and records can be verified with the help of auditing

techniques. The audit techniques include inspection, observation, inquiry,

confirmation, computation and review. An auditor can check the accuracy

through these techniques.

4. Confirmation of Liability

Confirmation of liability is a function of internal audit. The internal auditor

can determine the work done by every person. The careless or negligence

on the part of worker is noted. The concerned person is given a chance to

explain his position. If the reason is not justified, the liability is

confirmed.

5. Examination of Assets Protection

The function of internal audit is to examine the assets protection. The

proper record is to be maintained. The possession must be in the hands of

senior officer. The assets are used for business only. There is proper

purchase and disposal of these assets. The internal auditor can check that

assets are protected.

6. Detection of Fraud

Detection of fraud is a function of internal audit. The work of accounting

and auditing go side by side. When accounting work is over it is checking by

audit staff. There is not time gap so fraud is detection at an early date.

The plan of fraud requires time to think. When time is not allowed it is

detected on the spot.

7. Ascertain Proper Authority


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The function of internal audit is to ascertain the proper authority. The

shareholders, partners and single owners have full authority. They can

delegate such authority to managers. The signature of owners or managers

must be noted on every voucher in order to ascertain that transaction isproper.

8. Detection of Errors

The function of internal audit is to detect errors in the accounting records.

The audit staff can check the records in detail. There is not time limit.

There is possibility of disclosed of error due to cent percent checking. The

corrections can be made as early as possible to reflect the true and fairview.

9. Make Investigation

The function of internal audit is to make investigation. It is an inquiry in to

business activities by specially assigned staff. The facts and figures are

collected; analyzed and true position is put before the management. The

grey area can be spot lighted by an auditor in the interest of business.

10. Performance Appraisal

The function of internal audit is to note the performance of business

employees and management. The standard are fixed and performance is

compared with standards. The management can feel satisfaction if the

performance is at standard.

11. Give Suggestion

The function of internal audit is to give suggestion for business problems.

These suggestions are not costly. In the long run there may be large

number of benefits from such ideas. The management has the right to

accept or reject the ideas.


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12. Reporting

Reporting is a function of internal audit. The auditor can find out the

weaknesses of various functions. The report is submitted to the

management. There is a need to go through the report. The weakness andproposal can be examined in detail.

Advantages of Internal Audit

1. Proper Accounting System

The benefit of internal audit is that proper accounting system is

introduced. Accounting system is a chain of activities in an entity by which

transactions are processed for maintaining financial record. There is a need

of orderly devices to achieve desirable results.

2. Better Management

The benefit of internal audit is that there is better management ofbusiness concern. The auditor can point out the weak areas of management.

The goals of business can be achieved if there is proper internal control,

internal check and internal audit. It should be noted that management could

rely on internal audit for best results.

3. Progressive Review

The internal audit is beneficial to review progress of a business concern.The figures of previous years are compared with this year. Moreover the

performance result of similar companies can be compared to determine the

progress made by the entity. The management can review progress through

internal audit.

4. Effective Control

The internal audit is helpful to have effective control over business


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activities. Control is a management function, which related to supervision

and direction of on going activities. The manager concerned can remove the

difficulties for smooth working internal audit alerts the management for

effective control.

5. Assets Protection

The assets protection is possible through internal audit. The management

can use the assets for the benefit of business only. The assets cannot be

used for private purposes. The embezzlement of cash, misappropriation of

stock and misuse of other assets is not possible as the internal auditor

keeps close watch over assets.

6. Division of Work

The internal audit is helpful to apply division of labour. The division of

labour is necessary to watch the activities of all employees including

management. The auditor can suggest the way and means improve the

performance of business.

7. No Error

The internal audit is used to protect accounting records from errors. The

accounting and auditing go side by side when accounting work is over there

is start of audit. There is not time gap. In such situation the accounting

staff is not in a position to commit any error.

8. Fixing Responsibility

Internal audit is used to fix the responsibility of people having poor

performance. The management establishes the performance standards. The

internal auditor can evaluate the result of all persons. The people can be

help responsible for below standard work and action can be taken against

them.

9. Helps External Auditing


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The work performed by internal auditor can be helped for external auditor.

The auditor procedure of internal and external audit is almost the same.

