Auditing as a profession has grown in the society to undertake the responsibility of assuring the users of financial statements regarding their accuracy, usability, reliability and transparency. Hence, this profession calls for a high level of professional capability and excellence on the part of the auditor. A professional’s personality is only as good as his current state of knowledge and skills. However, even the best of the professionals need approbation. They are only human beings. They need and deserve the reconfirmation of their abilities and the way they work, from their peers. Such reconfirmation that professional seek is provided by the process of “Peer Review” (PR).
Peer Review Board was established by the Council of the Institute in March 2002 to conduct the system of PR. As you must be aware, it has been made mandatory for the auditors of the listed company to undergo PR on/before 31st March 2009. If they fail to do so, their reappointment is made invalid. Earlier, only Bank audit units were covered under PR. It is mandatory for all the practice units who are auditing listed companies and also Bank branches.
Quality is the prime driving factor of this whole concept of PR. Its aim is to ensure that the practice units comply with the technical standards for maintaining the quality of the attestation works they perform.
Attestation services includes auditing, verification of financial transactions, books, accounts or records or preparation, verification or certification of financial accounting and related statements as defined U/Sec 2(2)(ii) of the CA Act,1949 but does not include
(i) Management consulting
(ii) Representing clients before authorities
(iii) Engagements for the compilation of financial statements
(iv) Engagements to prepare tax returns or advising clients in taxation matters
(v) Engagements solely to assist the client in preparing, compiling or collating information other than financial statements
(vi) Testifying as expert witness and
(vii) Providing expert opinion on AS or applicability of certain laws.
PR shall focus on
a) Compliance with technical standards
b) Quality of reporting
c) Office system and procedure with regard to compliance of attestation service systems and procedures
d) Training programs for staff (including articled and audit clerks) concerned with attestation functions including appropriate infrastructure.
Technical Standards include
(i) Accounting Standards
(ii) A.A.S now renamed as “Engagements and quality control statements”
(iii) Framework for preparation and presentation of financial statements & Framework of statements on SAP and Guidance Notes on related services
(iv) Statements
(v) Guidance Notes
(vi) Notifications
(vii) Compilations of provisions of the various relevant statutes &/or Regulations which are applicable in the context of the specific engagements being reviewed.
As of now, there are totally 32 accounting standards issued by the Institute. All these accounting standards are mandatory except A.S 3 – Cash flow statements. For small and Medium Enterprises, certain relaxations are there.
The ICAI has prescribed several mandatory Auditing Standards also. Besides this, based on the trends and needs of the sector the ICAI has been issuing several statements and Guidance Notes which deal with the profession of auditing. The aim of these prescriptions is to strengthen transparency, enhance objectivity and fix responsibility on the auditor.
The basic concepts in auditing deal with the true and fairness and materiality aspects.
The Auditing and Assurance Standards (A.A.S) have been renamed as ‘Engagement and Quality Control Standards’ w.e.f 01.04.2008.
‘Statements’ are mandatory. Hence their non-compliance or deviation shall be disclosed adequately in the audit reports. Material departures may lead to qualifying the report.
‘Guidance Notes’ are recommendatory in nature. Hence the auditor while discharging his attest function may consider the disclosure of deviations from the Guidance Notes at his discretion.
In general, if we can call accounting standards as necessary ingredients for cooking the food, we can call the auditing standards as prescriptions for serving the food – when where and how.
When a member is not able to perform an audit in accordance with the auditing standards then he should draw attention to his report to the material departures there from.
DOCUMENTATION
Every professional work needs to be backed up by adequate documents, more so when an auditor is performing an audit. AAS 3 (SA 230) deals in detail about the documents to be maintained when discharging the attest function. Broadly documents can be classified into two files ie, Permanent & Current. Further they can be classified into mandatory records and recommendatory records. Working papers are part of mandatory records. Recommendatory records include the Practice Unit’s profile, Staff details, general office procedures etc.
The mandatory documents include audit plan, audit programme, the nature, timing and extent of audit procedures, data sampling and verification details, the observations, explanations and conclusions drawn there from.
Permanent File:
This should contain the letter of engagement, correspondence with retiring auditor, constitution of the entity, nature and history of business, location and process details, internal controls evaluation sheets, methods of accounting, EDP security etc, earlier year’s financial statements etc.
