Auditing: The Most Reliable Economic Guard
Content
Term Paper on
“AUDITING:
THE MOST RELIABLE ECONOMIC GUARD”
Course Title: Auditing Course Code: ACT – 427 Section: 01
Submitted To:
XYZ epartment o! "usiness Administration #ast $est %ni&ersit'
Submitted By:
Su!ian
ate o! Su(mission: 2) ecem(er* 2012
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INTRODUCTION: Auditing is glo(all' recogni+ed, -t is counter c.ec/ to accounting data so t.at an' error* mista/e or !raud can (e easil' detected t.roug. t.e tec.ni0ue o! auditing, -t is t.e primar' source o! ad&ice on e!!icienc'* e!!ecti&eness and o&erall econom' o! an esta(lis.ment, Auditing starts its 1ourne' 2.ere accounting end, -n toda'3s societ' t.e e4ercise o! an auditor3s to t.e economic and et.ical leaders.ip sets t.e (ounding standard or in ot.er 2ords e0uips an auditor in suc. a 2a' t.at recogni+es .im as a relia(le (od', $it. t.e gro2ing conscious recognition o! t.e importance o! !inancial data in t.e ordering o! e&er'da' (usiness and economic li!e* t.e need o! (asic economic !acts is pro&iding a constantl' enlarging opportunit' !or t.e accounting pro!ession, T.e auditors3 reports .a&e an especial capacit' to !ul!ill t.e need !or relia(le and aut.oritati&e !inancial material not onl' (ecause o! t.e reputation or prestige o! t.e certi!ied statements* (ut also (ecause o! t.e signi!icance generall' attac.ed (' t.e (usiness man to t.e !unctions o! t.e auditor and .is reports, T.ese !unctions* and t.e scope o! t.ese reports* .a&e in t.e past (een de!initel' related to t.e c.aracter o! and c.anges in (usiness acti&it', Audits and re&ie2s are (asicall' procedures per!ormed on t.e !inancial statements o! a compan'* !or t.e purpose o! determining 2.et.er t.e !inancial statements include an' material misstatements, 5isstatements are essentiall' 2rong num(ers due to numerical errors* !raud* or errors in interpreting t.e accounting rules, 5isstatements are material i! t.e' are large enoug. to ma/e a di!!erence to a user o! t.e !inancial statements* suc. as a (an/ or in&estor, And t.e person 2.o in&ol&ed in auditing is /no2n as auditor, -t also pro&ides t.e tec.ni0ues necessar' to e4amine t.e internal control s'stem o! a compan' and per!orm operational or compliance audits (' internal or e4ternal auditors, T.e earl' conceptions o! t.e !unctions o! t.e auditor 2ere suc. as to con!ine .im to t.e duties o! a mere c.ec/er and &eri!ier o! de(its and credits, As (usiness (ecame more comple4 in its interrelations.ips t.ere .as (een a compensating (roadening demand !or t.e acceptance o! ne2 and !ormerl' unrecogni+ed responsi(ilities (' t.e auditor,
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HISTORY OF AUDITING: Auditing e4isted primaril' as a met.od to maintain go&ernmental accountanc'* and record6/eeping 2as its mainsta', -t 2asn7t until t.e ad&ent o! t.e -ndustrial 8e&olution* !rom 1790 to 1:90* t.at auditing (egan its e&olution into a !ield o! !raud detection and !inancial accounta(ilit', "usinesses e4panded during t.is period* resulting in increased 1o( positions (et2een o2ners to customers, 5anagement 2as .ired to operate (usinesses in t.e o2ners7 a(sences* and o2ners !ound an increasing need to monitor t.eir !inancial acti&ities* (ot. !or accurac' and !or !raud pre&ention, -n t.e earl' 20t. centur'* t.e reporting practice o! auditors* 2.ic. in&ol&ed su(mitting reports o! t.eir duties and !indings* 2as standardi+ed as t.e ;-ndependent Auditor7s 8eport,; T.e increase in demand !or auditors leads to t.e de&elopment o! t.e testing process, Auditors de&eloped a 2a' to strategicall' select /e' cases as representati&e o! t.e compan'7s o&erall per!ormance, T.is 2as an a!!orda(le alternati&e to e4amining e&er' case in detail* and it re0uired less time t.an t.e standard audit,
WHAT IS AUDITING: Auditing is an art and science o! s'stematicall' scrutini+ing t.e (oo/s o! accounts and ot.er rele&ant records o! an enterprise in order to !ind out t.e e4act !inancial position o! t.e concerned enterprise !or t.e sa/e o! sta/e.olders, Auditing is t.e management3s primar' source o! ad&ice on e!!icienc'* e!!ecti&eness o! t.e compan', T.us t.e 2ord <audit= is deri&ed !rom t.e >atin 2ord ?audire= 2.ic. means <to .ear=, -n olden times* 2.ene&er t.e o2ners o! a (usiness suspected !raud* t.e' appointed certain persons to c.ec/ t.e accounts, Suc. persons sent !or t.e accountants and <.eard= 2.ate&er t.e' .ad to sa' connection 2it. t.e accounts, -t 2as an -talian* >uca Paciaio* 2.o !irst pu(lis.ed .is treatise on dou(le entr' s'stem o! (oo/6/eeping !or t.e !irst time in 14@4, Ae mentioned and descri(ed t.e duties and responsi(ilities o! an auditor* since t.enB t.ere .a&e (een lot o! c.anges in t.e scope and de!inition o! audit and t.e duties and responsi(ilities o! an auditor,
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Spicer and Pegler * .a&e de!ined Audit as <suc. as e4amination o! t.e (oo/s* accounts and &ouc.ers o! a (usiness* as 2ill ena(le t.e auditor to satis!' .imsel! t.at t.e (alance s.eet is properl' dra2n up* so as to gi&e a true and !air &ie2 o! t.e state o! t.e a!!airs o! t.e (usiness* and 2.et.er t.e pro!it and >oss account gi&es a true and !air &ie2 o! pro!it or loss !or t.e !inancial period* according to t.e (est o! .is in!ormation and t.e e4planations gi&en to .im and as s.o2n (' t.e (oo/s and i! not* in 2.at respect .e is not satis!ied,= C,8,5, e Paula* an #nglis. aut.orit' on auditing literature* descri(es auditing as < t.e
e4amination o! a (alance s.eet and Pro!it and >oss account prepared (' ot.ers* toget.er 2it. t.e (oo/s* accounts* and &ouc.ers relating t.ereto in suc. a manner t.at manner t.at auditor ma' (e a(le to satis!' .imsel! and .onestl' report t.at* in .is opinion* suc. (alance s.eet properl' dra2n up so as to e4.i(it a true and correct &ie2 o! t.e state o! a!!airs to t.e particular concern according to t.e in!ormation and e4planations gi&en to .im* and as s.o2n (' t.e (oo/s=, Ae !urt.er continues t.at an <audit o! a (alance s.eet in&ol&es t.e &eri!ication o! t.e pro!it and loss account* as t.e (alance o! t.at account must (e included in some !orm or ot.er in t.e !ormer=, According to >a2rence 8, ic/see* ;an audit is an e4amination o! accounting records
underta/en 2it. a &ie2 to esta(lis.ing 2.et.er t.e' correctl' and completel' re!lect t.e transactions to 2.ic. t.e' relate, -n some instances* it ma' (e necessar' to ascertain 2.et.er t.e transactions t.emsel&es are supported (' aut.orit',; 8, D, 5aut+ de!ines auditing as (eing ;concerned 2it. t.e &eri!ication o! accounting data* 2it. determining t.e accurac' and relia(ilit' accounting statement and reports,; -t is clear !rom t.e a(o&e de!initions t.at auditing is t.e s'stematic and scienti!ic e4amination o! t.e (oo/s o! a accounts and records o! a (usiness so as to ena(le t.e auditor to satis!' .imsel! t.at t.e "alance S.eet and t.e Pro!it and >oss Account are properl' dra2n up so as to e4.i(it a true and !air &ie2 o! t.e !inancial state o! a!!airs o! t.e (usiness and pro!it or loss !or t.e !inancial period, T.e Auditor 2ill .a&e to go t.roug. &arious (oo/s and accounts and related e&idence to satis!' .imsel! a(out t.e accurac' and aut.enticit' to report t.e !inancial .ealt. o! t.e (usiness,
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PURPOSE OF AUDITING: T.e o&erall purpose o! an audit !unction is to pro&ide !or &eri!ication o! records* processes or !unctions in a su!!icientl' independent manner !rom t.e institution or su(1ect (eing audited in order to add its &alue and impro&e its operations, Speci!icall'* its o(1ecti&es are:
To detect an' error* mista/e or !raud in t.e (oo/s o! accounts and ot.er rele&ant records o! an enterprise, To independentl' identi!' in!ormation t.at 2.ic. is essential to de&elop an o&erall picture o! t.e institutionElocal aut.orit',
To identi!' an' 2ea/nesses or administrati&e !lo2s 2.ic. ot.er2ise 2ould not (e identi!ied due to un2illingness or ina(ilit' (' insiders o! t.e institutions,
To identi!' strengt.s and 2ea/nesses o! t.e administrati&e structures in order to in!orm decisions on o&erall strengt.ening o! t.e institution,
To pro&ide (aselines on 2.ic. re!orms can (e assessed, To per!orm an independent assessment o! an action* !unction* or s'stem* in order to determine t.e e!!ecti&eness o! t.at action* !unction* or s'stems a(ilit' to control ris/,
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THE AUDITOR: T.ere are t2o t'pes o! auditorsFe4ternal and internal, "ot. internal and e4ternal
auditors .a&e t.e general responsi(ilities o! in&estigating administrati&e and !inancial practices and de&eloping !actual reports, T.e' can and o!ten do ma/e recommendations or re!er !indings to ot.er (odies !or action, T.e real po2ers o! auditing are in t.e !act t.at audit reports are made pu(lic,
#4ternal or independent auditors 2or/ !or pu(lic accounting !irms or are sel!6emplo'ed, 5em(ers.ip o! pro!essional accounting (od' o! t.e countr' Gin "anglades. -nstitute o! C.artered Accountant "anglades.H is compulsor', Ienerall' #4ternal auditors are re!erred to auditor so t.e' are independent in pro!ession as t.e' don3t (elong to particular organi+ation and 2or/s !or a C.artered Accountant !irms suc. as 8a.man 8a.man Au0 J Co* Auda Kasi J Co* Lcto D.an J Co etc, "usinesses* industries* and go&ernment agencies contract 2it. auditors to &eri!' and certi!' t.eir !inancial statements, $ell6run companies usuall' .a&e t.eir (oo/s audited once a 'ear, An independent audit gi&es s.are.olders and creditors an outside* e4pert opinion o! a compan'7s !inancial condition, The task of an auditor is to determine the quality of financial &
operational/administrative control
y e!amining and evaluating the records"
system and procedure" operations and activities of an organi#ation$ %inancial and operational control can e easily determined y analytical revie&s" intra and inter firm comparison and comparison of current information &ith anticipated results$ Profit as a percentage of sales" e!penses as a percentage of sales" &orking
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capital ratio" return on investment and important guidelines to measure a concern(s performance$ Through interpretation of significant ratios an auditor can find firm(s strength and &eaknesses and &here to emphasi#e to detect fraud and error$ )t is not possi le for an auditor to check every single thing$ )n such a situation" the auditor has to evaluate the internal control system introduced organi#ation$ *y doing this" an auditor also y the ecome a&are of the operational
