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Project Report On Audit Program
Project Report On Audit Program
ON
AUDIT PROCEDURE
AT
SUBMITTED BY :
RUPAM SINGH
Submitted to IMS is an original work of the under-designed and has not been
reproduced from any other sources.
RUPAM SINGH
MBA III semester
10019527018
ACKNOWLEDGMENT
RUPAM SINGH
CONTENT
2. Executive summary
4. Definition of Audit
5. Function of audit
6. Objective of audit
7. Scope of Audit
8. Classification of audit
13. Conclusion
14. Bibliography
OBJECTIVE OF THE STUDY
Our Commitment
We are committed to provide consistent, customized and workable
solutions to our clients and strive to support our services with the highest
level of professionalism, efficiency and technology.
Vision
To accomplish the assignment through the experience of firm’s partners &
professional staff and also to arrange specific technical expertise from our
associates of various streams of professions.
EXECUTIVE SUMMARY
1. AUDIT PLAN
The business of the entity, its policy, plans and procedures. Its hierarchical
structure. The statutory and regulatory framework within which it operates.
The existing accounting and internal control system. The prevalent
management information system. The entity’s risk perception and risk
management plan.
2. Audit Program
3. Audit Sampling
Audit working papers include those papers and documents, which consist
of details about accounts, which are under audit.
5. Audit Files
Preparing files and keeping them safe is an important task of audit office
because entire work, present as well as future, depends upon these files.
6. Audit Evidence
The primary objective of internal audit is to enable the auditor express his
opinion on the efficacy and performance of the systems, procedures and
controls and the financial, cost and other statements generated by the
entity.
6. Analytical Procedures
AUDIT PROCEDURE
Definition:-
3. Vouching
4. Verification of Asset
It is the function of auditing that it should verify the assets of the business.
It is concerned with the determination of value, ownership and possession
of business asset. The auditor can check the existence of asset.
5. Legal Requirement
It is the function of auditing to verify that statements are prepared under the
legal requirements or not. There are various laws like company and income
tax ordinance which are introduced by the govt.
6. Liabilities Verification
The liabilities of the business can be verified from the books of accounts.
The auditor can write a letter to the creditors for the verification of liabilities.
The auditor must receive the certificate from the management in this
regard.
Auditing should make difference between capital and revenue items. The
capital items are compared to note the financial position of the business.
The revenue items are compared to determine the income. The income
and expenses related to many years can be divided in current and coming
year.
8. Valuation of Liabilities:-
9. Valuation of Asset:-
The management gives the value of assets and auditor can apply the
accounting principles to assess the value of assets. The auditor critically
examines and takes help from the expert.
10. Reporting:-
Legal Requirements.
Entity Aspects.
Reliable Information.
Proper Communication.
Evaluation.
Test.
Comparison.
Judgments.
1) Legal Requirements
The auditor can determine the scope of an audit of financial
statements in accordance with the requirements of legislation,
regulations or relevant professional bodies.
The state can frame rules for determining the scope of audit work. In
the same way, professional bodies can make rules to conduct the
audit.
2) Entity Aspects
The audit should be organized to cover all aspects of the entity as far
as they are relevant to the financial statements being audited.
A business entity has many areas of working. A small entity may
have few functions while a large concern has many functions. The
auditor has the duty to go through all the functions of the business.
The audit report should cover all functions so that the reader may
know about all the working of a concern.
3) Reliable Information
The auditor should obtain reasonable assurance as to whether the
information contained in the underlying accounting records and other
source data is reliable and sufficient as the basis for preparation of
the financial statements.
The auditor can use various techniques to test the validity of data. All
auditors while doing the audit work usually apply the compliance test
and substance test. The auditor can show such information in the
report.
4) Proper Communication
The auditor should decide whether the relevant information is
properly communicated in the financial statements.
is an information system so facts and figures must be presented in
that the reader can get information about the business entity. The
auditor can mention this fact in his report.
The principles of accounting can be applied to decide about the
disclosure of financial information in the statements.
5) Evaluation
The auditor assesses the reliability and sufficiency of the information
contained in the underlying accounting records and other source data
by making a study and evaluation of accounting system and internal
controls to determine the nature, extent, and timing of other auditing
procedures.