The auditor can go through the internal audit report at the time of starting

audit work. Anyhow external auditor is responsible for external audit.

10. No Fraud

The internal audit is beneficial to detect frauds in the books of accounts

and other records. The auditor provides no time tag lag to continue any

fraud. The work of accounting staff is examined on daily basis. The

accounting staff has no time to plan any type of fraud.

11. Performance Improves

Internal auditor is helpful to improve the performance of the organization.

The achievements of previous year are the basis of preparing budget for

the next years. The projected income statement and balance are drawn up.

An attempt is made to get the positive result. Thus internal audit improves

performance of business and employees.

12. Proper Use of Resources

Internal audit is used to check the proper use of resources. The misuse of

resources can increase the cost of organization. The optimum use of

resources can be determined to control the cost of output. In this way

internal audit is a tool to use the resources in the best internal of the

business.

13. Investigation

Internal audit is help to investigate in to the business matters. In case of

doubt internal auditor can be asked to examine the facts and figures to

confirm or clear any doubt. The internal auditor can investigate the matter

in any manner. Such investigation can be made at the request of

management or owners.


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14. Suggestions

Internal auditor is used to suggest the ways and means for improving the

business performance. The management can rely on the internal auditor.The workable ideas of the internal auditor can be put into practice.

Limitations of Internal Audit

1. Incompetent Staff

The limitation of internal audit is that audit staff may be incompetent. The

purposes of internal audit fails to help the management. There may be lack

of experience and training on the part of internal audit staff.

2. Staff Shortage

The limitation of internal audit is staff shortage. There may be need ofreasonable audit staff to examine the record. The shortage of staff is a

hurdle to get benefit of internal audit.

3. Time Lag

The limitations of internal audit starts when true is time lag between

recording and checking of entries. The accounting and internal audit must

go side by side with minimum time gap.

4. Executive Function

The limitation of internal audit is that the internal audit may be linked with

executive function. In this case he cannot examine the accounting books

and other records. He cannot find out his own weakness. It will be wastage

of time and money to conduct internal audit.


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5. Error

The limitation of internal audit is that there may be error in the books of

accounts. It depends upon the expertise of internal audit staff. If auditstaff is competent there is less chance of error. In case of poor audit

staff there is no guarantee that audited accounts are free from errors.

6. Responsibility

The limitation of internal audit is that management may not feel their

responsibility in completing the audit formalities. The audit staff may

responsibility in completing the audit formalities. The audit staff may givesuggestion for proper working of business. The top-level management may

not pay attention to suggestions. In this way the audit work cannot help

the business.

7. Duties

The limitation of audit is that there may not proper division of duties. In

this case the internal auditor is unable to fix the responsibility fornegligence of duties. The management must be aware about division of

duties. The audit work can point out the weakness of business employee,

otherwise whole arrangement goes wasted.


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Auditor - Qualification, Appointment,

Removal, Rights or Power, Qualities of a

professional AuditorB-Com Part 2 Auditing Notes

Qualification of an Auditor

* Appointment of an Auditor

* Removal of an Auditor

* Rights Or Power of an Auditor

* Qualities of a Professional AuditorQualification of an Auditor (Section 226 (1) and (2)

Following persons are qualified to be appointed as auditor of a company.

1. Practicing Chartered Accounts (Sec 226 (1)J)

A person shall not be qualified for appointment as auditor of a company

unless he is a chartered accountant within the meaning of the chartered

accountant act 1949.

A chartered accountant means a person who is the member of the institute

of chartered accountant of Pakistan. He will be Deemed to be in practice.

When individually or in partnership with other chartered accountants in

practice he for consideration received or to be received.Practice of Accountancy

He engages himself in the practice of accountancy.

Verification

He offers to perform or performs the services involving the auditing or

verifications of the financial transactions, books of accounts or records or

the preparation, verification or certification of financial accounting and

related statement or holds himself out to the public as an accountant.

Professional Services


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He renders the professional services or assistance in or about matters of

principal or detail relating to accounting procedure to the recording,

presentation or certification of financial facts or data.

Renders the Services

Renders the services as, in the opinion of the council are or may be renders

by a chartered accountant in practice.