control in force in an organi#ation$ %or e!ample" if an auditor finds that the &ages as a percentage of sales is far higher in this year than last year" then he &ill decide to apply more su stantive tests in this regard$ )nternal auditor conclude &hether the resource utili#ation of the enterprise is effective & efficient or not y revie&ing &hether the accounting records have een properly maintained" the assets adequately safeguarded and the procedure lay do&n y the management properly compiled &ith$ +uditors have to conduct an appraisal of the various organi#ational functions and provide advice and recommendation on the activities and operation revie&ed y him$ The auditors are straightfor&ard" honest" independent and sincere in his approach to this professional &ork$ Professional ethics ensure right action on the part of the mem ers of the profession$ That is &hy every ody relies on auditor(s determination on the relia ility of the financial and operational control of an enterprise$ The auditor needs to follo& a certain guidelines and standards$ ,tandard is the means of -udging the level of professional competence and the degree of consistency attained y auditors in the performance of their duties/functions$ %or this purpose" &e are to study and understand professional pronouncements on auditing &hich indicating the collective vie& of the profession on. / i$Principles and techniques of auditing and ii$The application of such principles and techniques to various auditing situations$
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Professional
odies
of
accountants
of
various
countries
have
issued
pronouncements on accepted auditing practices for the guidance of their mem ers$ 1ost of these pronouncements discuss various auditing practices primarily required for the purpose of e!pressing an e!pert opinion on financial statements$ The pronouncements issued y professional odies attempt to codify the auditing practices e!pected to e o served y the auditor &hen he seeks to e!press an opinion on financial statement$ These ho&ever" do not interfere &ith the auditor(s individual -udgment in selecting the procedure to e follo&ed and in determining the e!tent to &hich he should apply such procedures$ The analytical revie& steps for forming his overall conclusions a out the consistency of financial information as a &hole &ith his kno&ledge of the entity(s usiness and relevant economic conditions is also performed y the auditor$ %or e!ample an auditor can compare significant ratios for the entity &ith those of other entities in the same industry or &ith the industry average$ This revie& may assist an auditor in identifying an unusual and une!pected alance" &hich &as not previously identified$ Though the procedures of analytical revie& have een highly commenda le in the arena of professional audit" the e!tent of its reliance much depend on the su stantive information that might e availa le from the entity" nature of assertion the auditor might e!ert on the usiness logically and the predicta ility of relationships among items of financial information 2so that any deviation there from can e taken as eing indicative of potential miss statements3 and the strength of the evaluation of the internal control$ )f the auditor really faces any such circumstance &here the application of analytical revie& may not report" there is no e e!pected to desired results as e!pected of a good audit arrier for the auditor for an e!tensive check" as he may think
proper and adequate$ The system of analytical revie& adopted generally in com inations of other method have in ma-or cases yielded the desired results ena ling the auditor to present a good audit report4 e!hi iting a proper statement of financial information of the entity under audit$
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The auditor(s concept of internal control is fundamentally identical to the concept of control or management control of the management theorists$ )t is one of the activities or functions of management" ut it is nota le in its complete e regarded as a distinct dependence upon the other functions of management$ This has led some management thinkers to suggest that it should not not e regarded as a separate function$ )f he uses here the statistical sampling techniques like random sampling" he &ould do so merely to narro& do&n his inquiry$ 6ather" he &ould scrutini#es and crosscheck the various transactions till he is a le to check precisely &hat he is looking for$ )n a financial audit assignment on the other hand" the auditor i$e$ a professional accountant &ould select a representative sample from the transactions" e!amine it in depth and if nothing arouses his suspicious" he &ould rely on the e!amination and report that the accounts and the statements represent a true and a fair vie& of the affairs of the undertaking$ To use the oft repeated metaphor" an auditor is a &atchdog and not a loodhound$ *ut the investigator shall stretch his nose for the faintest of scents of frauds" material misstatements" material omissions from the record and the like$ The external audit role #4ternal auditors are appointed (' s.are.olders* on recommendation !rom t.e (oard* and 2ill tend to carr' out t.e !ollo2ing tas/s in t.eir e!!orts to re&ie2 t.e !inancial accounts and underpinning accounting s'stems: M Planning t.e audit co&ering timing* scope* reporting lines* access to (oo/s, M #4amination o! !inancial transactions in an o(1ecti&e* independent and pro!essional manner, M Nualit' control to ensure t.at t.e audit is complete and accurate 8eporting, function in its o&n right" -ust as others have suggested that coordination should
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Pro e!!ionali!" 5ean2.ile* t.e e4ternal auditor 2ill operate to pro!essional auditing standards t.at co&er areas suc. as: M -ndependence and o(1ecti&it', M Pro!essional competence and compliance 2it. auditing standards and code o! et.ics, M 5anagement o! t.e audit in line 2it. ris/6(ased audit plans, External auditin# M Audit 2or/ t.at in&ol&es t.e stud' and e&aluation o! records and in!ormation, M 8eporting standards and set !ormats !or t.e pu(lis.ed e4ternal audit report, Audit !$ill! 5ost people 2or/ing !or an organi+ation .a&e little or no interest in auditing, T.e concept o! auditing is seen as somet.ing relating to &eri!'ing t.e accounts or c.ec/ing on 2or/ers and ma/ing sure t.at assets e4ist and are protected (' contingenc' plans, So auditing ma' (e associated 2it. periodic re&ie2s made (' e4ternal c.ec/ers – somet.ing to (e su!!ered in silence, Lne t.ing !or sure is t.at auditing is regarded as not.ing at all to do 2it. managing, -t is somet.ing t.at is ?done3 to managers, 5ean2.ile* t.e mem(ers o! t.e in6.ouse audit team spend most o! t.eir time e4plaining t.eir role and tr'ing to con&ince e&er'one t.e' meet t.at t.eir 2or/ is important,
Audit %o""ittee! >arger organi+ations are starting to esta(lis. audit committees* and in man' cases suc. as in 0uoted companies t.is !orum is re0uired as part o! t.e listing rules, T.e monitoring role o! t.e audit committee is .elped (' t.e need to ensure t.at at least one audit committee mem(er .as a degree o! !inancial e4pertise,
T.e audit committee 2ill o&ersee t.e 2or/ o! t.e e4ternal auditor* among ot.er t.ings* and 2ill* in terms o! t.e e4ternal auditing process* do t.e !ollo2ing:
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M #&aluate (ids !rom !irms o! e4ternal auditors and ma/e suita(le recommendations, M 5onitor t.e e4ternal auditor3s 2or/, M C.ec/ t.e realit' (e.ind t.e claim to (e independent, Audit inde&enden%e -n terms o! independence t.ere are man' pro&isions t.at .a&e entered t.e statute (oo/s to tr' to stop past pro(lems 2.ere auditors .ad an o(&ious con!lict o! interest t.at a!!ected t.e &eracit' o! t.eir 2or/, T.ere are restrictions on 2.at ot.er nonaudit ser&ices ma' (e o!!ered (' an e4ternal auditor* suc. as t.ose relating to: M S'stems design or line !unctionsB M "oo//eepingB M 8ecruiting managersB M -nternal auditB M Ta4 planning, T.e e4ternal auditor can per!orm some (asic ta4 2or/ and can pro&ide ser&ices appro&ed (' t.e audit committee* suc. as assurance 2or/ and sta!! training and a2areness seminars, T.ere is no need to rotate t.e compan'3s auditors at present* (ut t.e appointed !irm is re0uired to c.ange reporting partner e&er' !i&e 'ears, -n t.e past a promise o! a ?compan' position3 !or t.e e4ternal auditor also got in t.e 2a' o! percei&ed independence* so no2 t.ere is a cooling6o!! period o! some t2o 'ears !or .iring !ormer e4ternal audit sta!! (' t.e client compan', T.e 2or/ o! internal auditors is similar to t.at o! e4ternal auditors* (ut internal auditors 2or/ !or and recei&e a salar' !rom one compan', T.ese auditors e4amine and e&aluate t.e !inancial s'stem o! t.eir !irm to ensure t.at it is (eing run e!!icientl' and economicall', T.e' e4amine all !inancial records* including accounting (oo/s* pa'roll records* and e0uipment and in&entor' records, T.e' su(mit reports to management on .o2 2ell accounting policies are 2or/ing and 2.ere c.anges s.ould (e made,
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Auditors e4amine and anal'+e accounting records to determine !inancial status o! esta(lis.ment and prepare !inancial reports concerning operating procedures: 8e&ie2s data regarding material assets* net 2ort.* lia(ilities* capital stoc/* surplus* income* and e4penditures, -nspects items in (oo/s o! original entr' to determine i! accepted accounting procedure 2as !ollo2ed in recording transactions, Counts cas. on .and* inspects notes recei&a(le and pa'a(le* negotia(le securities* and cancelled c.ec/s, Keri!ies 1ournal and ledger entries o! cas. and c.ec/ pa'ments* purc.ases* e4penses* and trial (alances (' e4amining and aut.enticating in&entor' items, Prepares reports !or management concerning scope o! audit* !inancial conditions !ound* and source and application o! !unds, 5a' ma/e recommendations regarding impro&ing operations and !inancial position o! compan', 5a' super&ise and coordinate acti&ities o! auditors speciali+ing in speci!ic operations o! esta(lis.ments undergoing audit, 5a' audit (an/s and !inancial institutions, 5a' e4amine compan' pa'roll and personnel records to determine 2or/er7s compensation co&erage and (e designated Pa'roll Auditor,