6) Test
The auditing assesses the reliability and sufficiency of the information
contained in the underlying accounting records and other source data
by carrying out other tests, inquiries and other verification procedures
of accounting transactions and account balances as he considers
appropriate in the particular circumstances.
There are compliance test and substantive test in order to examine
the data. The vouching, verification and valuation technique is also
used.
7) Comparison
The auditor determines whether the relevant information is properly
communicated by comparing the financial statements with the
underlying accounting records and other source data to see whether
they properly summarized the transactions and events recorded
therein.
The auditor can compare the accounting records with financial
statements in order to check that the same has been processed for
preparing the final accounts of a business concern.
8) Judgments
The auditor determines whether the relevant information is properly
communicated by considering the judgment that management has
made in preparing the financial statements, accordingly.
The auditor assesses the selection and consistent application of
accounting policies, the manner in which the information has been
classified and the adequacy of disclosure.
SIGNIFICANCE
AUDIT
According To
Organisation According to
Structure of Practical Utility
Business
Statutory Complete
Private Audit Partial Audit
Audit Audit
Government Continuous
Internal Audit Periodic Audit
Audit Audit
Management
Cost Audit
Audit
Classes of Audit
According to the Organization Structure of the Business
1) Statutory audit
2) Private Audit
3) Government audit
Example:-
4) Internal Audit
It is necessary that the systems are robust and flexible enough for
the organizations to be responsive and effective.
The audit function has changed to reflect this phenomenon over time
during the 20th century, the necessity of internalizing the audit
function was felt to tackle the issues related to non-compliance or
non-adherence to the internal operating procedures.
In the current parlance, the need for the internal audit has become
more comprehensive and has definitely scoped beyond mere
compliance.
When Internal Audit is carried out for the first time, the ground rule for
Internal Audit needs to be laid down, inter alia, including;·
The Internal Audit will primarily concentrate on flow of data and
justification of basis instead of vouching.
The materiality of cost and product under consideration would always
be borne in mind during Internal Audit process.
Objectivity in approach would be a consistent feature in Internal
Audit.
Main thrust would always be on deviations and significance of
deviations with impact of the same on the performance of the
organization.
Objectives and Principles of Internal Audit
Internal audit primarily serves the following objectives:
(c) The internal and external norms, guidelines, financial and cost
accounting standards and procedures.
6. The final output of the internal audit is the audit report which shall
be carefully drafted to ensure lucid communication of the findings
of the audit relating primarily to the shortcomings of the internal
control system, risk management system and the governance
processes and the measures required for correction and important.
That is, a complete audit does not only look at financial statements to make
sure they make sense, it also makes sure that statements compare well wi
th the documents used to create them. Complete audits are less likely than
other audits to contain errors.
2) Partial Audit
3) Continuous Audit
Periodic audit is done at the close of the financial year at the time of
preparing final accounts. The auditor visits the client only once in a year
and complete the examinations of all books and accounts. It covers entire
examination of books and completes verification of account. Periodic audit
is also known as final audit and complete Audit.
5) Interim Audit
An interim audit can also refer to a full audit that is conducted for an
interim period, such as for a quarter or half-year. This is a relatively
uncommon event, since publicly held companies only need to have a
review conducted at quarterly intervals, not a full audit. Thus, the
purpose of Interim Audit may be:
6) Cost Audit
The terminology issued by the CIMA defines Cost Audit as “the verification
of the correctness of cost accounts and of the adherence to the cost
accounting plan”.
8) Management Audit
Advantages of Audit
1) Access to the capital market: The public has to remain under the
security exchanges and the requirements given under it. Once the
auditing is done the accounts that are audited are easily accepted by
the Government such as Central banks, public authorities. This
carries greater authority standards for the account to be authorized.
2) Lower capital cost: This has reduced information that is associated
with the financial statements that have lower interest rates and return
on their investments. Sometimes this activity provides facilitated
settlements and claims of a partner. By performing the process of
auditing frauds and errors can be rectified on time.
