S16S16: : AuditingAuditing

StandardsStandards

Session ObjectivesSession Objectives

To define auditing To define auditing standardsstandards

To discuss different To discuss different auditing standardsauditing standards

To outline the Auditing To outline the Auditing Standards of the CAG of Standards of the CAG of IndiaIndia

Auditing StandardsAuditing Standards

Auditing StandardsAuditing Standards aim to improve the auditing practices. aim to improve the auditing practices. provide a framework for the auditing provide a framework for the auditing

steps and procedures. steps and procedures. Conducting audit in accordance with Conducting audit in accordance with

standards gives necessary standards gives necessary assurance to people making use of assurance to people making use of the financial statements and audit the financial statements and audit reports.reports.

Auditing Standards of the Auditing Standards of the CAG of IndiaCAG of India

2.1   Auditing Standards prescribe the 2.1   Auditing Standards prescribe the norms of principles and practices, which norms of principles and practices, which the Auditors are expected to follow in the the Auditors are expected to follow in the conduct of Audit. They provide minimum conduct of Audit. They provide minimum guidance to the Auditor that helps guidance to the Auditor that helps determine the extent of auditing steps and determine the extent of auditing steps and procedures that should be applied in the procedures that should be applied in the audit and constitute the criteria or audit and constitute the criteria or yardstick against which the quality of yardstick against which the quality of audit results are evaluated.audit results are evaluated.

IFAC StandardsIFAC Standards The accounting bodies of various countries The accounting bodies of various countries

established the International Federation of established the International Federation of Accountants (IFAC) in 1977Accountants (IFAC) in 1977

To develop and enhance a co-ordinated To develop and enhance a co-ordinated worldwide accountancy profession. worldwide accountancy profession.

International Auditing Practices Committee International Auditing Practices Committee (IAPC) – A standing committee of the Council (IAPC) – A standing committee of the Council of IFAC assigned with the specific of IFAC assigned with the specific responsibility and authority to issue responsibility and authority to issue standards on auditing and related services. standards on auditing and related services.

The IFAC has issued a number of The IFAC has issued a number of International Standards on Auditing (ISAs)International Standards on Auditing (ISAs)

ICAI StandardsICAI Standards

The Institute of Chartered Accountants of The Institute of Chartered Accountants of India (ICAI) issued a number of Auditing India (ICAI) issued a number of Auditing and Assurance Standards (AASs).and Assurance Standards (AASs).

Based on the corresponding ISAs issued Based on the corresponding ISAs issued by IFAC, these AASs take into by IFAC, these AASs take into consideration the applicable laws, consideration the applicable laws, customs, usages and business customs, usages and business environment in India.environment in India.

These Standards have a significant effect These Standards have a significant effect on the way audit of companies is on the way audit of companies is conducted in India.conducted in India.

INTOSAI StandardsINTOSAI Standards

The Auditing Standards Committee of the The Auditing Standards Committee of the International Organisation of Supreme International Organisation of Supreme Audit Institutions (INTOSAI) issued Audit Institutions (INTOSAI) issued Auditing Standards (1992)Auditing Standards (1992) Code of Ethics for auditors in the public sector Code of Ethics for auditors in the public sector

(1998)(1998) Though not mandatory, they reflect a “best Though not mandatory, they reflect a “best

practices” consensus among the Supreme practices” consensus among the Supreme Audit Institutions (SAIs)Audit Institutions (SAIs)

Each SAI is required to judge the extent to Each SAI is required to judge the extent to which the Standards are compatible with which the Standards are compatible with the achievement of its mandatethe achievement of its mandate

BASIC POSTULATES

GENERAL STANDARDS

FIELDSTANDARDS

REPORTING STANDARDS

Four Parts of the Auditing Standards of the CAG of India

Basic Postulates-IBasic Postulates-I Compliance to INTOSAI Auditing StandardsCompliance to INTOSAI Auditing Standards

Existence of a policy by which the standards are Existence of a policy by which the standards are followed for the various types of audit carried out followed for the various types of audit carried out by the IAAD to ensure that the work and products by the IAAD to ensure that the work and products are of high quality. are of high quality.

