The statement of Auditing practices issued by the ICAI lays down the following general considerations in a company Audit.
1. True and Fair
The Audited Financial Statements must clearly show the
results of the working of the company for the year and it should be in accordance with the provisions of schedule III of the Companies Act, 2013. The profit or loss for the year must disclose True & Fair view.
Every material fact must be properly disclosed for e.g. prior period adjustments non-recurring or unusual items of income/losses. The concept of materiality is a subjective concept. The judgment of materiality needs auditor’s professional experience.
3. Analytical Study
While giving previous year figures a proper scrutiny should be made. Scrutiny can be made with the help of various ratios and proper explanations must be sought from the client if there is any significant variation. Auditors should also examine corroborative evidences to verify consistency of explanations given by the management.
4. Accounting Policies
The accounting policies followed by the client must be in conformation with the Accounting Standards and recommendations of the ICAI. The policies must be in consistency with the basic accounting principles.
5. Internal Control
The auditor should carefully examine the existing internal control before preparing Audit programme. He may use Flow Charts and Internal Control Questionnaire. The analysis of internal control will help to plan extent of audit procedure to be used by the auditor. In the areas of weaker internal control, auditor must apply more rigorous procedures. Any recommendations to improve the internal control should also be mentioned in the audit report.
6. Auditor’s Approach
The auditor’s approach should be professional, independent as well as without prejudice to his statutory duties. He must follow professional ethics in discharge of his duties.
The Auditors should ensure that there is proper disclosure of all relevant facts and information, matters required by Company Law and Accounting Standards. Contingent Liabilities must be properly disclosed.
8. Proper Books of Accounts
Section 209 and Section 541 of the Companies Act, 2013 requires the Auditor to report whether proper books of Accounts have been kept by the company or not.
- Assets – The Auditor’s objective in regards to assets generally is to satisfy that the assets are existing, and they belong to the client. They are in possession of the client and they are not subject to any charge and they are properly valued.
- Liabilities – Auditor should satisfy himself that all the liabilities are properly recorded classified and disclosed. He should also satisfy himself that the liabilities are actual liabilities and are not mere book entries.
10. Working Papers
Auditor must maintain proper and adequate working papers showing clearly work done by him/his assistants. Explanations and information given by the client and whether he satisfied with such information.
11. Computerized Accounts
If the accounts are computerized then he should modify the Audit programme and Audit work accordingly.
This is the final and most important stage of Auditing. He should take great care in drafting the report. If he feels necessary to qualify his reports then he must qualify the same without any hesitation but with utmost care. The form of Audit Report is prescribed by the statute.