3) Deterrent to fraud and inefficiency: Auditing that has been carried
out has to be within the claimed accounts department. In the event of
loss, the property that will maintain a fund is transferred. In case if the
public has separate ownership plan then the claims have to be
resolved from the insurance claims.
4) Operational improvements: An independent auditor can be
controlled and achieved operating efficiency within the client’s
organization. It has an influence on the staffs along with the members
of the client’s organization.
5) Gathering information about profit or loss: This gathering will
help in discussing the profit and loss of the company. Here
employees can disclose their ideas upon which they are lacking and
how can they overcome those obstacles.
6) Confidentiality: During the process of the external audit, there is
more private information such as internal employee salary, CPF, etc.
It may be significant for the person to learn about the organization. It
is because the auditor makes the consideration and conducts the
meetings that are to be held regarding the audit.
7) Settlement of claims: Settlement of claims demands the
enhancement and better atmosphere that are sequenced within the
organization. For accessing and to influence moral values one has to
restrain themselves from performing fraudulent activities.
8) Reports: It produces the report of the truth and fairness of the
reported audit. It involves financial statements that are more
compatible when a person goes through the documents and reports
of the audit.
9) Analytical procedures: It can neither help in prioritizing the changes
and allocating them with the resources are recorded in the work
papers of audits. It also involves control environment and
appointment of analytical procedures of the system.
1. Extra cost: Testing involves the extra cost to the organization which is
considered as a burden. It involves the disruptions of multiple cases. The
auditor has to concentrate more even though there are disruptions. Before
the audit begins the auditor must get the attention of all the staff members
of the organization.
9. Not guaranteed: Auditing cannot provide any data that are analyzed
and prepared. It has financial accounts for the data that are provided. It is
disclosed based on the information and explanations that are agreed on by
the clients.
AUDIT PROCEDURE
Audit Procedure
Audit plan
Audit Programme
Audit Sampling
Audit Files
Audit Evidence
Analytical Procedure
Method of Checking
AUDIT PLAN
The audit plan is a comprehensive document which shall lay down
the areas to be covered by the audit, the manner in which the audit
will be conducted, the extent of assessment or verification to be done,
the resources to be employed and the distribution of total available
time among different activities, so that the overall objective of the
internal audit is fulfilled and the audit is conducted in accordance with
the terms of the audit engagement.
Audit Programme
An audit programme is a set of instructions which are to be followed by the
auditor for the proper execution of an audit. After the audit plan has been
developed, a detailed audit programme is formulated and written.
2. Audit program specifies the time period clearly, which helps to complete
the work of audit in less time.
3. Assistant should sign after the completion of work which specifies the
responsibility and accountability of staffs. It also helps to prove the
completion of task.
5. Audit program shows the way to the new staffs to perform work of audit.
Audit Sampling
Sampling refers to selection of a portion (sample) of the total
(population), on a certain basis so that the portion is representative of
the total. Therefore one has to be careful about deciding on the size
of the sample and the manner of selecting the items from the
population to ensure that the sample actually represents the
characteristics of the population.
The statistical methods are those which use the random number table
or the theory of probability for selection of a sample.
In case of test of controls where the auditor is trying to ascertain the
effectiveness of the internal control system, the auditor’s analysis of
the nature and cause of error is more important than the statistical
analysis of mere presence or absence of error and therefore in such
situation, non-statistical sampling approach is preferred..
Therefore the auditor has to decide upon samples from the classes of
transactions covered by the audit on which the audit procedures are
applied to obtain sufficient appropriate audit evidence that would
enable the auditor to have reasonable assurance about the
characteristics of the class of transactions.
In order to lower the sampling error and thus the risk of drawing an
incorrect conclusion, size of the sample should be bigger.
The internal auditor shall first decide upon what would be the
appropriate population for deriving a particular audit assurance and
whether the population is complete.
Audit working papers include those papers and documents, which consist
of details about accounts, which are under audit. They are the written,
private materials, which an auditor prepares for each audit. They describe
the accounting information, which he obtained from his client, the method
of examination used, his conclusions and the financial statements
1. The working papers serve the auditor both as useful audit tool as well as
a permanent record of the audit work performed.