Application of Auditor’s Judgment Application of Auditor’s Judgment Impracticability of a code of rules, sufficiently Impracticability of a code of rules, sufficiently

elaborate to cater to all situations and elaborate to cater to all situations and circumstances circumstances

Auditor’s judgment in determining the auditing Auditor’s judgment in determining the auditing procedures necessary in the circumstances to procedures necessary in the circumstances to afford a reasonable basis for his opinion and the afford a reasonable basis for his opinion and the content of his report. content of his report.

Application of standard audit practices issued by Application of standard audit practices issued by the Institute of Chartered Accountants for auditing the Institute of Chartered Accountants for auditing the financial statements of public sector enterprisesthe financial statements of public sector enterprises

Basic Postulates-IIBasic Postulates-II Promoting Public AccountabilityPromoting Public Accountability

to safeguard the financial interests of the State and to to safeguard the financial interests of the State and to uphold and promote public accountability and sound uphold and promote public accountability and sound and economical financial management practices. and economical financial management practices.

To evaluate the system of internal control including To evaluate the system of internal control including adequacy of information control, evaluation and adequacy of information control, evaluation and reporting systems within the Government.reporting systems within the Government.

Management responsibility for correctness and Management responsibility for correctness and sufficiency of the form and content of the financial sufficiency of the form and content of the financial reports and other information. reports and other information.

Consistent application of acceptable accounting Consistent application of acceptable accounting standards should result in the fair presentation standards should result in the fair presentation of the  financial position and the results of of the  financial position and the results of operations.operations.

Basic Postulates-IIIBasic Postulates-III Confidentiality of Information gathered during Confidentiality of Information gathered during

AuditAudit Information about an audited entity acquired in the Information about an audited entity acquired in the

course of fie Auditor's work must not be used for purposes course of fie Auditor's work must not be used for purposes outside the scope of audit and formation of an opinion or outside the scope of audit and formation of an opinion or in reporting not in accordance with the 'Auditor's in reporting not in accordance with the 'Auditor's responsibility. It is essential that Audit maintain responsibility. It is essential that Audit maintain confidentiality regarding audit matters and the confidentiality regarding audit matters and the information obtained while carrying out audit information obtained while carrying out audit engagements. engagements.

All Audit Activities to be within the CAG’s MandateAll Audit Activities to be within the CAG’s Mandate The term 'Audit' includes Financial Audit, Regularity The term 'Audit' includes Financial Audit, Regularity

Audit and Performance Audit. The CAG is empowered to Audit and Performance Audit. The CAG is empowered to decide the nature, scope, extent and quantum of audit decide the nature, scope, extent and quantum of audit including the form and content of the audit reports in including the form and content of the audit reports in respect of audit to be conducted by him or on his behalf. respect of audit to be conducted by him or on his behalf.

Basic Postulates-IVBasic Postulates-IV Continuous improvement of techniques for Continuous improvement of techniques for

auditing the validity of performance measuresauditing the validity of performance measures to improve and develop new techniques and to improve and develop new techniques and

methodologies to assess whether reasonable and methodologies to assess whether reasonable and valid performance measures are used by the audited valid performance measures are used by the audited entity. entity.

auditors to acquaint themselves with techniques and auditors to acquaint themselves with techniques and methodologies of other relevant disciplines. methodologies of other relevant disciplines.

Avoidance of conflict of interest between the Avoidance of conflict of interest between the auditor and the auditeeauditor and the auditee need to maintain independence and objectivity. The need to maintain independence and objectivity. The

application of appropriate general auditing application of appropriate general auditing standards assists the CAG in satisfying these standards assists the CAG in satisfying these requirements requirements

General StandardsGeneral Standards

General standards common to auditors and audit General standards common to auditors and audit institutions:institutions: The auditor and the audit institutions must be independent.The auditor and the audit institutions must be independent. The auditor and the audit institutions must possess the required The auditor and the audit institutions must possess the required

competence.competence. The auditor and the audit institutions must exercise due care The auditor and the audit institutions must exercise due care

and concern in complying with these auditing standardsand concern in complying with these auditing standards

General auditing standards for the audit General auditing standards for the audit institutionsinstitutions:: They should adopt policies and procedures toThey should adopt policies and procedures to Recruit personnel with suitable qualificationsRecruit personnel with suitable qualifications Develop and train employeesDevelop and train employees Prepare manuals and instructions concerning the conduct of Prepare manuals and instructions concerning the conduct of

auditsaudits Maintain optimum level of skillsMaintain optimum level of skills Review the efficiency and effectiveness of internal standards Review the efficiency and effectiveness of internal standards

and proceduresand procedures

IndependenceIndependence Independence from the legislature, independence Independence from the legislature, independence

from the executive, and independence from the from the executive, and independence from the audited entity.audited entity.

