portfolio of an auditor

8/6/2019 Portfolio of an Auditor

http://slidepdf.com/reader/full/portfolio-of-an-auditor 1/15

ACKNOWLEDGEMENT

It gives us immense joy and pleasure to acknowledge the help of all the people who have helped us complete this project.

Our group owes more than it can say to the experience and theguidelines of our College Principal Dr. Marie Fernandes and theexcellent faculty and staff of St. Andrew’s College Bandra.

We are greatly indebted to our __________________project guideProf. __________________for her enthusiastic support and co-operation as also for her constant encouragement throughout themaking of this project.

A special thanks to our friends and above all to our families fortheir unceasing love, support and encouragement. Their wisdomhas helped us through the highs and lows of completing thisproject.



DECLARATION

We the students of St. Andrew’s College of t.y.b.b.i semester-1hereby declare that we have completed the Project titled------------for the subject princilples of management for the academic year2011-12.

MILTON GRACIASALSTON PEREIRA

JEYSON BARBOZACLIFFTON KINNYHEINRICH KINNYVICKY RAMESHKEVIN D’SOUZA

NAME SIGN ROLL NO



CERTIFICATE

I ________________________________hereby certify that the followingstudents of St. Andrew’s College of f.y.b.b.i semester-1 havecompleted the project titled----------for the subject princilples of management for the academic year 2011-12.

8 BIBLOGRAPHY

S.NO

TOPIC

1 INTRODUCTION2 AUDITORS INDEPENDENCE3 AUDITORS PROFESSIONALISM4 AUDITORS RESPONSIBILITIES5 RIGHTS OF COMPANY AUDITOR6 DUTIES OF COMPANY AUDITOR7 LIABILITIES OF AUDITORS



INTRODUCTION

Professional accountants have an important role in society, investors,creditors, employers and other sectors of the business community, as well asthe government and the public at largely on professional accountant forsound financial accounting and reporting, effective financial management

and competent advice on a variety of business and taxation matter. Theattitude and behavior of professional accountants in providing such impacton the economic well-being of their community and country. Professionalaccountants can remain in this advantageous position only by continuing toprovide the public with these unique services at a level which demonstratesthat the public confidence is firmly founded. It is in the best interest of theworldwide accountancy profession to make users of the services provided byprofessional accountant that they are executed at the highest level of performance and in accordance with ethical requirement to ensure suchperformance.

In order to achieve the objectives of the accountancy profession, professionalaccountants have to observe a number of fundamental principles as under:

Integrity: A professional accountant should be straightforward andhonest in performing professional services.

Objectivity: A professional accountant should be fair and should notallow prejudice or bias, conflict of interest or influence of others tooverride objectivity.

Professional competence and due care: A professional accountantshould perform professional services with due care, competence anddiligence and has a continuing duty to maintain professionalknowledge and skill at a level required to ensure that a client oremployer receives the advantages of competent professional servicebased on up-to-date developments in practice, legislation andtechniques.



Confidentiality: A professional accountant should respect theconfidentiality of information acquired during the course of performingprofessional services and should not use or disclose any suchinformation without proper and specific authority or unless there is alegal or professional right or duty to disclose.

Professional behavior: A professional accountant should act in amanner consistent with the good reputation of the profession andrefrain from any conduct which might bring discredit to the profession.

AUDITOR’S INDEPENDENCE:

Independence is fundamental to the reliability of auditors’ reports. Thosereports wouldNot be credible, and investors and creditors would have little confidence inthem, if auditors were not independent in both fact and appearance. To becredible, an auditor’s opinion must be based on an objective anddisinterested assessment of whether the financial statements are presentedfairly in conformity with generally accepted accounting principles. Asexpressed by Council of the American Institute of Certified PublicAccountants (AICPA) in a statement adopted in 1947: Auditorindependence refers to the independence of the internal auditor or of the external auditor . It is essentially an attitude of mind characterizedby integrity and an objective approach to the audit process. The conceptrequires the auditor to carry out his or her work freely and in an objectivemanner. The notion has been described as 'an impossible dream.