AUDTOR AS AN ECONO'IC GUARD AGAINST FRAUD:
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An auditor is t.e most relia(le economic guard against !raud, Auditors3 tas/s are per!ormed to ascertain t.e &alidit' and relia(ilit' o! in!ormationB also to pro&ide an assessment o! a s'stem3s internal control, T.e goal o! an auditor is to e4press an opinion on t.e person or organi+ation or s'stem in 0uestion* under e&aluation (ased on 2or/ done on a test (asis, ue to practical constraints* an audit see/s to pro&ide onl' reasona(le assurance t.at t.e statements are !ree !rom material error, Aence* statistical sampling is o!ten adopted in audits, -n t.e case o! !inancial audits* a set o! !inancial statements are said to (e true and !air 2.en t.e' are !ree o! material misstatements6 a concept in!luenced (' (ot. 0uantitati&e and 0ualitati&e !actors,
FINANCIA( AND OPERATIONA( CONTRO((: An auditor determines t.e 0ualit' o! !inancial and operational control (' e4amining and &aluating t.e records* s'stem and procedures* operations and acti&ities o! an organi+ation, Lperational control means e&er' 2.ere e&er't.ing is sound in t.e organi+ation, Lt.er2ise auditors 2ill report t.e lacuna to t.e management !or controlling t.e 2.ole organi+ation, Cinancial and operational control can (e easil' determined (' anal'tical re&ie2* inter and intra !irm comparison o! current in!ormation 2it. anticipated result, Pro!it as a percentage o! sales* e4penses as a percentage o! sale* 2or/ing capital ratio* return on in&estment G8L-H are important guideline to measure a concerns per!ormance, T.roug. interpretation o! signi!icant ratios an auditor can !ind a !irm3s strengt.s and 2ea/nesses as 2ell as 2.ere to emp.asi+e to detect !raud and errors, Cor t.is management control mone' is needed, So !or proper monetar' control !inancial control is needed in t.e organi+ation,
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Integrity
Independence
Objectivity
Technical Standard Competenc y
Confidentialit y
Fig: Core Elements of Professional Ethics
PROFESSIONA( ETHICS: Inte#rit) T.e integrit' o! Auditors esta(lis.es trust and pro&ides t.e (asis !or reliance on t.eir 1udgment, -ntegrit' re0uires Auditors to o(ser&e (ot. t.e !orm and spirit o! auditing standards, -t also re0uires o(ser&ing t.e principles o! independence* o(1ecti&it'* standards o! pro!essional conduct* and a(solute .onest' in t.eir 2or/, O*+e%ti,it) Auditors must e4.i(it t.e .ig.est le&el o! pro!essional o(1ecti&it' in gat.ering* e&aluating and communicating in!ormation a(out t.e audit acti&ities, T.e' must ma/e a (alanced assessment o! all t.e rele&ant circumstances and are not to (e undul' in!luenced (' t.eir o2n interests or (' ot.ers 2.en !orming 1udgments, -t is essential t.at Auditors are independent and impartial* not onl' in !act (ut also in appearance,
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Con identialit) Auditors must respect t.e &alue and o2ners.ip o! in!ormation t.e' recei&e during an audit and do not disclose in!ormation to an' t.ird part'* orall' or in 2riting* 2it.out appropriate aut.orit'* and unless t.ere is a legal or pro!essional o(ligation to do so, Co"&eten%) Auditors must appl' t.e /no2ledge* s/ills and e4perience needed in t.e per!ormance o! auditing ser&ices, Inde&enden%e #4ternal or independent auditors 2or/ !or pu(lic accounting !irms or are sel!6emplo'ed, 5em(ers.ip o! pro!essional accounting (od' o! t.e countr' is compulsor', Ienerall' #4ternal auditors are re!erred to auditor so t.e' are independent in pro!ession as t.e' don3t (elong to particular organi+ation and 2or/s !or a C.artered Accountant !irms, Te%hni%al Standard $.et.er auditors .a&e used international and national guidelines regarding auditing or not tec.nical standard ensures it, POWERS OF AUDITORS: 8ig.ts t.at are designed to ensure t.at t.e auditor is a(le to !ul!ill t.eir statutor' duties are usuall' gi&en to t.em under local legislation relating to entities* !or e4ample in t.e %D t.e Companies Act 1@:9, To (e a(le to carr' out t.eir duties auditors must (e independent o! t.e entit' t.at t.e' are auditing, -ndependence is !undamental to t.e credi(ilit' o! t.e audit process, T.e po2ers granted to t.e auditor (' legislation &ar' !rom countr' to countr' (ut t'pical po2ers !ound in man' countries are: O t.e rig.t o! access at all times to t.e (oo/s* records* documents and accounts o! t.e entit'B
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O t.e rig.t to (e noti!ied o!* attend and spea/ at meetings o! e0uit' .oldersB O t.e rig.t to re0uire o!!icers o! t.e entit' to pro&ide t.em 2it. 2.ate&er in!ormation and e4planations t.e' t.in/ necessar' !or t.e per!ormance o! t.eir dutiesB O t.e rig.t to present a counter6argument to an' meeting o! e0uit' .olders t.at is considering t.e remo&al o! t.e auditors, AUDIT PROCESS: T.e manner in 2.ic. an audit is conducted is (e'ond t.e scope o! t.e s'lla(us, You s.ould* .o2e&er* (e a2are o! t.e (road outline o! t.e manner in 2.ic. an audit is conducted, Cigure illustrates t.e main steps o! an audit, T.e auditor is usuall' appointed (' t.e s.are.olders during t.e entit'3s annual general meeting, T.is appointment is normall' e!!ecti&e until t.e ne4t annual general meeting, -t is &er' common !or t.e same !irm to (e
Fi#ure: Steps in t.e audit c'cle
RE(IA-I(ITY OF AUDIT REPORT:
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$or/ o! an e4ternal auditor is important and signi!icant !or t.e !irm and general pu(lic, -n&estment* !inancing and operational acti&ities generall' depends on it, To ensure t.e relia(ilit' on t.e auditors* pro!essional (odies prescri(e t.e code o! conduct !or its mem(ers, An' contra&ention o! t.e prescri(ed et.ical standard 2ill in&o/e t.e penal measures as laid do2n in t.e statue, An auditor ma' .a&e its mem(ers.ip cancelled !or an unet.ical practice, T.e auditor s.ould (e straig.t !or2ard* .onest* independent* and sincere in .is approac. to .is pro!essional 2or/, Pro!essional et.ics ensure rig.t action on t.e part o! t.e mem(ers o! t.e pro!ession, Audit &ro%edure!: Auditors are also (etter sa!eguarded against o&ersig.ts or a(uses (' t.e agenc' (eing audited i! audit met.ods and procedures are standardi+ed, Suc. standards are a&aila(le uni&ersall', Di!!e"ination o audit re&ort: Audit reports must (e made a&aila(le to sta/e.olders in t.e cit' or communit', As stated earlier* t.ese can .elp in (uilding accounta(ilit' and en.ancing trust in pu(lic agencies* or in rein!orcing t.e need !or c.ange, Co"&uter A!!i!ted Audit Tool! .CAAT!/ no2 a da'3s ensure more accurac' o! audit report anal'+ing and auditing eac. and e&er' transaction in t.e organi+ation, T.is is 2.' e&er'(od' rela's on t.e auditors determination on t.e relia(ilit' o! t.e !inancial and operational control o! an enterprise,
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L&er &ie2ing t.e a(o&e discussion 2e o(&iousl' pronounce t.at an auditor is t.e most relia(le economic guard to c.ec/ t.e da' toda' !inancial transaction o! an entit',
THE PRE0AI(ING AUDITING PRACTICES: Today" auditors utili#e sampling techniques to test certain transactions during the performance of an audit or revie&" since it &ould e nearly impossi le and too e!pensive to test every single transaction$ The sampling may e aimed at the largest items or the items on the financial statements that pose the most risk of misstatement$ )f material errors in the financial statements are discovered" the auditors &ill direct management to correct them$ +uditing has een the ack one of the complicated usiness &orld and has
al&ays changed &ith the times$ +s the accounting principles changed$ )t also
usiness &orld gre& strong" auditors( ecame more difficult as the ecame easier &ith the use of internal
roles gre& more important$ The auditors( -o
controls" &hich introduced the need for testing" not a complete audit$ ,candals and stock market crashes made auditors a&are of deficiencies in auditing" and the auditing community &as al&ays quick to fi! those deficiencies$ 9omputers played an important role of changing the &ay audits &ere performed and also rought along some difficulties$
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,o ho& does fraud fit into the idea of material misstatements: 1isstatements can e caused y either error or fraud$ +uditors have some responsi ility for the detection of oth errors and frauds that are material" ut this responsi ility is not a solute$ +uditors give ;reasona le; assurance that material misstatements have een uncovered" ut not total assurance$ <rrors are much more likely to e discovered during an audit than are fraud$ %raud schemes are crafted to purposely e!ploit the accounting system and controls" and therefore it is more difficult for an auditor to find them$ ,ince auditors are not all/kno&ing eings" the assurance that the financial statements are correct can only assurance and not total assurance$ Traditionally audits &ere mainly associated &ith gaining information a out financial systems and the financial records of a company or a =o&ever" recently auditing has usiness$ egun to include other information a out the e ;reasona le;
system" such as information a out environmental performance$ +s a result there are no& professions that conduct environmental audits$ )n financial accounting" an audit is an independent assessment of the fairness financial statements are presented y &hich a company>s y y its management$ )t is performed
competent" independent and o -ective person or persons" kno&n as auditors or accountants" &ho then issue an auditor>s report on the results of the audit$ ,uch systems must adhere to generally accepted standards set y governing
odies that regulate usinesses$ )t simply provides assurance for third parties or e!ternal users that such statements present >fairly> a company>s financial condition and results of operations$