2. They are useful to the auditor to control the current year’s audit work.
AAS 3 states working papers should record the auditor’s plan, the nature,
timing and extent of the audit procedures performed; and the conclusions
drawn from the evidence obtained.
For this purpose, the auditor carries out audit procedures to derive
sufficient appropriate audit evidence and draws conclusion there from
which forms the basis of his opinion.
(b) Documentary evidence originated from third party and held by the
entity.
(c) Documentary evidence originated from the entity and held by third
party.
Analytical Procedures
The internal auditor carries out the analytical procedures initially to
understand the functioning of the entity, its environment and the risk
of material misstatement in the information on which the audit
procedures will be carried out and based on this understanding he
plans the nature and extent and timing of the audit procedures.
The analytical procedures are applied again to corroborate the
conclusions drawn from the evidence arising out of the tests of
details, based on the findings of which the auditor might decide to
apply further audit procedures to derive higher level of assurance
about the evidence.
Analytical procedures also involve establishing relationships between
various elements of the financial data or non-financial data or both
and drawing conclusion from there.
Where the result of the analytical procedures show significant
deviations or fluctuations or establish relationships that are
inconsistent with the results of other audit procedures or the expected
results the auditor shall obtain sufficient explanation from the
management to remove the doubt about any irregularity or obtain
appropriate corroborative evidence or apply further audit procedures
until the auditor is satisfied with the results.
Where the deviation, fluctuation or relationship is not satisfactorily
explained or where the auditor is not satisfied with the results of
further audit procedures it might be indicative of possible irregularity
which should be brought to the notice of the management and
suitable course of action may be suggested.
For finding out the similarity or divergence, comparison of the derived
ratio and trends is generally done with:
(a) The documents and reports of the previous periods
(b) Projections or budget of the entity
(c) Information from the industry like the industrial standard or
comparable data from a similar entity within the same industry
(d) The estimates of the internal auditor based on his study of the
ratios and trends of the entity.
The methods and extent of application of analytical procedures
depends on the judgment of the internal auditor based on:
(i) Nature of the entity
(ii) Availability, reliability and relevance of the information available
(iii) Source of the information e.g. internal or external
(iv)Comparability of the information
(v) Efficiency and effectiveness of a particular procedure to achieve a
particular objective
(vi)Experience from the previous internal audits conducted at the
entity
(vii) Effectiveness of the controls over the preparation of the
information.
However, the extent of reliance the internal auditor shall place
on the results of the analytical procedures will depend on the
judgment of the internal auditor based on:
(a) Materiality of the items involved
(b) Outcome of the other audit procedures
(c) The extent to which the outcome of the analytical procedure can
be relied for deriving assurance about a particular item
(d) Whether the systems, procedures and controls as a whole are
efficient and functioning effectively.
Method of Checking
There are different methods of checking, which are as follows:
1) Routine checking
2) Test checking
3) Checking in depth
4) Overall checking
Routine Checking
Checking in Depth
Overall Checking
It is another fact that before starting the audit procedure there presents a
series of more procedures. For example audit engagement letter, audit
clearance letter, team meeting etc.
INTRODUCTION
ARTICLES
BOOKS-AUDITING (SBPD PUBLICATION-2011-12)
www.indiamart.com
www.indiafilings.com
www.taxmann.com
https://www.seminarsonly.com/Engineering-
Projects/Finance/Audit-Of-Bank.php
https://studypoints.blogspot.com/2011/09/explain-functions-of-
audit-or-
auditing_3520.htmlhttps://accountlearning.blogspot.com/2012/01
/objectives-of-audit.html
https://iedunote.com/audit-scope
Audit conclusions and reporting are one of the principles governing an
audit. Reporting is the last procedure of the process of an audit.
www.indiafilings.com
www.taxmann.com
https://www.seminarsonly.com/Engineering-Projects/Finance/Audit-Of-
Bank.php
https://studypoints.blogspot.com/2011/09/explain-functions-of-audit-or-
auditing_3520.htmlhttps://accountlearning.blogspot.com/2012/01/objectives
-of-audit.html
https://iedunote.com/audit-scope