2. Certified Auditor (Sec 226 (2))

A part from practicing chartered accountants, a person holding a

certificate under the restricted auditor's certificate rules, 1965 is also

qualified to be appointed as auditor of a company. Such certified auditors

are subject to the rules framed in this behalf by the central Government.The object of the provisions as to qualified is to ensure that only persons

of proven worth and standing and under the discipline of a statutory body,

are appointed as auditor.

Disqualification {Sec 226 (3)(4)(5)}

The following person cannot become the auditor of the company accordingsection 254.

A body corporate An officer or employee of the company A person who is the employment of an officer or employee of the

company.

A person who is indebted to the company for an amount exceeding Rs.1000 or who has given any guarantee of any third person to the

company for an amount exceeding Rs. 1000.

The spouse of a director of the company. A person who was a director other officer or employee of the

company at any time during the preceding three years.


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A person who is a partner of a director, officer or employee of acompany

According to Section 226(4) a person shall not be qualified for appointmentas auditor of any body corporate. Further if the auditor already holds the

appointment as auditor in the specified number of companies as per Section

{Section 224(1-13)}, he will be disqualified for further appointment as

auditor in any other company.

Appointment

Section 252 throws light upon the appointment of an auditor:

Appointment of First Auditor By Directors

First Auditor

The co-operative law authority can appoint the first auditor of a company

if the company in the general meeting does not appoint the first auditor

within 120 days of the date of incorporation of a company.

Casual Vacancy

The board of directors is empowered to fill any casual vacancy in the office

of an auditor except one, which is caused by prior resignation.

Appointment By Shareholders

In case the board of directors fails to appoint the auditor, the company

can appoint the first auditor within 120 days of the date incorporation of

the company.Removal of an Auditor

According to Section 224(3)of the Companies Act, any auditor may beremoved from the office before the expiry of his term but it can be done

only by the company in it general meeting and with the previous approval of

the control Government.

The auditor may be removed in the following cases.

1. Removal of First Auditor

The first auditor can be removed by the members in the general meeting of

the company. It is immaterial whether the auditor has completed his term

of appointment or not. Another person can be appointed in place of firstauditor in the general meeting. Notice of nomination of such other person


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to be appointed, as auditor must be given at least 14 days prior to the

general meeting.

2. Removal of Other Auditor

Other than the member in the general meeting of the company priorapproval of the central Government to remove can remove the first auditor

the auditor must be obtained in that behalf.Rights Or Power of an Auditor

Following are the important rights of the auditor

Access To Books

According to Section 227(1) the auditor of a company has a right ofaccess, at all items to the books and accounts and voucher of the company,

whether kept at the head office of the right of access to books etc is an

absolute right and is not subject to any restriction exception or

qualification. This means that the auditor can examine the books vouchers

etc at any time during normal working hours.

Right of Inspection

It is a right of the auditor that he can inspect the record of the company

at any time. He can visit without any notice and verify the cash or anydocument.

Right of Information

According to Section 227(1) the auditor has the right to obtain any

information and explanation from the officers or directors of the company

as he may think necessary for the performance of his duties as an auditor.

If any information or explanation is refused on the ground that it is not

necessary for the performance of his duties as auditor. He may report to

the members accordingly.

Access to Branches

According to Section 228(2) the auditor has aright to visit the branch

office of the company if any, if a duly qualified auditor has not audited the

accounts of company branch and if he deems it necessary to do so for the

performance of his duties as auditor.

Receiving Notices

According to Section 231 a company auditor has a right to receive all


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notices and other communications relating to any general meeting of the

company, which any member of the company is either to have sent to him.

Right of Attending the Meeting

According to Section 231 the auditor has a right to attend any generalmeeting and to be heard there at any part of the business, which concerns

him as auditor, however, the right to attend a general meeting and to

speak there at in not mandatory.

Report to Member

According to Section 227(2) the auditor has a right to make a report to

the members on the account examined by him and to state whether the said

account give the information required by the companies act in the manner

which is required.

Sign Audit Report

According to Section 229, the auditor has a right to sign the auditor's

report or authenticate any other document of the company.

Seek Legal and Technical Advice

The auditor has a right to seek opinions of experts in different fields

whenever he feels it necessary as he is not expert in all the areas.