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Auditing 8ules: )t(s important to understand the guidance given to auditors on the topic of fraud$ +ccountants performing audits in the ?nited ,tates follo& @enerally +ccepted +uditing ,tandards 2@++,3 in their performance of audits$ +dditional guidance is provided in the ,tatements on ,tandards for +uditing and 6evie& ,ervices 2,,+6,3 and ,tatements on +uditing ,tandards 2,+,3$ These sets of authoritative guidance outline the responsi ilities that auditors have for finding fraud &hile performing audits and revie&s$ ,+, num er 77" ;9onsideration of %raud in a %inancial ,tatement +udit"; ecame effective in late 2883$ This statement directs auditors to use professional skepticism and to consider that a fraud could have occurred and could materially affect the financial statements$ The auditors must consider and identify the risk of fraud" and must continuously evaluate evidence throughout the audit to determine &hether or not there are any fraud indicators$ The +merican )nstitute of 9ertified Pu lic +ccountants 2+)9P+3 recently issued ,,+6, num er 12" ;Amni us ,tatement on ,tandards for +ccounting and 6evie& ,ervices$; This applies to revie&s" rather than audits$ 6evie&s provide less assurance on the financial statements" as the revie& procedures are typically less thorough and less detailed than audit procedures$ This statement dictates that during a revie&" the auditor is not required to assess the risk of fraud or develop plans specifically to identify fraud$ The guidance for auditors is continuously evolving as the accounting profession ackno&ledges that fraud is alpha et soup can e ecoming a igger issue for clients$ +ll of this oiled do&n to the fact that it is management>s ut they do not have an a solute
responsi ility" not the auditor>s" to prevent and detect fraud$ The auditors must consider fraud throughout their procedures" responsi ility for the detection of fraud$
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The Auditin# Standard!: Bhen &e talk a out standards it means of -udging the level of professional competence and the degree of consistency attained in the performance of their duties/functions$ %or this purpose" &e are to study and understand professional pronouncements on auditing &hich indicate the collective vie& of the profession on 2a3 principles and techniques of auditing and 2 3 the application of such principles and techniques to various auditing situations$ Carious Professional odies in various countries have issued pronouncements
on accepted auditing practice for the guidance of their mem ers$ 1ost of these pronouncements discuss various auditing practices primarily required for the purpose of e!pressing an e!pert opinion on financial statements$ The pronouncements issued y professional odies attempt to codify the auditing practices e!pected to e o served y the auditor &hen he seeks to e!press an opinion on financial statements$ These ho&ever" do not interfere &ith the auditor(s individual -udgment in selecting the procedure to e follo&ed and in determining to the e!tent to &hich he should apply such procedures$ )n case a deviation is necessary in a particular situation that should e reported in the audit report$ 9ompliance of standard audit practices is e!pected in normal circumstances$ )n many countries" the auditors are specifically required to state in their audit report &hether the audit &as carried out in accordance &ith the generally accepted auditing standards$ The institute of chartered accountants order" 1702 specifically provides that a chartered accountant in practice shall e deemed to e guilty of professional misconduct if he fails to invite attention to any material departure from the generally accepted procedure of audit applica le to the circumstances$ )t is thus apparent that in normal circumstances" an auditor in *angladesh has to follo& the generally accepted procedure of audit such as/ international +uditing guidelines$
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The development of a
coordinated &orld&ide
accountancy profession"
accountancy odies of different countries esta lished the international federation of accountants 2)%+93 in 1700$ The international auditing practices committee 2)+P93 is a standing committee of the council of )%+9 and has een assigned specific reasona ility and authority to issue international guidelines on auditing and related fields$ The guidelines issued y )+P9 shall$ =o&ever" in no case override the local statutory professional regulations$ The statement on standard auditing practices 2,+Ps3 issued y the institute of chartered +ccountants of *angladesh are generally ased on the corresponding international +uditing @uidelines$ =o&ever" in developing the ,+Ps" the institute also takes into consideration the e!isting la&s" customs" uses and environments of *angladesh$ The international accounting standards committee 2)+,93 developed professional odies all over the &orld has y usiness
een engaged in formulating and
pu lishing standard of financial accounting$ +uditing and accounting professions are therefore correlated" coordinated and interdependent su -ects$ The institute of chartered accountant of *angladesh 2)9+*3 can classified as/ a3 statements on accounting and auditing" including statements of auditing practices2,+Ps3 3 +ccounting standards c3 @uidance notes on matters relating to accounting" auditing" ta!ation" company la&" ethics and other related matters$ d3 Apinion on specific queries e3 6esearch studies and other miscellaneous pu lications The council of the institute of chartered +ccountant of *angladesh regularly issues statements on professional asic principles governing an audit$ + mem er of the ody is to generally follo& these guidelines &hile conducting an
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e
riefly
audit$ The auditor should e straightfor&ard" honest and sincere in his approach to his professional &ork$ Dast ut not the least" the auditor should respect the confidentiality of information acquired in the course of his &ork and should not disclose any such information to a third unless there is a legal or professional duty to disclose$ Pra%ti%e! o Auditin# in -an#lade!h: +uditing a systematic process of o -ectively" o taining and evaluating evidence" regarding assertions a out economic actions and events to ascertain the degree of correspondence et&een these assertions and esta lished criteria$ )t is an independent e!amination of financial statements or related financial information of an entity$ The results of the e!amination are finally e!pressed in the form of a specific opinion communicated to the relevant parties$ +uditing of financial statements of companies registered under the company(s act 1774 is compulsory in *angladesh$ +ccording to ,ec 213233" the auditor is to make a report to e presented in the annual general meeting of the company on accounts e!amined y him$
*efore acceptance of the )nternational ,tandards of +uditing 2),+3 y the )nstitute of 9hartered +ccountants of *angladesh 2)9+*3" detection of errors and frauds" and prevention of errors and frauds &ere the t&o important o -ectives of auditing in *angladesh$ +t present" *angladesh follo&s ),+ guidelines in auditing$ +uditing practices are regulated y the 9ompanies +ct 1774" the *anking 9ompanies +ct 1771" the )nsurance +ct 1735" the ,ecurities and <!change 9ommission +ct 1773" the ,ecurities and <!change 6ules 1750" the %oreign Eonations 6egulation 6ules 1705" and the 9o/operative ,ocieties Ardinance 1754$ +ccording to the 9ompanies +ct 1774" accounts of companies registered under this act must e audited y chartered accountants &ithin the regulations of the *angladesh 9hartered +ccountants Arder 1703$ ,imilarly" all ooks of accounts maintained y a NON-GOVERNMENT
ORGANIZATION receiving foreign donations shall
e audited
y a chartered accountant as
defined in the same Arder$ The accounts of every co/operative society are to e audited at least once in every co/operative year$ The audit is to e conducted y the 6egistrar" or y an audit officer authori#ed y him" and y such date as may e prescri ed$ +ccounts of enterprises under
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sector corporations are audited at three levels / corporations> internal audit departments" independent professional audit firms" and the 9omptroller and +uditor @eneral 29&+@3 of *angladesh$ )nternal audit" sometimes similar to an investigation" and often termed as management audit" is conducted y the employees of a corporation on special issues$ The eing purpose of this audit is to check &hether the corporation>s rules and regulations are
properly follo&ed at the time of e!ecution of any policy$ )ndependent professional audit is conducted y chartered accountants to pass opinion a out the financial statements annually$ The 9&+@ has the o ligation to conduct a government commercial audit &here there is any government interest in the form of o&nership" or investments" or &here the government provides help in the form of su sidies$ The 9onstitution of *angladesh empo&ers the 9&+@ of *angladesh to conduct an audit of the accounts of the 6epu lic and report to the -atiya sangsad 2parliament3 on the findings$ The pu lic accounts of the 6epu lic and of all courts of la&" authorities and officers of the government are audited and reported on y the +uditor @eneral$ %or that purpose he or any person authori#ed y him has access to all records" ooks" vouchers" documents" cash" stamps" securities" stores or other government property in the possession of any person in the service of the 6epu lic$ )n the e!ercise of his functions" the 9&+@ are not su -ect to the direction or control of any other person or authority$ =aving derived his authority from the 9onstitution" he &ith the assistance of nine Eirectors @eneral placed under him" conducts audit of all government departments" agencies" pu lic sector corporations and pu lic companies having fifty percent or more government o&ned shares$
CONC(USION T.is e4ercise aims at (uilding transparenc' and en.ancing accounta(ilit' o! /e' o!!icials and decision ma/ers 2it.in t.e organi+ation (eing audited, Positi&e !indings o! an independent audit can go a long 2a' in (uilding pu(lic trust in t.e organi+ation* 2.ile negati&e !indings can ser&e to catal'+e c.ange, So an auditor is t.e most relia(le economic guard to c.ec/ t.e da' toda' !inancial transaction o! an entit',
REFERENCES
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1.
Cutting, Thomas (January 12, 2008). " o! to Sur"i"e an #udit". $% htt&:''!!!.&mhut.(om'ho!)to)sur"i"e)an)audit. *etrie"ed +e(ember 1,, 200-.
ut.