Current File:
This should contain annual appointment letter, acceptance letter, draft financial statements, work estimate, work assignment, queries raised and explanations received, checklists, authorization levels, Management Representation letter, other expert’s opinion, applicable accounting standards and their appliance details, detailed working papers and conclusions, analytical tests conducted and results, third party confirmations and certificates, finalized Balance Sheet and P&L account with all schedules duly signed by the Management, draft and finalized Audit Report.
Standards on Quality Control (SQCs) :
SQC 1, “Quality Control for Firms that Perform Audit and Reviews of Historical Financial Information, and other Assurance and Related Services Engagements”
This is the mother standard for all other standards and is all pervasive standard in respect of quality control. This is applicable for all the audit services from 01.04.2009. Some of the relevant auditing standards are as follows.
A.A.S 3 (SA 230) Documentation
A.A.S 5 (SA 500) Audit Evidence – External/internal
A.A.S 7 (SA 501) Reliance on the work of internal auditor
A.A.S 8 (SA 300) Audit Planning
A.A.S 9 (SA 620) Reliance on expert opinion.
A.A.S 34 (SA 501) Additional Consideration for specification of evidence
There is no exhaustive list suitable for any one audit. If it is a charitable trust that is audited, to issue Form 10B audit report all the questions in that audit report are to be answered first by the management, then after due verification only the auditor should issue the Audit Certificate. Similarly in the case of a limited company, the CARO 2003 queries are to be answered with due working papers.
TAX AUDIT UNDER SECTION 44AB OF THE INCOME TAX ACT 1961 :
It is the duty of the management, where tax audit is applicable, to prepare all the required details as per Form 3CD. After due verification only, the auditor has to issue the Form 3CA/Form 3CB audit report together with Form 3CD certificate. This is a statutory compliance. The purpose of the audit is not only to assure the tax department the true and fairness of the financial statement but to assure
a) Proper maintenance of books and records
b) From the I.T Act point of view, the allowable and disallowable expenses, taxable and exempt incomes which facilitates the work of the revenue authorities.
c) To ensure the compliance and reliability of various income tax provisions.
A reasonable sample checklist for conducting tax audit
Particulars Relevant Standards
| 1) Appointment Letter defining scope | AAS-26 |
| 2) Management representation letter | AAS-11 |
| 3) List of related parties & transactions | AS-18 & AAS-23 |
| 4) Trial Balance | AAS-5 |
| 5) Financial statements duly signed by the owners | AAS-5 |
| 6) Notes on accounts and Disclosure
of accounting policies |
AS-1 |
| 7) Valuation of Inventories and for the total year
quantitative inflow, outflow statement. |
AS-2 |
| 8.) Bank balance confirmation | AAS-30 |
| 9) Bank loan statements | AAS-30, Sec 43B of I.T Act |
| 10) Major sundry debtors and creditors
balance confirmation |
AAS-30 |
| 11) Analytical Ratio analysis | AAS-14 |
| 12) Sample purchase and sales bills | AAS-5 |
| 13) Proof of assets purchased &
revenue expenditure capitalized |
AAS-5, A.S 10, AS-11 & A.S 16, Sec 36(1)(iii) & 43A of I.T Act. |
| 14) Extraordinary Items nature & disclosure | AS-5 |
| 15) Notes on the nature of business | AAS-20 |
| 16) Depreciation calculation statement | AS-6, Sec 32 of I.T Act |
| 17) Liabilities including contingent liabilities
estimation |
A.S 29 with detailed working |
| 18) Statutory Compliances | Relevant P.F, ESI, Bonus, VAT Act’s provisions. |
Auditing starts with vouching. Selecting a right sample size to represent the total data and to draw right conclusions is the process of auditing. After applying all the above tools only, audit conclusions are to be drawn by way of a report. Though the above given lists are not exhaustive, depending upon the nature and size of the auditee, and the systems and procedures adopted by the auditee the whole process of auditing varies from case to case.