♦ Independence of the internal auditor means independence fromparties whose interests might not be totally aligned with an effective risk

management , an effective internal control , and an optimal governance . The Charter of Audit and the reporting to an Audit Committee generallyprovides independence from management , the code of ethics of thecompany (and of the Internal Audit profession) helps give guidance onindependence from suppliers, clients, third parties...

http://en.wikipedia.org/wiki/Independence

http://en.wikipedia.org/wiki/Internal_auditor

http://en.wikipedia.org/wiki/External_auditor

http://en.wikipedia.org/wiki/Integrity

http://en.wikipedia.org/wiki/Objective_approach

http://en.wikipedia.org/wiki/Auditor

http://en.wikipedia.org/wiki/Risk_management


http://en.wikipedia.org/wiki/Internal_control

http://en.wikipedia.org/wiki/Governance

http://en.wikipedia.org/w/index.php?title=Charter_of_Audit&action=edit&redlink=1

http://en.wikipedia.org/wiki/Audit_Committee

http://en.wikipedia.org/wiki/Management

http://en.wikipedia.org/wiki/Code_of_ethics

http://en.wikipedia.org/wiki/Independence

http://en.wikipedia.org/wiki/Internal_auditor

http://en.wikipedia.org/wiki/External_auditor

http://en.wikipedia.org/wiki/Integrity

http://en.wikipedia.org/wiki/Objective_approach

http://en.wikipedia.org/wiki/Auditor



http://en.wikipedia.org/wiki/Internal_control

http://en.wikipedia.org/wiki/Governance

http://en.wikipedia.org/w/index.php?title=Charter_of_Audit&action=edit&redlink=1






♦ Independence of the external auditor means independence fromparties, that have an interest in the financial statements of an entity. Thesupport from and relation to the Audit Committee of the client company, thecontract and the contractual reference to public accounting standards/codes

generally provides independence from management , the code of ethics of the Public Accountant profession) helps give guidance on independence fromsuppliers, clients, third parties

The following are some of the suggestions mooted in recent years forensuring greater independence of auditors.

1. Setting up of an independent audit committee comprising of non-executive directors of the company to deal with all audit relatedfunctions and to act as in insulator between the management and theauditors.

2. Peer review of auditors to monitor whether an auditor is maintainingproper standards.

3. Probation on the auditor accepting goods, services or undue hospitalityfrom a client.

4. Dissociation with audit where there is actual or threatened litigationwith the client.

5. Not allowing auditors to render management services or other non-audit services to the company under audit.

6. Prohibition on persons to act as auditors of a company if they arerelated to directors they have common financial interests with them.

7. Rotation of auditors.

http://en.wikipedia.org/wiki/Financial_statements




http://en.wikipedia.org/wiki/Financial_statements






AUDITOR’S PROFESSIONALISM:

Internal auditing is an independent, objective assurance and

consulting activity designed to add value and improve anorganization’s operations. It helps an organization accomplish itsobjectives by bringing a systematic, disciplined approach toevaluate and improve the effectiveness of risk management,control, and governance processes.

In addition to fulfilling the duties described in the definition of internalauditing, professional internal auditors have several other characteristics incommon. These characteristics, inherent professionalism at its best, definethe level to which all internal audit practitioners should aspire, the degree of respect to which management and the board pays the internal audit

function, and the extent of the value internal auditors can bring to theirorganization’s ethical operations. Much is written about ethics and ethicalbehavior these days. From a global perspective, there appear to bediscrepancies from country to country on what is considered ethical.Discrepancies on what is accepted as ethical behavior can also be foundwithin the same country, from organizationto organization. But this liberal view has no place in the world of internalauditing. Internal auditors are tasked with standing for what is right, for



adhering to the highest ethical code, and for never yielding to pressures tobend the rules and alter the path.Charged with monitoring organizational ethics, professional internal auditorsadhere to The Institute of Internal Auditors’ (IIA’s) Code of Ethics . Theypossess a high level of trust and integrity within the organization, the skills

to be effective advocates of ethical conduct, and the competence andcapacity to encourage the organization’s personnel to comply with theirethical responsibilities.A case in point is Worldcom’s internal auditor, CynthiaCooper. She was unwavering in her integrity, her commitment to ethics, andher dedication to diligently performing her responsibilities. She admirablycarried forth her duties of collecting and analyzing data, and then throughtheAppropriate chain of command, delivering the results to the audit committee.What Ms. Cooper exemplified was professionalism — not heroism — andinternal audit practitioners everywhere would do well emulating the exampleshe set. On a greater scale, ethics are as much an organizational issue as a

personal issue. This is howthe term “tone at the top” originated. Management should set, promote, andperpetuate an ethical climate at the very top of the organization. Onlycandidates with integrity and high ethics should be considered for positionswithin the organization, and the corporate culture should tolerate nothingless than ethical practices and behavior.