2$ en.!i.i&edia.org'!i.i'#udit
), !!!.(o.de/a!are.oh.us'auditor' 4, !!!.a((ountan(y.(om.&.'arti(/es.as&0id1120
5$ en.!i.i&edia.org'!i.i'34terna/5auditor
6.
istory o7 #uditing 8 e o!.(om htt&:''!!!.eho!.(om'about52681-095history) o7)auditing.htm/:i4;;0!d!d<!==
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“AUDITING:
THE MOST RELIABLE ECONOMIC GUARD”
Course Title: Auditing Course Code: ACT – 427 Section: 01
Submitted To:
XYZ epartment o! "usiness Administration #ast $est %ni&ersit'
Submitted By:
Su!ian
ate o! Su(mission: 2) ecem(er* 2012
1|Page
INTRODUCTION: Auditing is glo(all' recogni+ed, -t is counter c.ec/ to accounting data so t.at an' error* mista/e or !raud can (e easil' detected t.roug. t.e tec.ni0ue o! auditing, -t is t.e primar' source o! ad&ice on e!!icienc'* e!!ecti&eness and o&erall econom' o! an esta(lis.ment, Auditing starts its 1ourne' 2.ere accounting end, -n toda'3s societ' t.e e4ercise o! an auditor3s to t.e economic and et.ical leaders.ip sets t.e (ounding standard or in ot.er 2ords e0uips an auditor in suc. a 2a' t.at recogni+es .im as a relia(le (od', $it. t.e gro2ing conscious recognition o! t.e importance o! !inancial data in t.e ordering o! e&er'da' (usiness and economic li!e* t.e need o! (asic economic !acts is pro&iding a constantl' enlarging opportunit' !or t.e accounting pro!ession, T.e auditors3 reports .a&e an especial capacit' to !ul!ill t.e need !or relia(le and aut.oritati&e !inancial material not onl' (ecause o! t.e reputation or prestige o! t.e certi!ied statements* (ut also (ecause o! t.e signi!icance generall' attac.ed (' t.e (usiness man to t.e !unctions o! t.e auditor and .is reports, T.ese !unctions* and t.e scope o! t.ese reports* .a&e in t.e past (een de!initel' related to t.e c.aracter o! and c.anges in (usiness acti&it', Audits and re&ie2s are (asicall' procedures per!ormed on t.e !inancial statements o! a compan'* !or t.e purpose o! determining 2.et.er t.e !inancial statements include an' material misstatements, 5isstatements are essentiall' 2rong num(ers due to numerical errors* !raud* or errors in interpreting t.e accounting rules, 5isstatements are material i! t.e' are large enoug. to ma/e a di!!erence to a user o! t.e !inancial statements* suc. as a (an/ or in&estor, And t.e person 2.o in&ol&ed in auditing is /no2n as auditor, -t also pro&ides t.e tec.ni0ues necessar' to e4amine t.e internal control s'stem o! a compan' and per!orm operational or compliance audits (' internal or e4ternal auditors, T.e earl' conceptions o! t.e !unctions o! t.e auditor 2ere suc. as to con!ine .im to t.e duties o! a mere c.ec/er and &eri!ier o! de(its and credits, As (usiness (ecame more comple4 in its interrelations.ips t.ere .as (een a compensating (roadening demand !or t.e acceptance o! ne2 and !ormerl' unrecogni+ed responsi(ilities (' t.e auditor,
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HISTORY OF AUDITING: Auditing e4isted primaril' as a met.od to maintain go&ernmental accountanc'* and record6/eeping 2as its mainsta', -t 2asn7t until t.e ad&ent o! t.e -ndustrial 8e&olution* !rom 1790 to 1:90* t.at auditing (egan its e&olution into a !ield o! !raud detection and !inancial accounta(ilit', "usinesses e4panded during t.is period* resulting in increased 1o( positions (et2een o2ners to customers, 5anagement 2as .ired to operate (usinesses in t.e o2ners7 a(sences* and o2ners !ound an increasing need to monitor t.eir !inancial acti&ities* (ot. !or accurac' and !or !raud pre&ention, -n t.e earl' 20t. centur'* t.e reporting practice o! auditors* 2.ic. in&ol&ed su(mitting reports o! t.eir duties and !indings* 2as standardi+ed as t.e ;-ndependent Auditor7s 8eport,; T.e increase in demand !or auditors leads to t.e de&elopment o! t.e testing process, Auditors de&eloped a 2a' to strategicall' select /e' cases as representati&e o! t.e compan'7s o&erall per!ormance, T.is 2as an a!!orda(le alternati&e to e4amining e&er' case in detail* and it re0uired less time t.an t.e standard audit,
WHAT IS AUDITING: Auditing is an art and science o! s'stematicall' scrutini+ing t.e (oo/s o! accounts and ot.er rele&ant records o! an enterprise in order to !ind out t.e e4act !inancial position o! t.e concerned enterprise !or t.e sa/e o! sta/e.olders, Auditing is t.e management3s primar' source o! ad&ice on e!!icienc'* e!!ecti&eness o! t.e compan', T.us t.e 2ord <audit= is deri&ed !rom t.e >atin 2ord ?audire= 2.ic. means <to .ear=, -n olden times* 2.ene&er t.e o2ners o! a (usiness suspected !raud* t.e' appointed certain persons to c.ec/ t.e accounts, Suc. persons sent !or t.e accountants and <.eard= 2.ate&er t.e' .ad to sa' connection 2it. t.e accounts, -t 2as an -talian* >uca Paciaio* 2.o !irst pu(lis.ed .is treatise on dou(le entr' s'stem o! (oo/6/eeping !or t.e !irst time in 14@4, Ae mentioned and descri(ed t.e duties and responsi(ilities o! an auditor* since t.enB t.ere .a&e (een lot o! c.anges in t.e scope and de!inition o! audit and t.e duties and responsi(ilities o! an auditor,
3|Page
Spicer and Pegler * .a&e de!ined Audit as <suc. as e4amination o! t.e (oo/s* accounts and &ouc.ers o! a (usiness* as 2ill ena(le t.e auditor to satis!' .imsel! t.at t.e (alance s.eet is properl' dra2n up* so as to gi&e a true and !air &ie2 o! t.e state o! t.e a!!airs o! t.e (usiness* and 2.et.er t.e pro!it and >oss account gi&es a true and !air &ie2 o! pro!it or loss !or t.e !inancial period* according to t.e (est o! .is in!ormation and t.e e4planations gi&en to .im and as s.o2n (' t.e (oo/s and i! not* in 2.at respect .e is not satis!ied,= C,8,5, e Paula* an #nglis. aut.orit' on auditing literature* descri(es auditing as < t.e
e4amination o! a (alance s.eet and Pro!it and >oss account prepared (' ot.ers* toget.er 2it. t.e (oo/s* accounts* and &ouc.ers relating t.ereto in suc. a manner t.at manner t.at auditor ma' (e a(le to satis!' .imsel! and .onestl' report t.at* in .is opinion* suc. (alance s.eet properl' dra2n up so as to e4.i(it a true and correct &ie2 o! t.e state o! a!!airs to t.e particular concern according to t.e in!ormation and e4planations gi&en to .im* and as s.o2n (' t.e (oo/s=, Ae !urt.er continues t.at an <audit o! a (alance s.eet in&ol&es t.e &eri!ication o! t.e pro!it and loss account* as t.e (alance o! t.at account must (e included in some !orm or ot.er in t.e !ormer=, According to >a2rence 8, ic/see* ;an audit is an e4amination o! accounting records
underta/en 2it. a &ie2 to esta(lis.ing 2.et.er t.e' correctl' and completel' re!lect t.e transactions to 2.ic. t.e' relate, -n some instances* it ma' (e necessar' to ascertain 2.et.er t.e transactions t.emsel&es are supported (' aut.orit',; 8, D, 5aut+ de!ines auditing as (eing ;concerned 2it. t.e &eri!ication o! accounting data* 2it. determining t.e accurac' and relia(ilit' accounting statement and reports,; -t is clear !rom t.e a(o&e de!initions t.at auditing is t.e s'stematic and scienti!ic e4amination o! t.e (oo/s o! a accounts and records o! a (usiness so as to ena(le t.e auditor to satis!' .imsel! t.at t.e "alance S.eet and t.e Pro!it and >oss Account are properl' dra2n up so as to e4.i(it a true and !air &ie2 o! t.e !inancial state o! a!!airs o! t.e (usiness and pro!it or loss !or t.e !inancial period, T.e Auditor 2ill .a&e to go t.roug. &arious (oo/s and accounts and related e&idence to satis!' .imsel! a(out t.e accurac' and aut.enticit' to report t.e !inancial .ealt. o! t.e (usiness,
4|Page
PURPOSE OF AUDITING: T.e o&erall purpose o! an audit !unction is to pro&ide !or &eri!ication o! records* processes or !unctions in a su!!icientl' independent manner !rom t.e institution or su(1ect (eing audited in order to add its &alue and impro&e its operations, Speci!icall'* its o(1ecti&es are:
To detect an' error* mista/e or !raud in t.e (oo/s o! accounts and ot.er rele&ant records o! an enterprise, To independentl' identi!' in!ormation t.at 2.ic. is essential to de&elop an o&erall picture o! t.e institutionElocal aut.orit',
To identi!' an' 2ea/nesses or administrati&e !lo2s 2.ic. ot.er2ise 2ould not (e identi!ied due to un2illingness or ina(ilit' (' insiders o! t.e institutions,
To identi!' strengt.s and 2ea/nesses o! t.e administrati&e structures in order to in!orm decisions on o&erall strengt.ening o! t.e institution,
To pro&ide (aselines on 2.ic. re!orms can (e assessed, To per!orm an independent assessment o! an action* !unction* or s'stem* in order to determine t.e e!!ecti&eness o! t.at action* !unction* or s'stems a(ilit' to control ris/,
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THE AUDITOR: T.ere are t2o t'pes o! auditorsFe4ternal and internal, "ot. internal and e4ternal
auditors .a&e t.e general responsi(ilities o! in&estigating administrati&e and !inancial practices and de&eloping !actual reports, T.e' can and o!ten do ma/e recommendations or re!er !indings to ot.er (odies !or action, T.e real po2ers o! auditing are in t.e !act t.at audit reports are made pu(lic,
#4ternal or independent auditors 2or/ !or pu(lic accounting !irms or are sel!6emplo'ed, 5em(ers.ip o! pro!essional accounting (od' o! t.e countr' Gin "anglades. -nstitute o! C.artered Accountant "anglades.H is compulsor', Ienerall' #4ternal auditors are re!erred to auditor so t.e' are independent in pro!ession as t.e' don3t (elong to particular organi+ation and 2or/s !or a C.artered Accountant !irms suc. as 8a.man 8a.man Au0 J Co* Auda Kasi J Co* Lcto D.an J Co etc, "usinesses* industries* and go&ernment agencies contract 2it. auditors to &eri!' and certi!' t.eir !inancial statements, $ell6run companies usuall' .a&e t.eir (oo/s audited once a 'ear, An independent audit gi&es s.are.olders and creditors an outside* e4pert opinion o! a compan'7s !inancial condition, The task of an auditor is to determine the quality of financial &
operational/administrative control
y e!amining and evaluating the records"
system and procedure" operations and activities of an organi#ation$ %inancial and operational control can e easily determined y analytical revie&s" intra and inter firm comparison and comparison of current information &ith anticipated results$ Profit as a percentage of sales" e!penses as a percentage of sales" &orking
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capital ratio" return on investment and important guidelines to measure a concern(s performance$ Through interpretation of significant ratios an auditor can find firm(s strength and &eaknesses and &here to emphasi#e to detect fraud and error$ )t is not possi le for an auditor to check every single thing$ )n such a situation" the auditor has to evaluate the internal control system introduced organi#ation$ *y doing this" an auditor also y the ecome a&are of the operational