its really needed . most of our firms of chartered accountant firm , even ,practicing in his /her name does not bother to keep at least minimum records . even they are not preparing an audit program me before the commencement of audit,documentation of working papers are far beyond of their ability/enability. they only stisfy to get the thing signed and professional fees only.that too also best satisfy if the fees paid by client in cash.Morality of those practitioners are down grated. even they finish the audit of statutory audit of public sectors bank branches by visiting even for a day only. they does not care to see what they are signing. visit the branch , get the statements signed by the branch managers ,and signed ,sealed delived. take the attaindance sheets signed by the branch personel by adding the dates and inflate their ta/halting bills. most of the cases they stay in road side hotel arrnge good hotel bills , signed by the branch manager and submit to the bank for making payments. even senior firm of chartered accountants , are shouwing partner those who are not able to work as an active partners of the firm. to get big audit.even they are travelling by 2nd class train they claim AC .1ST CLASS/ AC 2ND OR EVEN CLIAM AIR. .THEY EVEN NOT BOTHER TO VERIFY THOSE DOCUMENTS SIGNED BY THEM, WITH THE RESPECTIVE BOOKS OF ACCOUNTANS .ADVANCE STATEMENTS COPIES THOUGH MAY BE VOLUMINEOUS THEY DOES NOT CARRY.FOR THEIR RECORDS,EVEN DARE TO CUT THE LINE PROFIT/ LOSS ( PROFIT OR LOSS ,AS THE CASE MAY BE.THEY DOES NOT HAVE COMPUTER/LAPTOP, THEY ARE DOING SYSTEM AUDIT! THIS ARE MUCH MORE THAN EXPECTATIONS . ENEN PEER REVIEWER ARE TAKING MONEY FROM THEM.
THIS IS DUE TO 1. INHERITANCE OF THEIR OWN .2.BY NOT GETTING AUDIT ASSIGNMENTS.3.TIME CONSTRAIN ( TO THEM ) 4. MANAGE EVERY THING BY PAYING MONEY.5.IF THE ALLOTMENT IS BASED ON SENIORITY BASIS TO SENIOR CITIZEN MEMBERS THEY CAN ENEN TO DAY CALCULATE BY FINGERS THEY MUST DO BETTER THAN CATEGORY 1.2.3 FIRMS. WHERE THOUGH MENTION SO MANY PARTNERS AND STAFFS ( SISA/DISA /ISIA /DEGREES OF USA/ UK/AND OTHER COUNTRY ) THEY FAILED TO DISCHARGE THEIR DUTIES, FLYING TO EAST, WEST/ NORTH /SOUTH IS THE ONLY AIM./ AFTER ONCE PEER REVIEW COMPLETED THEY ARE MORE AGGRESSIVE OF THEIR PAST MISDEED. OUR INSTITUTE ARE TRYING HARD /AND TO THEIR LEVEL BEST TO EDUCATE THEM THOUGH HOSTING WEB-SITES, E-MAIL/ MOBILE ALERTS . THEY DON’T CARE. ONLY TRIED TO EMPANELED THEIR NAMES ONLY.DURING MY LONG ASSOCIATION WITH THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ( 1964-69 AS AN ARTICLED CLARK, THEN PRACTICING SINCE 1971 TILL DATE )MY FEELINGS ARE AS LIKE AS ICAI ARE DOING THEIR BEST SINCE COUPLE OF YEARS SPECIALLY FROM 2007- 2009 THEY DID LOT FOR MEMBERS ,BUT MEMBERS ARE VERY MUCH NEGLIGENT OF THEIR DUTIES. EVEN PERSONS ( CAS ) ARE ATTENDING CPE SEMINAR /CONFERENCES AS IMPOSED BY THE CPE COMMITTEE THEY ATTENDED THE MEETING FOR A MINUTES ONLY /AFTER TAKING LUNCH /SNACKS THEY LEAVE THE VENUE. WHAT IS THE FAULT OF THE INSTITUTE./REGIONAL COUNCILS? MY VIEW NOT TO GIVE CPE CARDS NOT BEFORE THE END OF CONFERENCE/SEMINARS / WHOSE WHO LEAVES THEIR CARDS TO BE SENT TO CONTROLLING AUTHORITY FOR TAKING ACTION AGAINST THEM.I AM VERY MUCH ASHAMED FOR THEM.
THE ENTIRE PROCESS SHOULD BE RESCHEDULED. PERSONS PRACTICING IN BOMBAY HIS/ COMPUTER IS AT ROURKELLA.HE DOES NOT HAVE ANY KNOWLEDGE ABOUT COMPUTER CREATED E-MAIL ID , INSTITUTE AND/ OR OTHER AUTHORITY SENDING MAILS THE ARE UNABLE TO GIVE REPLIES.
INSTITUTE SHOULD TAKE STEPS E-MAILS REPLY IS MUST. SMS REPLY ARE ALSO MUST IF YOU DO LIKE TO BE IN PRACTICE.