CompetenceCompetence Auditor to possess required professional Auditor to possess required professional

competence.competence.

Due CareDue Care Auditor to exercise due care in specifying, Auditor to exercise due care in specifying,

gathering and evaluating evidence, and in gathering and evaluating evidence, and in reporting findings, conclusions and reporting findings, conclusions and recommendations.recommendations.

General Standards for General Standards for SAI-ISAI-I

Quality Assurance ReviewQuality Assurance Review IAAD should have an appropriate quality assurance IAAD should have an appropriate quality assurance

system in place.system in place. Establish systems and procedures to confirm satisfactory Establish systems and procedures to confirm satisfactory

operation of internal quality assurance processes; operation of internal quality assurance processes; Ensure the quality of the audit report; and Ensure the quality of the audit report; and Secure improvements and avoid repetition of weaknesses. Secure improvements and avoid repetition of weaknesses. Other General Standards for Audit InstitutionsOther General Standards for Audit Institutions System of training to enable auditors to perform their System of training to enable auditors to perform their

task effectively and also to define the basis for the task effectively and also to define the basis for the advancement of auditors and other staff. advancement of auditors and other staff.

Manuals and instructions concerning the conduct of auditManuals and instructions concerning the conduct of audit Continuous Skill Development within the IAADContinuous Skill Development within the IAAD

General Standards for SAI General Standards for SAI - II- II

General Standards for SAI General Standards for SAI - III- III

Standards with ethical significanceStandards with ethical significance Auditor should avoid conflict of interest with the Auditor should avoid conflict of interest with the

audited entity to preserve the auditor’s audited entity to preserve the auditor’s independence.independence.

The auditor must exercise due care and concern The auditor must exercise due care and concern in complying with the auditing standards. in complying with the auditing standards.

The auditor should at all times maintain The auditor should at all times maintain absolute integrity and devotion to duty. absolute integrity and devotion to duty.

Auditors should not disclose information Auditors should not disclose information obtained in the auditing process to third parties, obtained in the auditing process to third parties, either orally or in writing.   either orally or in writing.  

Planning to ensure that an audit of high quality Planning to ensure that an audit of high quality is carried out in an economic, efficient and is carried out in an economic, efficient and effective way and in a timely manner;effective way and in a timely manner;

Supervision of audit work at each level; Supervision of audit work at each level; Review of documented work by a senior Review of documented work by a senior

member of the audit team;member of the audit team; Evaluation of the reliability of internal control;Evaluation of the reliability of internal control; Testing compliance with applicable laws and Testing compliance with applicable laws and

regulations in case regularity (financial) audit;regulations in case regularity (financial) audit;

Field Standards-IField Standards-I

Design of audit steps and procedures to Design of audit steps and procedures to provide reasonable assurance of detecting provide reasonable assurance of detecting errors, irregularities, and illegal acts having a errors, irregularities, and illegal acts having a direct and material effect on the financial direct and material effect on the financial statementstatement

Competent, relevant and reasonable evidence Competent, relevant and reasonable evidence to be obtained to support the auditor's to be obtained to support the auditor's judgment and conclusions;judgment and conclusions;

Compliance to acceptable accounting Compliance to acceptable accounting standards for financial reporting in regularity standards for financial reporting in regularity (financial) audit;(financial) audit;

Field Standards-IIField Standards-II

Field Standards: PlanningField Standards: Planning Auditor toAuditor to Understand the entity Understand the entity Consider the form, content and users of audit opinions, Consider the form, content and users of audit opinions,

conclusions or reports;conclusions or reports; Specify the audit objectives and the tests necessary to Specify the audit objectives and the tests necessary to

meet them;meet them; Identify key management systems and controls, assess Identify key management systems and controls, assess

risk, set materiality levels;risk, set materiality levels; Review the internal audit of the audited entity and its Review the internal audit of the audited entity and its

work program;work program; Determine the most efficient and effective audit Determine the most efficient and effective audit

approach;approach; Provide for a review; andProvide for a review; and Provide for appropriate documentation of the audit plan Provide for appropriate documentation of the audit plan

and for the proposed fieldwork. and for the proposed fieldwork.