The professional internal auditor’s role includes monitoring whether theorganization’s policies and procedures support ethical operations andwhether processes are in place to mitigate any threats and risks to theorganization’s integrity and ethical reputation. This ties in closely, of course,with the internal auditor’s responsibility to analyze the organization’s entire

system of internal control and governance processes to ensure they areeffective and strong. The bottom line is that an ethical environment — fromthe boardroom to the mailroom is one of the smartest and strongest internalcontrols management could implement.

AUDITORS RESPONSIBILTIES:

The auditor is responsible for forming and expressing his opinion on thefinancial statements. The responsibility for their preparation is that of themanagement of the company. An auditor is a member of a valuedprofession. His primary duty is to report all the accounts and statement asprepared and presented to the members of the company by its directors. Hehas not only a responsibility to member of the company but also a duty tothird parties such as creditors and investors.

The statement on the responsibility of joint auditors issued by ICAI describesthe professional responsibilities of the members undertaking joint audit. Themain points of the statement are as follows:



I. If the division of work between the joint auditors is such that aspecific part of audit work in relation to a particular area is doneby each auditor alone, each joint auditor will be responsible onlyfor the work allocated to him.

II. Division of work between joint auditors should be by mutual

discussion and the client should be informed as to theirrespective areas of work.III. Matters requiring discussion, disclosure or application of

judgment should be brought to the attention of the other jointauditors before finalization of audit

IV. Each joint auditor has a separate and specific responsibility toevaluate and review the existing system of internal control anddetermine the audit tests and depth of review.

V. If audit of different branches or divisions has been entrusted todifferent auditors, each joint auditor will have specific andseparate responsibility to review the returns of the respective

branches and the divisions.VI. It is not incumbent on any joint auditor to review the work doneby other joint auditors and he is entitled to presume that theyhave carried out their respective parts of the work according tothe normal standards laid down by the institute and generallyaccepted auditing standards.

VII. If the auditors do not agree in respect of the report each of themmay then make a separate report. There is no question of majority or minority opinion in the case of a joint audit report,and each joint auditor has both a right and a duly to express hisown opinion.

RIGHTS OF COMPANY AUDITOR:

To enable the auditor to discharge his duties effectively, the Act gives himcertain rights. An auditor has the right of access to the books and vouchersof the company. He is also entitled to seek information and explanationsfrom the officer of the company. He has the right to receive notices andother communications pertaining to all general meetings of the company andto attend any general meeting. These rights enable the auditor to carry out



his duty of reporting to the member of the company on the financialstatement examined by him.

1) Access and vouchers : Sec227 (1) of the act provides that ‘every auditor

of a company shall have a right of access at all times to the books andaccounts and vouchers of the company, whether kept at the head officeof the company or elsewhere….” This right of the auditor to inspect booksaccounts and the supporting document is absolute. The term ‘voucher’includes of all documents, correspondence, agreements, etc. whichsupport any of the transactions or data disclosed in the financialstatements, directly or indirectly, similarly, the term ‘books’ includes thefinancial, statutory, and statistical books.

2) Obtain information and explanation : Sec227 (1) of the act entitles theauditor of a company “to require from the officers of the company “such

information and explanations as the auditor may think necessary for theperformance of his duties as auditor”. In case any information orexplanation are not given to him, he should report this fact to themembers.

3) To visit branch offices and access to branch accounts : Sec228 (2)of the act gives specific rights to the company auditor where the accountsof any branch office are audited by another person. Accordingly, thecompany auditor:

a) Shall be entitled to visit the branch office, if he deems itnecessary to do so for the performance of his duties as auditor,and

b) Shall have a right of access at all times to the books andaccounts and vouchers of the company maintained at the branchoffice: provided that in the case of abanking company having a branch office outside India, it shall besufficient if the auditor is allowed access to such copies of, andextracts from, the books and accounts of the branch as havebeen transmitted to the principal office of the company in India.

c) To receive notices and to attend General meetings: Sec231 of

the act provides that “all notices of, and other communicationsrelating to, any general meeting of a company which anymember of the company is entitled to have sent shall also beforwarded to the auditor of the company; and the auditor shallbe entitled to attend any general meeting and to be heard at anygeneral meeting which he attends on any part of the businesswhich concerns him as auditor”.



Thus, the auditor has the right to attend general meetings and speak onmatters concerning him as auditor. However, the mere fact that he has madecertain observations at the general meeting does not relieve him of hisresponsibility to makes proper disclosures in his report.



