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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

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

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. The auditor 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 are distributed 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.

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 at the 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 Controlled The 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 any future 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.

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 control the 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 stated time 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 is noted 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.

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 various concerns 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

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. Revision The 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 inefficient audit 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.

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.

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 performed properly.

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.

5. Asset Protection The purpose of internal audit is to protect the assets. The proper record of 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 staff member 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 that accounting 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.

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 the part 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 internal audit.

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.

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 of management.

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

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

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. The finding 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. All employees 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.

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

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 is proper.

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 fair view.

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.

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 and proposal 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 of business 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

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

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.

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 of reasonable 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.

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 audit staff 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 give suggestion 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 for negligence 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.

Auditor - Qualification, Appointment, Removal, Rights or Power, Qualities of a professional Auditor


B-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 Auditor Qualification 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

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 according section 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.

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

According to Section 226(4) a person shall not be qualified for appointment as 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 be removed 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 first auditor in the general meeting. Notice of nomination of such other person

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 prior approval 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 of access, 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 any document. 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

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 general meeting 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 of business. 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

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. Correction The 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 members Essential 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

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

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 should also 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.

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 in selecting 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 the decision 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

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 an audit 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 audit staff. As a team leader he can guide the auditor through practicaldemonstration.

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.

25. Electronic Data Processing The auditor should also aware of the use of computer in the business for getting 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 Evidences Meaning 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 balances in the ledger accounts.

The balances in the ledger account summarize correctly the numerous debit and credit entries. These debit and credit entries in the accounts represent proper accounting interpretation of all the transaction entered into be the business.

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 satisfied with 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 by verifying the evidences. To facilitate the completion of audit programme scheduled and undertaken.

Procedure of Audit Evidence The following procedure is generally followed for the verification of evidences

Verification of accounts of account balances shown in the financial statements or the accounting reports To ensure that the procedure installed for control purposes is properly followed

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 by the 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.