Kinnaird College for Women Lahore

Auditing

Pre-mid assignment: 1

Submitted to: Ma’am Farah Amir

Submitted by: Noor Amjad

Major: Accounting & Finance

Semester: 8

Date: 18 Feb, 2019

Question: 1 Compile the global history of Auditing and its evolution in Pakistan.

Answer: To know about the global history and evolution of auditing in Pakistan. First we should
know what exactly auditing means.

History of Auditing and its evolution in Pakistan:

Origin of Audit comes from the word “Audire” but the evolution of Auditing as a financial
accountability field in the advent of the Industrial Revolution. The word “AUDIT” has Latin
origins (audio, audire, and means listening). During the time this word has known a lot of
definitions and classifications. In general, it is a synonym to control, check, inspect, and revise.
Auditing existed primarily as a method to maintain governmental accountancy, and record-
keeping was its mainstay.

From the time of ancient Egyptians, Greeks, and Romans, the practice of auditing the accounts of
public institutions existed. Checking clerks were appointed in those days to check the public
accounts. To locate frauds as well as to find out whether the receipts and payments are properly
recor4ed by the person responsible was the main objective of auditing of those days. It wasn’t
until the advent of the Industrial Revolution, from 1750 to 1850, that auditing began its evolution
into a field of fraud detection and financial accountability.

Businesses expanded during this period and brought in large scale production, steam power,
improved facilities and better means of communication. This resulted in the origin of the joint
stock form of organizations. Shareholders contribute capital of these companies but do not have
control over the day to day working of the organization. Management was hired to operate
businesses in the owners’ absences, but the shareholders who have invested their money would
naturally be interested in knowing the financial position of the company. So they found an
increasing need to monitor their financial activities, both for accuracy and for fraud prevention.
This originated the need of an independent person who would check the accounts and report the
shareholders on the accuracy of the accounts and the safety of their investment.

In the early 20th century, the reporting practice of auditors, which involved submitting reports of
their duties and findings, was standardized as the “Independent Auditor’s Report.” The increase
in demand for auditors leads to the development of the testing process. Auditors developed a way
to strategically select key cases as representative of the company’s overall performance.
This was an affordable alternative to examining every case in detail, and it required less time
than the standard audit.

Period Audit ordinates Auditors The objectives of the audit

Up to Kings, People of the state The punishment of the

1700 emperors. or scribes thieves for the funds
Churches and changing direction
the state
Protecting the assets

1700 – States, Courts Accountants Repressing fraud and

1850 and punishment of the authors
shareholders Protecting the assets

1850 – The state and Professional Avoiding fraud and errors and
1900 the accountants or attesting the viability of the
shareholders lawyers balance sheet

1900 – The state and Professionals in Avoiding fraud and errors and
1940 the audit and attesting the viability of the

1940 – The state and Professionals in Attesting the honesty and

1970 the audit and regularity of the historical
shareholders accounting and financial data
counseling
1970 – The state, the Professionals in Attesting the quality of the
1990 third and the audit and internal control and
shareholders counseling respecting the accounting
norms and the audit norms.
1990+ The state, the Attesting the clear image of
third and the the accounts and the quality
shareholders of the internal control in
respecting the norms. The
protection against
international fraud.
Question: 2 further add details regarding major developments from time to time.

New standards proposed by the International Auditing and Assurance Standards Board (IAASB)
are designed to ensure that engagement quality reviews continue to be robust and support high-
quality engagements.

The IAASB is proposing changes that would include:

 Altering the eligibility criteria to perform an engagement quality review.

 Changes related to the engagement quality reviewer’s performance and documentation.
 Strengthening of the selection of engagements for review.
 The proposed changes are explained in the following documents:
 An overall explanatory memorandum, The IAASB’s Exposure Drafts for Quality
Management at the Firm and Engagement Level, Including Engagement Quality
Reviews.
 Proposed International Standard on Quality Management 1, Quality Management for
Firms That Perform Audits or Reviews of Financial Statements, or Other Assurance or
Related Services Engagements.
 Proposed International Standard on Quality Management 2, Engagement Quality
Reviews.
 Proposed International Standard on Auditing 220 (Revised), Quality Management for an
Audit of Financial Statements.

In their continuing pursuit of the highest possible quality in their work, many audit firms produce
annual transparency or audit quality reports to inform the public about their efforts.

To help audit firms develop those disclosures, the Center for Audit Quality (CAQ) has developed
a new Audit Quality Disclosure Framework. The CAQ is affiliated with the AICPA.

The framework builds on previous work by the CAQ and others in the profession to develop and
seek audit quality indicators. A combination of these indicators or metrics, along with thorough
discussion, can lead to helpful disclosures about how a firm monitors audit quality.

“Public company accounting firms make significant investments in their people, processes,
policies, and technology related to audit quality,” CAQ Executive Director Cindy Fornelli said in
a news release. “Our framework can facilitate consistency and comparability over time as firms
foster transparency and trust by informing the public about their work to maintain and enhance
audit quality.”

The framework was developed in consultation with a range of CAQ member firms. It was built
to be voluntary, illustrative, flexible, and geared toward disclosure at a firm level, rather than at
the engagement level. The framework provides points of focus for six elements of audit quality
and contains examples of firm-level audit quality indicators:

 Leadership, culture, and firm governance.

 Ethics and independence.
 Acceptance and continuance of clients and engagements.
 Engagement team management.
 Audit engagement performance.
 Monitoring.

Question: 3 Identify the contribution of different Governments in power during the whole
course of history.

Most government auditors are internal to government. The government pays them. Often, they
are independent from management, and the auditor chooses the program, function, or activity to
be audited, without input or interference from management. Government auditors may not need
management’s approval to audit, may have subpoena power to compel compliance with the audit
engagement, and may report to the public on their findings. This great level of independence
enables the government auditor to take an objective view of the operations and “call it like it is,”
reporting independently to the legislature as well as the public. In doing so, the professional
government auditor is guided by professional audit standards.

Types of auditors

There are a number of auditors who play an important role in the government accountability
process:

 Internal audit units within government agencies, who report to some level of management
within the agency
  Independent executive or legislative auditors, who have the statutory or constitutional
authority to audit a government’s financial statements, departments, programs, functions,
or activities
 Government auditors from other levels of government, who may audit to see that
program funds are spent appropriately
 Government auditors who conduct audits of government grants or contracts given to
private- sector organizations
 Government auditors doing audits of private-sector individuals or organizations to
determine compliance with laws, rules, or regulations.
 Private auditors hired by government managers to report on the financial statements or
some other aspect of a program or function

The need for these various auditors is driven by two factors. First, management wants to know
that it is doing right and that its employees are carrying out the policies and procedures
established. Second, the public has a need, and a right, to know that the money it has entrusted to
government managers is being used appropriately and in compliance with the law. The public
also wants to know that its money is being used economically and efficiently and that the results
of the expenditures accomplished what was intended. In a democratic society, accountability is
inherent in the governing process. In the private sector, the balance sheet and income statement
are powerful tools of accountability. If a private-sector organization is not profitable, it will soon
be bankrupt and out of business. Governments, however, do not operate to make profits.
Although bankruptcy is a possibility, it rarely occurs, and many government programs outlive
their usefulness.

Thus, there is a compelling need to have a variety of auditors serving several purposes in the
accountability process. These purposes include:

 Assisting management in the discharge of its duties

 Reporting to the public on the effectiveness of the activities of government managers
 Reporting to other levels of government on the use of funds provided
 Reporting on the results of operation and financial position of the government.