DUTIES OF COMPANY ADUITOR:

1. Duty to certify the statutory report:

The auditor has to certify the correctness of the statutory report as far as:a. The number of the shares allotted by the company, whether against cashor for any other consideration;

b. The total amount of cash received by the company in respect of all theshares allotted, distinguishing as aforesaid;

c. An abstract of the receipts of the company and the payments made thereout;

2. Duty to certify profit and loss account in a prospectus:

Section 56(I) provides that a prospectus issued by an existing company shallcontain a statement of profits and losses, year-wise company shall contain astatement of profits and losses, year-wise for the previous five years showingthe rate of dividend paid each year and a statement of assets and liabilitiesof the company. Such a statement has to be certified by the auditor of thecompany.

3. Duty to assist investigators:

An auditor is bound to assist the inspectors in every possible way when theaffairs of the company are being investigated.

4. Duty as to declaration of solvency in members voluntary windingup :

In case of members’ voluntary winding up of a company, a copy or the reportof the company’s auditor on the profit and loss account and the balance-sheet for the period commencing from the date by which the last accountwas prepared and up to the date of declaration is to be sent along with thedeclaration of solvency. In the said report a statement of the company’sassets and liabilities for the same period should also be included.

The statutory duties of the auditors as stated above can be expanded butthey cannot be curtailed either by the articles of association or by the

directors of the company.5. Duty of reasonable care: An auditor must act honestly and withreasonable care and skill; otherwise he may be sued for damages. Further, itis the duty of an auditor to verity with skill, care and caution which areasonably competent, careful and cautious auditor would use. What isreasonable skill, care and caution must depend on the particularcircumstances of each case. An auditor is not bound to be a detective or to



approach his work with a foregone conclusion that there is something wrong.He is a watch-dog but not a blood hound. He is justified in believing triedservants of the company and in assuming that they are honest provided hetakes reasonable care.

THE LIABILITIES OF AUDITORS:

A. Liabilities of auditors under the companies Act,1956:

Under the companies act, 1956 an auditor may be subjected to civil andcriminal liabilities. There are number of circumstances where the auditormay attract various types of liabilities on account of failure to properlydischarge his responsibilities.

Civil liabilities in the companies act: The civil liability arises when it is provedthat the company has suffered losses as a result of the failure of the auditorto conduct his audit with due care and skill.

i. Misfeasance (Section 543): It is simple procedure under the act forbringing an action against persons associated with promoter ormanagement of a company under winding up. An auditor is coveredwithin the scope of the liability as an officer of the company, pursuantto the definition of officer given in section 2(3) of the act. This sectionspecifies a plain remedy to recover damages corresponding loss willnot create any liability. If an auditor is found to be negligent and

unskillful in the performance of his duties due to which the companysuffers losses, he is liable at least to the extent the company has lostand proceedings may be taken against him.

ii. Violation of the requirement of section 227 and 229: Undersection 233 of the act an auditor is liable to a penalty extending toRs.1000 for willful default in complying with the requirements of section 227 and 229 of the companies act in regard to making of theauditor’s report or signing or authentication of any document of thecompany.

iii. Misstatement in prospectus : An auditor, as an expert, is exposed toliability for misstatement in prospectus under section 62 of the act. Theauditor liable to such persons who may have subscribed to the sharesor debentures of the company on the fairth of his report incorpated inthe prospectus issued by company and have suffered loss due toexistence of untrue statement in the report.

B. Criminal Liabilities in the Companies Act:



i. Fraud and Deception : Section539 of the Act prescribes severecriminal penalties if fraudulent falsification of books is carried out bythe auditor. An auditor may be held liable, if with intent to defraud ordeceive any person

(a) He has destroyed, altered, falsified, and secreted any books,paper or securities of a company.(b)He has made or is privy to the making of any false or

fraudulent entry in any registry, books or account ordocument belonging to the company.

The proceedings under the section can be taken in

respect of a company under winding up and the punishment mayextent to imprisonment for seven years. The auditor shall also liable tofine.

ii. Offence in relation to the company : An auditor as an officer, isliable to be prosecuted under section 545 of the act, if he as a pastor present auditor, has been guilty of offence in relation to thecompany.

iii. False statement, etc : Under section 638 of the act, the auditor isliable to criminal prosecution if he, in any return, certificate, balancesheet, prospectus, statement or other document makes a statementwhich is false in any material particular, knowing it to be false or;omits any material facts knowing it to be material, is punishable withimprisonment for a term which may extent to two years and also

with a fine.



BIBLOGRAPHY

www.google.com

www.wikipedia.com

http://www.google.com/

http://www.wikipedia.com/

http://www.google.com/

http://www.wikipedia.com/

portfolio of an auditor

Documents