control in force in an organi#ation$ %or e!ample" if an auditor finds that the &ages as a percentage of sales is far higher in this year than last year" then he &ill decide to apply more su stantive tests in this regard$ )nternal auditor conclude &hether the resource utili#ation of the enterprise is effective & efficient or not y revie&ing &hether the accounting records have een properly maintained" the assets adequately safeguarded and the procedure lay do&n y the management properly compiled &ith$ +uditors have to conduct an appraisal of the various organi#ational functions and provide advice and recommendation on the activities and operation revie&ed y him$ The auditors are straightfor&ard" honest" independent and sincere in his approach to this professional &ork$ Professional ethics ensure right action on the part of the mem ers of the profession$ That is &hy every ody relies on auditor(s determination on the relia ility of the financial and operational control of an enterprise$ The auditor needs to follo& a certain guidelines and standards$ ,tandard is the means of -udging the level of professional competence and the degree of consistency attained y auditors in the performance of their duties/functions$ %or this purpose" &e are to study and understand professional pronouncements on auditing &hich indicating the collective vie& of the profession on. / i$Principles and techniques of auditing and ii$The application of such principles and techniques to various auditing situations$
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Professional
odies
of
accountants
of
various
countries
have
issued
pronouncements on accepted auditing practices for the guidance of their mem ers$ 1ost of these pronouncements discuss various auditing practices primarily required for the purpose of e!pressing an e!pert opinion on financial statements$ The pronouncements issued y professional odies attempt to codify the auditing practices e!pected to e o served y the auditor &hen he seeks to e!press an opinion on financial statement$ These ho&ever" do not interfere &ith the auditor(s individual -udgment in selecting the procedure to e follo&ed and in determining the e!tent to &hich he should apply such procedures$ The analytical revie& steps for forming his overall conclusions a out the consistency of financial information as a &hole &ith his kno&ledge of the entity(s usiness and relevant economic conditions is also performed y the auditor$ %or e!ample an auditor can compare significant ratios for the entity &ith those of other entities in the same industry or &ith the industry average$ This revie& may assist an auditor in identifying an unusual and une!pected alance" &hich &as not previously identified$ Though the procedures of analytical revie& have een highly commenda le in the arena of professional audit" the e!tent of its reliance much depend on the su stantive information that might e availa le from the entity" nature of assertion the auditor might e!ert on the usiness logically and the predicta ility of relationships among items of financial information 2so that any deviation there from can e taken as eing indicative of potential miss statements3 and the strength of the evaluation of the internal control$ )f the auditor really faces any such circumstance &here the application of analytical revie& may not report" there is no e e!pected to desired results as e!pected of a good audit arrier for the auditor for an e!tensive check" as he may think
proper and adequate$ The system of analytical revie& adopted generally in com inations of other method have in ma-or cases yielded the desired results ena ling the auditor to present a good audit report4 e!hi iting a proper statement of financial information of the entity under audit$
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The auditor(s concept of internal control is fundamentally identical to the concept of control or management control of the management theorists$ )t is one of the activities or functions of management" ut it is nota le in its complete e regarded as a distinct dependence upon the other functions of management$ This has led some management thinkers to suggest that it should not not e regarded as a separate function$ )f he uses here the statistical sampling techniques like random sampling" he &ould do so merely to narro& do&n his inquiry$ 6ather" he &ould scrutini#es and crosscheck the various transactions till he is a le to check precisely &hat he is looking for$ )n a financial audit assignment on the other hand" the auditor i$e$ a professional accountant &ould select a representative sample from the transactions" e!amine it in depth and if nothing arouses his suspicious" he &ould rely on the e!amination and report that the accounts and the statements represent a true and a fair vie& of the affairs of the undertaking$ To use the oft repeated metaphor" an auditor is a &atchdog and not a loodhound$ *ut the investigator shall stretch his nose for the faintest of scents of frauds" material misstatements" material omissions from the record and the like$ The external audit role #4ternal auditors are appointed (' s.are.olders* on recommendation !rom t.e (oard* and 2ill tend to carr' out t.e !ollo2ing tas/s in t.eir e!!orts to re&ie2 t.e !inancial accounts and underpinning accounting s'stems: M Planning t.e audit co&ering timing* scope* reporting lines* access to (oo/s, M #4amination o! !inancial transactions in an o(1ecti&e* independent and pro!essional manner, M Nualit' control to ensure t.at t.e audit is complete and accurate 8eporting, function in its o&n right" -ust as others have suggested that coordination should
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Pro e!!ionali!" 5ean2.ile* t.e e4ternal auditor 2ill operate to pro!essional auditing standards t.at co&er areas suc. as: M -ndependence and o(1ecti&it', M Pro!essional competence and compliance 2it. auditing standards and code o! et.ics, M 5anagement o! t.e audit in line 2it. ris/6(ased audit plans, External auditin# M Audit 2or/ t.at in&ol&es t.e stud' and e&aluation o! records and in!ormation, M 8eporting standards and set !ormats !or t.e pu(lis.ed e4ternal audit report, Audit !$ill! 5ost people 2or/ing !or an organi+ation .a&e little or no interest in auditing, T.e concept o! auditing is seen as somet.ing relating to &eri!'ing t.e accounts or c.ec/ing on 2or/ers and ma/ing sure t.at assets e4ist and are protected (' contingenc' plans, So auditing ma' (e associated 2it. periodic re&ie2s made (' e4ternal c.ec/ers – somet.ing to (e su!!ered in silence, Lne t.ing !or sure is t.at auditing is regarded as not.ing at all to do 2it. managing, -t is somet.ing t.at is ?done3 to managers, 5ean2.ile* t.e mem(ers o! t.e in6.ouse audit team spend most o! t.eir time e4plaining t.eir role and tr'ing to con&ince e&er'one t.e' meet t.at t.eir 2or/ is important,
Audit %o""ittee! >arger organi+ations are starting to esta(lis. audit committees* and in man' cases suc. as in 0uoted companies t.is !orum is re0uired as part o! t.e listing rules, T.e monitoring role o! t.e audit committee is .elped (' t.e need to ensure t.at at least one audit committee mem(er .as a degree o! !inancial e4pertise,
T.e audit committee 2ill o&ersee t.e 2or/ o! t.e e4ternal auditor* among ot.er t.ings* and 2ill* in terms o! t.e e4ternal auditing process* do t.e !ollo2ing:
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M #&aluate (ids !rom !irms o! e4ternal auditors and ma/e suita(le recommendations, M 5onitor t.e e4ternal auditor3s 2or/, M C.ec/ t.e realit' (e.ind t.e claim to (e independent, Audit inde&enden%e -n terms o! independence t.ere are man' pro&isions t.at .a&e entered t.e statute (oo/s to tr' to stop past pro(lems 2.ere auditors .ad an o(&ious con!lict o! interest t.at a!!ected t.e &eracit' o! t.eir 2or/, T.ere are restrictions on 2.at ot.er nonaudit ser&ices ma' (e o!!ered (' an e4ternal auditor* suc. as t.ose relating to: M S'stems design or line !unctionsB M "oo//eepingB M 8ecruiting managersB M -nternal auditB M Ta4 planning, T.e e4ternal auditor can per!orm some (asic ta4 2or/ and can pro&ide ser&ices appro&ed (' t.e audit committee* suc. as assurance 2or/ and sta!! training and a2areness seminars, T.ere is no need to rotate t.e compan'3s auditors at present* (ut t.e appointed !irm is re0uired to c.ange reporting partner e&er' !i&e 'ears, -n t.e past a promise o! a ?compan' position3 !or t.e e4ternal auditor also got in t.e 2a' o! percei&ed independence* so no2 t.ere is a cooling6o!! period o! some t2o 'ears !or .iring !ormer e4ternal audit sta!! (' t.e client compan', T.e 2or/ o! internal auditors is similar to t.at o! e4ternal auditors* (ut internal auditors 2or/ !or and recei&e a salar' !rom one compan', T.ese auditors e4amine and e&aluate t.e !inancial s'stem o! t.eir !irm to ensure t.at it is (eing run e!!icientl' and economicall', T.e' e4amine all !inancial records* including accounting (oo/s* pa'roll records* and e0uipment and in&entor' records, T.e' su(mit reports to management on .o2 2ell accounting policies are 2or/ing and 2.ere c.anges s.ould (e made,
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Auditors e4amine and anal'+e accounting records to determine !inancial status o! esta(lis.ment and prepare !inancial reports concerning operating procedures: 8e&ie2s data regarding material assets* net 2ort.* lia(ilities* capital stoc/* surplus* income* and e4penditures, -nspects items in (oo/s o! original entr' to determine i! accepted accounting procedure 2as !ollo2ed in recording transactions, Counts cas. on .and* inspects notes recei&a(le and pa'a(le* negotia(le securities* and cancelled c.ec/s, Keri!ies 1ournal and ledger entries o! cas. and c.ec/ pa'ments* purc.ases* e4penses* and trial (alances (' e4amining and aut.enticating in&entor' items, Prepares reports !or management concerning scope o! audit* !inancial conditions !ound* and source and application o! !unds, 5a' ma/e recommendations regarding impro&ing operations and !inancial position o! compan', 5a' super&ise and coordinate acti&ities o! auditors speciali+ing in speci!ic operations o! esta(lis.ments undergoing audit, 5a' audit (an/s and !inancial institutions, 5a' e4amine compan' pa'roll and personnel records to determine 2or/er7s compensation co&erage and (e designated Pa'roll Auditor,