Field Standards: Supervision Field Standards: Supervision and Reviewand Review

The work of the audit staff at each level and The work of the audit staff at each level and each audit phase to be properly supervised each audit phase to be properly supervised during the audit to ensure:during the audit to ensure:

audit team has a clear and consistent audit team has a clear and consistent understanding of audit plan;understanding of audit plan;

Audit is carried out in accordance with auditing Audit is carried out in accordance with auditing standards and practices;standards and practices;

Any deviation from the audit plan is done after Any deviation from the audit plan is done after due authorisation;due authorisation;

Working papers contain adequate evidence Working papers contain adequate evidence supporting all conclusions, recommendations and supporting all conclusions, recommendations and opinions;opinions;

Audit objectives are achieved; andAudit objectives are achieved; and Audit report includes audit conclusions, Audit report includes audit conclusions,

recommendations and opinions, as appropriate. recommendations and opinions, as appropriate.

Field Standards: Field Standards: DocumentationDocumentation

Adequate documentation must be made to:Adequate documentation must be made to: Confirm and support the auditor's opinions and Confirm and support the auditor's opinions and

reports;reports; Increase the efficiency and effectiveness of the Increase the efficiency and effectiveness of the

audit;audit; Serve as a source of information for preparing Serve as a source of information for preparing

reports;reports; Serve as evidence of the auditor's compliance Serve as evidence of the auditor's compliance

with Auditing Standards;with Auditing Standards; (Facilitate planning and supervision;(Facilitate planning and supervision; Help the auditor's professional development;Help the auditor's professional development; Help to ensure that delegated work has been Help to ensure that delegated work has been

satisfactorily performed; andsatisfactorily performed; and Provide evidence of work done for future Provide evidence of work done for future

reference.reference.

Reporting Standards-IReporting Standards-I

Audit Reports must satisfy the Audit Reports must satisfy the basic criteria for reporting:basic criteria for reporting: Completeness Completeness AccuracyAccuracy BeingBeing convincing, concise and convincing, concise and

constructive constructive Clarity Clarity TimelinessTimeliness

Reporting Standards - IIReporting Standards - II

Audit to report onAudit to report on compliance with laws and compliance with laws and

regulations and on internal controlregulations and on internal control Fraud, illegal acts and other Fraud, illegal acts and other

noncompliance.noncompliance. Audit follow-up standard requires Audit follow-up standard requires

auditors to report whether auditors to report whether satisfactory action was taken or not, satisfactory action was taken or not, on the audit reports on the audit reports

Reporting Standards: Internal Reporting Standards: Internal ControlControl

Report on Deficiencies in Internal Control to point Report on Deficiencies in Internal Control to point outout

Absence of appropriate segregation of duties; Absence of appropriate segregation of duties; Absence of appropriate reviews and approvals of Absence of appropriate reviews and approvals of

transactions, accounting entries or systems output; transactions, accounting entries or systems output; Inadequate provisions for the safeguarding of assets; Inadequate provisions for the safeguarding of assets; Evidence of failure to safeguard assets from loss, Evidence of failure to safeguard assets from loss,

damage or misappropriation; damage or misappropriation; Evidence of system failure; Evidence of system failure; Evidence of intentional override of internal control by Evidence of intentional override of internal control by

those in authority; those in authority; Evidence of failure to perform tasks that are part of Evidence of failure to perform tasks that are part of

internal control; internal control; Absence of a sufficient level of control consciousness Absence of a sufficient level of control consciousness

within the Organisation; within the Organisation; Failure to rectify deficiencies in internal control Failure to rectify deficiencies in internal control

identified earlier.identified earlier.

Reporting Standards: Form Reporting Standards: Form and Content of Audit Reportsand Content of Audit Reports

FormForm TitleTitle Signature and DateSignature and Date Audit objectives and scopeAudit objectives and scope AddresseeAddressee

ContentContent CompletenessCompleteness Identification of Subject matterIdentification of Subject matter Legal basisLegal basis Compliance with standardsCompliance with standards Compliance with laws and regulationsCompliance with laws and regulations TimelinessTimeliness Emphasis of matterEmphasis of matter Adverse opinion or disclaimer, if anyAdverse opinion or disclaimer, if any