Receive Remuneration

According to Section 224(8) the auditor has a right to receive remuneration

for auditing the accounts of the company after he has completed the work

of audit even if he is dismissed in the middle he has a right to get full

remuneration of the year.

Speak

The auditor has a right that he can speak in the annual general meeting for

the explanation of some matters, which are related, with the accounts ofbusiness.

Present in Meeting

For the safeguard of his right the auditor has a right to remain present in

the meetings of the company. Sometimes the business accounts may not be

presented before the shareholders for the approval. In this time the

auditor can protect himself.

Opinion


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The auditor has also a right to consult the experts for some matters. In

order to clear the doubt he may get the help of the technical services. So

the auditor has also a right of seek the opinion.

CorrectionThe auditor has also a right of correction. He can make correction in the

written or spoken matters. Even that he can make a revised statement if

he founds any written mistake in it.

Representation

The auditor has also a right to defend himself if he is asked to leave the

office in the meeting. So he can make the representation in meeting. He

has a right to remain in business for the full tenure.

Important Note

It is clear that the right of an auditor cannot be limited either by the

articles of association or by the resolution of the membersEssential Qualities of an Auditor

Following are the essential qualities of an auditor:

1. Professionally Competent

It is the basic quality of an auditor. He must have a complete and thorough

knowledge of the accountancy. To understand the accounting details he can

apply his knowledge and skill. It is only possible if he has a sound

background in accountancy and he is professionally competent.

2. Honest

This is the personal quality of an auditor. He should have the high moral

standard. It is his duty to report on the fact basis. The auditor must be

honest and sincere with his profession. He is responsible not to sign any

paper which is no correct under his observation.

3. Up to Date Knowledge


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An auditor's knowledge of auditing must be up to date. He must know the

techniques of auditing. He must have the knowledge of other subjects

relating auditing.

4. Knowledge of Business/Mercantile Law

It is the professional quality of an auditor to aware of the mercantile law,

he has a complete knowledge of Contract Act, Sales of Good Act, Agency,

Negotiable instruments Act, Partnership Act etc.

5. Knowledge of Taxation Law

It is also a professional quality of an auditor. He is aware of income tax

ordinance 1979, sales tax and excise act and wealth tax etc this is helpful

in checking the correct return of income etc.

6. Intelligent

It is also important quality of an auditor that he should be intelligent.

7. Qualification

For a professional auditor it is necessary that he should be charted

accountant. According the company's ordinance 1984 it is essential

qualification for auditor.

8. Tactful

It is also the personal quality of an auditor. Technical information is

required to comment and criticize the policies of management. In case of

missing can collect it from the client.

9. Maintain Secrecy

It is another basis personal quality of an auditor. In the business world


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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 cent percent secrecy among

the clients.

10. Patience

It is also the personal quality of auditor when any document is received by

him he cannot make hurry to sign it or express or implied promise to

provide the proof later on. In spite of it he personality check the records

to know the true views.

11. Critical Attitude

The attitude of an auditor must be positive. By this quality he can get the

desirable results due to favourable thinking. If he is confused about some

matters he can go into the details to clear it.

12. Bold and Courageous

Auditor should be bold and courageous person. Any authority should not

influence him. He should possess the courage to face the difference of

opinion between him and client on any issue.

13. Courteous

It is an important quality, which the auditor should possess. His attitude

towards the staff of client should be very humble and polite. He shouldalso stress on his own staff to be courteous with the client.

14. Budget Preparation

The auditor has a quality of preparing the budget. According to the facts

and figures of the Previous year, the estimates are established for the

next year. The auditor can check that these budgets are according to their

facts and corrects.


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Personal Qualities

15. Independence

Independence is the personal quality of an auditor. This quality is desirable

for independent opinion on business activities. He cannot be influence

directly or indirectly by other people. An auditor must be independent at

the time of programming investigation and reporting. He cannot change his

programme due to management interference.

16. Vigilance

This is also the quality of an auditor. By this quality the auditor can

discover the errors arid frauds. The auditor can also watch and check that

if accounting staff has made any fraud or error. Because he has to be

alert minded so that he cannot avoid errors and work well.

17. Judgement

An auditor must have the qualities of judgement. Judgement is involved inselecting depreciation, provision for bad debts, inventory valuation. The

auditor can apply professional knowledge; experience and ethics to make

decisions, which have no, prescribe areas.