AUDTOR AS AN ECONO'IC GUARD AGAINST FRAUD:
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An auditor is t.e most relia(le economic guard against !raud, Auditors3 tas/s are per!ormed to ascertain t.e &alidit' and relia(ilit' o! in!ormationB also to pro&ide an assessment o! a s'stem3s internal control, T.e goal o! an auditor is to e4press an opinion on t.e person or organi+ation or s'stem in 0uestion* under e&aluation (ased on 2or/ done on a test (asis, ue to practical constraints* an audit see/s to pro&ide onl' reasona(le assurance t.at t.e statements are !ree !rom material error, Aence* statistical sampling is o!ten adopted in audits, -n t.e case o! !inancial audits* a set o! !inancial statements are said to (e true and !air 2.en t.e' are !ree o! material misstatements6 a concept in!luenced (' (ot. 0uantitati&e and 0ualitati&e !actors,
FINANCIA( AND OPERATIONA( CONTRO((: An auditor determines t.e 0ualit' o! !inancial and operational control (' e4amining and &aluating t.e records* s'stem and procedures* operations and acti&ities o! an organi+ation, Lperational control means e&er' 2.ere e&er't.ing is sound in t.e organi+ation, Lt.er2ise auditors 2ill report t.e lacuna to t.e management !or controlling t.e 2.ole organi+ation, Cinancial and operational control can (e easil' determined (' anal'tical re&ie2* inter and intra !irm comparison o! current in!ormation 2it. anticipated result, Pro!it as a percentage o! sales* e4penses as a percentage o! sale* 2or/ing capital ratio* return on in&estment G8L-H are important guideline to measure a concerns per!ormance, T.roug. interpretation o! signi!icant ratios an auditor can !ind a !irm3s strengt.s and 2ea/nesses as 2ell as 2.ere to emp.asi+e to detect !raud and errors, Cor t.is management control mone' is needed, So !or proper monetar' control !inancial control is needed in t.e organi+ation,
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Integrity
Independence
Objectivity
Technical Standard Competenc y
Confidentialit y
Fig: Core Elements of Professional Ethics
PROFESSIONA( ETHICS: Inte#rit) T.e integrit' o! Auditors esta(lis.es trust and pro&ides t.e (asis !or reliance on t.eir 1udgment, -ntegrit' re0uires Auditors to o(ser&e (ot. t.e !orm and spirit o! auditing standards, -t also re0uires o(ser&ing t.e principles o! independence* o(1ecti&it'* standards o! pro!essional conduct* and a(solute .onest' in t.eir 2or/, O*+e%ti,it) Auditors must e4.i(it t.e .ig.est le&el o! pro!essional o(1ecti&it' in gat.ering* e&aluating and communicating in!ormation a(out t.e audit acti&ities, T.e' must ma/e a (alanced assessment o! all t.e rele&ant circumstances and are not to (e undul' in!luenced (' t.eir o2n interests or (' ot.ers 2.en !orming 1udgments, -t is essential t.at Auditors are independent and impartial* not onl' in !act (ut also in appearance,
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Con identialit) Auditors must respect t.e &alue and o2ners.ip o! in!ormation t.e' recei&e during an audit and do not disclose in!ormation to an' t.ird part'* orall' or in 2riting* 2it.out appropriate aut.orit'* and unless t.ere is a legal or pro!essional o(ligation to do so, Co"&eten%) Auditors must appl' t.e /no2ledge* s/ills and e4perience needed in t.e per!ormance o! auditing ser&ices, Inde&enden%e #4ternal or independent auditors 2or/ !or pu(lic accounting !irms or are sel!6emplo'ed, 5em(ers.ip o! pro!essional accounting (od' o! t.e countr' is compulsor', Ienerall' #4ternal auditors are re!erred to auditor so t.e' are independent in pro!ession as t.e' don3t (elong to particular organi+ation and 2or/s !or a C.artered Accountant !irms, Te%hni%al Standard $.et.er auditors .a&e used international and national guidelines regarding auditing or not tec.nical standard ensures it, POWERS OF AUDITORS: 8ig.ts t.at are designed to ensure t.at t.e auditor is a(le to !ul!ill t.eir statutor' duties are usuall' gi&en to t.em under local legislation relating to entities* !or e4ample in t.e %D t.e Companies Act 1@:9, To (e a(le to carr' out t.eir duties auditors must (e independent o! t.e entit' t.at t.e' are auditing, -ndependence is !undamental to t.e credi(ilit' o! t.e audit process, T.e po2ers granted to t.e auditor (' legislation &ar' !rom countr' to countr' (ut t'pical po2ers !ound in man' countries are: O t.e rig.t o! access at all times to t.e (oo/s* records* documents and accounts o! t.e entit'B
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O t.e rig.t to (e noti!ied o!* attend and spea/ at meetings o! e0uit' .oldersB O t.e rig.t to re0uire o!!icers o! t.e entit' to pro&ide t.em 2it. 2.ate&er in!ormation and e4planations t.e' t.in/ necessar' !or t.e per!ormance o! t.eir dutiesB O t.e rig.t to present a counter6argument to an' meeting o! e0uit' .olders t.at is considering t.e remo&al o! t.e auditors, AUDIT PROCESS: T.e manner in 2.ic. an audit is conducted is (e'ond t.e scope o! t.e s'lla(us, You s.ould* .o2e&er* (e a2are o! t.e (road outline o! t.e manner in 2.ic. an audit is conducted, Cigure illustrates t.e main steps o! an audit, T.e auditor is usuall' appointed (' t.e s.are.olders during t.e entit'3s annual general meeting, T.is appointment is normall' e!!ecti&e until t.e ne4t annual general meeting, -t is &er' common !or t.e same !irm to (e
Fi#ure: Steps in t.e audit c'cle
RE(IA-I(ITY OF AUDIT REPORT:
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$or/ o! an e4ternal auditor is important and signi!icant !or t.e !irm and general pu(lic, -n&estment* !inancing and operational acti&ities generall' depends on it, To ensure t.e relia(ilit' on t.e auditors* pro!essional (odies prescri(e t.e code o! conduct !or its mem(ers, An' contra&ention o! t.e prescri(ed et.ical standard 2ill in&o/e t.e penal measures as laid do2n in t.e statue, An auditor ma' .a&e its mem(ers.ip cancelled !or an unet.ical practice, T.e auditor s.ould (e straig.t !or2ard* .onest* independent* and sincere in .is approac. to .is pro!essional 2or/, Pro!essional et.ics ensure rig.t action on t.e part o! t.e mem(ers o! t.e pro!ession, Audit &ro%edure!: Auditors are also (etter sa!eguarded against o&ersig.ts or a(uses (' t.e agenc' (eing audited i! audit met.ods and procedures are standardi+ed, Suc. standards are a&aila(le uni&ersall', Di!!e"ination o audit re&ort: Audit reports must (e made a&aila(le to sta/e.olders in t.e cit' or communit', As stated earlier* t.ese can .elp in (uilding accounta(ilit' and en.ancing trust in pu(lic agencies* or in rein!orcing t.e need !or c.ange, Co"&uter A!!i!ted Audit Tool! .CAAT!/ no2 a da'3s ensure more accurac' o! audit report anal'+ing and auditing eac. and e&er' transaction in t.e organi+ation, T.is is 2.' e&er'(od' rela's on t.e auditors determination on t.e relia(ilit' o! t.e !inancial and operational control o! an enterprise,
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L&er &ie2ing t.e a(o&e discussion 2e o(&iousl' pronounce t.at an auditor is t.e most relia(le economic guard to c.ec/ t.e da' toda' !inancial transaction o! an entit',
THE PRE0AI(ING AUDITING PRACTICES: Today" auditors utili#e sampling techniques to test certain transactions during the performance of an audit or revie&" since it &ould e nearly impossi le and too e!pensive to test every single transaction$ The sampling may e aimed at the largest items or the items on the financial statements that pose the most risk of misstatement$ )f material errors in the financial statements are discovered" the auditors &ill direct management to correct them$ +uditing has een the ack one of the complicated usiness &orld and has
al&ays changed &ith the times$ +s the accounting principles changed$ )t also
usiness &orld gre& strong" auditors( ecame more difficult as the ecame easier &ith the use of internal
roles gre& more important$ The auditors( -o
controls" &hich introduced the need for testing" not a complete audit$ ,candals and stock market crashes made auditors a&are of deficiencies in auditing" and the auditing community &as al&ays quick to fi! those deficiencies$ 9omputers played an important role of changing the &ay audits &ere performed and also rought along some difficulties$
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,o ho& does fraud fit into the idea of material misstatements: 1isstatements can e caused y either error or fraud$ +uditors have some responsi ility for the detection of oth errors and frauds that are material" ut this responsi ility is not a solute$ +uditors give ;reasona le; assurance that material misstatements have een uncovered" ut not total assurance$ <rrors are much more likely to e discovered during an audit than are fraud$ %raud schemes are crafted to purposely e!ploit the accounting system and controls" and therefore it is more difficult for an auditor to find them$ ,ince auditors are not all/kno&ing eings" the assurance that the financial statements are correct can only assurance and not total assurance$ Traditionally audits &ere mainly associated &ith gaining information a out financial systems and the financial records of a company or a =o&ever" recently auditing has usiness$ egun to include other information a out the e ;reasona le;
system" such as information a out environmental performance$ +s a result there are no& professions that conduct environmental audits$ )n financial accounting" an audit is an independent assessment of the fairness financial statements are presented y &hich a company>s y y its management$ )t is performed
competent" independent and o -ective person or persons" kno&n as auditors or accountants" &ho then issue an auditor>s report on the results of the audit$ ,uch systems must adhere to generally accepted standards set y governing
odies that regulate usinesses$ )t simply provides assurance for third parties or e!ternal users that such statements present >fairly> a company>s financial condition and results of operations$
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Auditing 8ules: )t(s important to understand the guidance given to auditors on the topic of fraud$ +ccountants performing audits in the ?nited ,tates follo& @enerally +ccepted +uditing ,tandards 2@++,3 in their performance of audits$ +dditional guidance is provided in the ,tatements on ,tandards for +uditing and 6evie& ,ervices 2,,+6,3 and ,tatements on +uditing ,tandards 2,+,3$ These sets of authoritative guidance outline the responsi ilities that auditors have for finding fraud &hile performing audits and revie&s$ ,+, num er 77" ;9onsideration of %raud in a %inancial ,tatement +udit"; ecame effective in late 2883$ This statement directs auditors to use professional skepticism and to consider that a fraud could have occurred and could materially affect the financial statements$ The auditors must consider and identify the risk of fraud" and must continuously evaluate evidence throughout the audit to determine &hether or not there are any fraud indicators$ The +merican )nstitute of 9ertified Pu lic +ccountants 2+)9P+3 recently issued ,,+6, num er 12" ;Amni us ,tatement on ,tandards for +ccounting and 6evie& ,ervices$; This applies to revie&s" rather than audits$ 6evie&s provide less assurance on the financial statements" as the revie& procedures are typically less thorough and less detailed than audit procedures$ This statement dictates that during a revie&" the auditor is not required to assess the risk of fraud or develop plans specifically to identify fraud$ The guidance for auditors is continuously evolving as the accounting profession ackno&ledges that fraud is alpha et soup can e ecoming a igger issue for clients$ +ll of this oiled do&n to the fact that it is management>s ut they do not have an a solute
responsi ility" not the auditor>s" to prevent and detect fraud$ The auditors must consider fraud throughout their procedures" responsi ility for the detection of fraud$
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The Auditin# Standard!: Bhen &e talk a out standards it means of -udging the level of professional competence and the degree of consistency attained in the performance of their duties/functions$ %or this purpose" &e are to study and understand professional pronouncements on auditing &hich indicate the collective vie& of the profession on 2a3 principles and techniques of auditing and 2 3 the application of such principles and techniques to various auditing situations$ Carious Professional odies in various countries have issued pronouncements
on accepted auditing practice for the guidance of their mem ers$ 1ost of these pronouncements discuss various auditing practices primarily required for the purpose of e!pressing an e!pert opinion on financial statements$ The pronouncements issued y professional odies attempt to codify the auditing practices e!pected to e o served y the auditor &hen he seeks to e!press an opinion on financial statements$ These ho&ever" do not interfere &ith the auditor(s individual -udgment in selecting the procedure to e follo&ed and in determining to the e!tent to &hich he should apply such procedures$ )n case a deviation is necessary in a particular situation that should e reported in the audit report$ 9ompliance of standard audit practices is e!pected in normal circumstances$ )n many countries" the auditors are specifically required to state in their audit report &hether the audit &as carried out in accordance &ith the generally accepted auditing standards$ The institute of chartered accountants order" 1702 specifically provides that a chartered accountant in practice shall e deemed to e guilty of professional misconduct if he fails to invite attention to any material departure from the generally accepted procedure of audit applica le to the circumstances$ )t is thus apparent that in normal circumstances" an auditor in *angladesh has to follo& the generally accepted procedure of audit such as/ international +uditing guidelines$
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The development of a
coordinated &orld&ide
accountancy profession"
accountancy odies of different countries esta lished the international federation of accountants 2)%+93 in 1700$ The international auditing practices committee 2)+P93 is a standing committee of the council of )%+9 and has een assigned specific reasona ility and authority to issue international guidelines on auditing and related fields$ The guidelines issued y )+P9 shall$ =o&ever" in no case override the local statutory professional regulations$ The statement on standard auditing practices 2,+Ps3 issued y the institute of chartered +ccountants of *angladesh are generally ased on the corresponding international +uditing @uidelines$ =o&ever" in developing the ,+Ps" the institute also takes into consideration the e!isting la&s" customs" uses and environments of *angladesh$ The international accounting standards committee 2)+,93 developed professional odies all over the &orld has y usiness
een engaged in formulating and
pu lishing standard of financial accounting$ +uditing and accounting professions are therefore correlated" coordinated and interdependent su -ects$ The institute of chartered accountant of *angladesh 2)9+*3 can classified as/ a3 statements on accounting and auditing" including statements of auditing practices2,+Ps3 3 +ccounting standards c3 @uidance notes on matters relating to accounting" auditing" ta!ation" company la&" ethics and other related matters$ d3 Apinion on specific queries e3 6esearch studies and other miscellaneous pu lications The council of the institute of chartered +ccountant of *angladesh regularly issues statements on professional asic principles governing an audit$ + mem er of the ody is to generally follo& these guidelines &hile conducting an
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e
riefly
audit$ The auditor should e straightfor&ard" honest and sincere in his approach to his professional &ork$ Dast ut not the least" the auditor should respect the confidentiality of information acquired in the course of his &ork and should not disclose any such information to a third unless there is a legal or professional duty to disclose$ Pra%ti%e! o Auditin# in -an#lade!h: +uditing a systematic process of o -ectively" o taining and evaluating evidence" regarding assertions a out economic actions and events to ascertain the degree of correspondence et&een these assertions and esta lished criteria$ )t is an independent e!amination of financial statements or related financial information of an entity$ The results of the e!amination are finally e!pressed in the form of a specific opinion communicated to the relevant parties$ +uditing of financial statements of companies registered under the company(s act 1774 is compulsory in *angladesh$ +ccording to ,ec 213233" the auditor is to make a report to e presented in the annual general meeting of the company on accounts e!amined y him$
*efore acceptance of the )nternational ,tandards of +uditing 2),+3 y the )nstitute of 9hartered +ccountants of *angladesh 2)9+*3" detection of errors and frauds" and prevention of errors and frauds &ere the t&o important o -ectives of auditing in *angladesh$ +t present" *angladesh follo&s ),+ guidelines in auditing$ +uditing practices are regulated y the 9ompanies +ct 1774" the *anking 9ompanies +ct 1771" the )nsurance +ct 1735" the ,ecurities and <!change 9ommission +ct 1773" the ,ecurities and <!change 6ules 1750" the %oreign Eonations 6egulation 6ules 1705" and the 9o/operative ,ocieties Ardinance 1754$ +ccording to the 9ompanies +ct 1774" accounts of companies registered under this act must e audited y chartered accountants &ithin the regulations of the *angladesh 9hartered +ccountants Arder 1703$ ,imilarly" all ooks of accounts maintained y a NON-GOVERNMENT
ORGANIZATION receiving foreign donations shall
e audited
y a chartered accountant as
defined in the same Arder$ The accounts of every co/operative society are to e audited at least once in every co/operative year$ The audit is to e conducted y the 6egistrar" or y an audit officer authori#ed y him" and y such date as may e prescri ed$ +ccounts of enterprises under
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sector corporations are audited at three levels / corporations> internal audit departments" independent professional audit firms" and the 9omptroller and +uditor @eneral 29&+@3 of *angladesh$ )nternal audit" sometimes similar to an investigation" and often termed as management audit" is conducted y the employees of a corporation on special issues$ The eing purpose of this audit is to check &hether the corporation>s rules and regulations are
properly follo&ed at the time of e!ecution of any policy$ )ndependent professional audit is conducted y chartered accountants to pass opinion a out the financial statements annually$ The 9&+@ has the o ligation to conduct a government commercial audit &here there is any government interest in the form of o&nership" or investments" or &here the government provides help in the form of su sidies$ The 9onstitution of *angladesh empo&ers the 9&+@ of *angladesh to conduct an audit of the accounts of the 6epu lic and report to the -atiya sangsad 2parliament3 on the findings$ The pu lic accounts of the 6epu lic and of all courts of la&" authorities and officers of the government are audited and reported on y the +uditor @eneral$ %or that purpose he or any person authori#ed y him has access to all records" ooks" vouchers" documents" cash" stamps" securities" stores or other government property in the possession of any person in the service of the 6epu lic$ )n the e!ercise of his functions" the 9&+@ are not su -ect to the direction or control of any other person or authority$ =aving derived his authority from the 9onstitution" he &ith the assistance of nine Eirectors @eneral placed under him" conducts audit of all government departments" agencies" pu lic sector corporations and pu lic companies having fifty percent or more government o&ned shares$
CONC(USION T.is e4ercise aims at (uilding transparenc' and en.ancing accounta(ilit' o! /e' o!!icials and decision ma/ers 2it.in t.e organi+ation (eing audited, Positi&e !indings o! an independent audit can go a long 2a' in (uilding pu(lic trust in t.e organi+ation* 2.ile negati&e !indings can ser&e to catal'+e c.ange, So an auditor is t.e most relia(le economic guard to c.ec/ t.e da' toda' !inancial transaction o! an entit',
REFERENCES
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1.
Cutting, Thomas (January 12, 2008). " o! to Sur"i"e an #udit". $% htt&:''!!!.&mhut.(om'ho!)to)sur"i"e)an)audit. *etrie"ed +e(ember 1,, 200-.
ut.
2$ en.!i.i&edia.org'!i.i'#udit
), !!!.(o.de/a!are.oh.us'auditor' 4, !!!.a((ountan(y.(om.&.'arti(/es.as&0id1120
5$ en.!i.i&edia.org'!i.i'34terna/5auditor
6.
istory o7 #uditing 8 e o!.(om htt&:''!!!.eho!.(om'about52681-095history) o7)auditing.htm/:i4;;0!d!d<!==
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