18. Common Sense

An auditor must have common sense. He can make difference between

essential and non-essential information. An item, which can influence thedecision of other people, is considered as material. The auditor can use

common sense to declare it as important rather then application of

principles.

19. Prudence

Prudence is the personal quality of an auditor he can be asked to give

advise on financial matters. He can be allowed to suggest improvement in


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accounting methods and techniques. There is a need to use prudence for

guiding the businessman when he is asked to do so.

20. Practical

An auditor must have practical training. He can seek training in the field of

finance, management and business organization. An audit staff is able to

pass through a comprehensive training. This practical training is part of this

professional life.

21. Self Control

An auditor must have qualities of self-control. The balance work shows

regular progress on the part of audit. There is no over work or less work

every day. A discipline is created in every work. The quality of audit work

is improved due to discipline.

22. Initiative

An auditor must have the quality of initiative. He can start and complete anaudit work without any help. The auditor must have experience,

qualification and courage to complete the auditor work. He has courage to

deal with audit work even in difficult situations.

23. Leadership

An auditor must have leadership. He is the working under his leadership. He

must have communication ability. He can motivate and control the auditstaff. As a team leader he can guide the auditor through practical-

demonstration.

24. General Knowledge

It is also a professional quality of an auditor. He is aware of the economic

and political conditions. He is also aware of the latest knowledge, which

affects the business concern.


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25. Electronic Data Processing

The auditor should also aware of the use of computer in the business forgetting the information. He is must also trained in handling the data

through the computers

Audit Evidence

B-Com Part 2 Auditing Notes

Meaning of Audit Evidence

* Importance of Audit Evidence

* Objectives of Audit Evidence

* Procedure of Audit Evidence

* Key Points for Collecting EvidencesMeaning of Audit Evidence

Any document, piece of information, voucher written or oral statement of

any procedure which assists an auditor in forming his opinion in regard to

the accuracy of data under audit.

The role of the auditor is that of an independent professional critic who

investigates, analyses and evaluates the information underlying the

statement as a means of reaching a conclusion as to their fairness. Before

and auditor can express an opinion on financial statements, he must have

sufficient evidence that

The items in the financial statements are supported by the balancesin the ledger accounts.


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The balances in the ledger account summarize correctly the numerousdebit and credit entries.

These debit and credit entries in the accounts represent properaccounting interpretation of all the transaction entered into be thebusiness.

Importance of Audit Evidence

While accepting the appointment, an auditor accepts to discharge certain

legal obligations and responsibilities. In discharging his responsibility, the

auditor should convince himself, in the first instance, that the accounts,

he is reporting upon, are correct and the financial transaction recorded

are duly supported by the documentary evidence. If he is not satisfiedwith the accuracy of the accounts or the authenticity of evidence, there

is no point in certifying the accounts as correct. The examination of

evidence is therefore necessary, so that strength would be based for

independent, impartial and expressed opinion of the auditor. On

auditor's opinion, the Directors, Shareholders and other initiative

action.Objectives of Audit Evidence

The objects of verifying evidence are

To ensure that the errors, if any, in the data would be discovered byverifying the evidences.

To facilitate the completion of audit programme scheduled andundertaken.

Procedure of Audit Evidence

The following procedure is generally followed for the verification of

evidences

Verification of accounts of account balances shown in the financialstatements or the accounting reports

To ensure that the procedure installed for control purposes isproperly followed


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Looking at the evidence for the balance amount shown in the ledger, the

auditor has to work backwards in order to ensure that all those

transactions responsible to give rise to that balance is also duly supported

with evidences.

The auditor should also carefully ensure that procedures being followed bythe organization are effective and do not have any room for leakages. In

the area where the financial involvement is heavy, the auditor should

carefully review internal control procedures and the implementation of

procedures designed and installed for an effective control of function.Key Points for Collecting Evidences

1. Physical existence of the assets

2. Authoritative documents

3. Statement by third parties

4. Calculation by the auditor

5. Satisfactory Internal Control

6. Subsidiary or detailed records

7. Subsequent action of the company

8. Formal statement by company's officers

9. Interrelationship within the data examined.

audit book b com

Documents