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    SECTION-1 (AUDITING)

    INTRODUCTION TO AUDITING

    STRUCTURE:

    1.1 Objectives

    1.2 Introduction -n overvie! o" uditin#

    1.$ Ori#in nd evo%ution

    1.& De"inition

    1.' S%ient "etures

    1. Scoe o" uditin#

    1.* +rinci%es o" uditin#

    1., Objects o" udit

    1. Detection nd revention o" "rud 1.2

    1.1 Concet o" / true nd "ir vie!/

    1.11 Advnt#es o" udit

    1.12. 0iittions o" udit

    1.1$. 0et us su u.

    1.1&. e3!ords.

    1.1'. 4ib%io#r53

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    1.1

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    OBJECTIVE

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    S

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    t5e evo%ution o"uditin#t5e objects o" uditin#

    t5e dvnt#es nddisdvnt#es o"uditin#detection ndrevention o" "rudsnd errors

    %iittions o" uditin#

    A"ter stud3in# t5is unit 3ou !i%% be b%e to understnd

    1.2 INTRODUCTION -AN OVERVIEW OF AUDITING:

    Econoic decisions in ever3 societ3 ust be bsed uon t5e in"ortion

    vi%b%e t t5e tie t5e decision is de. 6or e7%e8 t5e decision o"

    bn9 to 9e %on to business is bsed uon revious "innci%

    re%tions5is !it5 t5t business8 t5e "innci% condition o" t5e con3 s

    re"%ected b3 its "innci% stteents nd ot5er "ctors.

    I" decisions re to be consistent !it5 t5e intention o" t5e decision 9ers8 t5e

    in"ortion used in t5e decision rocess ust be re%ib%e. Unre%ib%e

    in"ortion cn cuse ine""icient use o" resources to t5e detrient o" t5e

    societ3 nd to t5e decision 9ers t5ese%ves. In t5e %endin# decision

    e7%e8 ssue t5t t5e br"%3 9es t5e %on on t5e bsis o" is%edin#

    "innci% stteents nd t5e borro!er Con3 is u%tite%3 unb%e to re3.

    As resu%t t5e bn9 5s %ost bot5 t5e rinci% nd t5e interest. In ddition8

    not5er con3 t5t cou%d 5ve used t5e "unds e""ective%3 !s derived o"

    t5e one3.

    As societ3 becoe ore co%e78 t5ere is n incresed %i9e%i5ood t5t

    unre%ib%e in"ortion !i%% be rovided to decision 9ers. T5ere re sever%

    resons "or t5is: reoteness o" in"ortion8 vo%uinous dt nd t5e

    e7istence o" co%e7 e7c5n#e trnsctions

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    As ens o" overcoin# t5e rob%e o" unre%ib%e in"ortion8 t5edecision-9er ust deve%o et5od o" ssurin# 5i t5t t5e in"ortion issu""icient%3 re%ib%e "or t5ese decisions. In doin# t5is 5e ust !ei#5 t5e cost o"obtinin# ore re%ib%e in"ortion #inst t5e e7ected bene"its.

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    A coon !3 to obtin suc5 re%ib%e in"ortion is to 5ve soe t3e o"

    veri"iction (udit) er"ored b3 indeendent ersons. T5e udited

    in"ortion is t5en used in t5e decision 9in# rocess on t5e ssution

    t5t it is resonb%3 co%ete8 ccurte nd unbised.

    1.3 ORIGIN AND EVOLUTION

    T5e ter udit is derived "ro t5e 0tin ter ;udire8< !5ic5 ens to 5er. In

    er%3 d3s n uditor used to %isten to t5e ccounts red over b3 n

    ccountnt in order to c5ec9 t5e

    Auditin# is s o%d s ccountin#. It !s in use in %% ncient countries suc5 s

    =esooti8 Greece8 E#3t. >oe8 U.. nd Indi. T5e ?eds contin

    re"erence to ccounts nd uditin#. Art5ss5t5r b3 uti%3 deti%ed ru%es

    "or ccountin# nd uditin# o" ub%ic "innces.

    T5e ori#in% objective o" uditin# !s to detect nd revent errors nd

    "ruds

    Auditin# evo%ved nd #re! rid%3 "ter t5e industri% revo%ution in t5e 1,t5

    centur3 @it5 t5e #ro!t5 o" t5e joint stoc9 conies t5eo!ners5i nd n#eent bece serte. T5es5re5o%ders !5o !ere t5e o!ners needed reort "ro nindeendent e7ert on t5e ccounts o" t5e con3 n#ed b3t5e bord o" directors !5o !ere t5e e%o3ees.

    T5e objective o" udit s5i"ted nd udit !s e7ected toscertin !5et5er t5e ccounts !ere true nd "ir rt5er t5ndetection o" errors nd "ruds.

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    In Indi t5e conies Act 11$ de udit o" con3ccounts cou%sor3

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    @it5 t5e increse in t5e sie o" t5e conies nd t5e vo%ue o"

    trnsctions t5e in objective o" udit s5i"ted to scertinin#!5et5er t5e ccounts !ere true nd "ir rt5er t5n true ndcorrect. Bence t5e e5sis !s not on rit5etic% ccurc3but on "ir reresenttion o" t5e "innci% e""orts

    T5e conies Act.11$ %so rescribed "or t5e "irst tie t5eu%i"iction o" uditors

    T5e Interntion% Accountin# Stndrds Coittee nd t5e

    Accountin# Stndrd bord o" t5e Institute o" C5rteredAccountnts o" Indi 5ve deve%oed stndrd ccountin# nduditin# rctices to #uide t5e. ccountnts nd uditors in t5ed3 to d3 !or9

    T5e %ter deve%oents in uditin# ertin to t5e use o"couters in ccountin# nd uditin#.

    In conc%usion it cn be sid t5t uditin# 5s coe %on# !3

    "ro 5erin# o" ccounts to t9in# t5e 5e% o" couters toe7ine couterised ccounts

    1.4 DEFINITION

    T5e ter uditin# 5s been de"ined b3 di""erentut5orities.

    1. Sicer nd +e#%er: /Auditin# is suc5 ne7intion o" boo9s o" ccounts nd vouc5ers o"business8 s !i%% enb%e t5e uditors to stis"3 5ise%" t5tt5e b%nce s5eet is roer%3 dr!n u8 so s to #ive true nd "ir vie! o" t5e stte o" ""irs o" t5e business ndt5t t5e ro"it nd %oss ccount #ives true nd "ir vie! o"t5e ro"it%oss "or t5e "innci% eriod8 ccordin# to t5e besto" in"ortion nd e7%ntion #iven to 5i nd s s5o!nb3 t5e boo9s nd i" not8 in !5t resect 5e is notstis"ied./

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    2

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    .

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    +ro". 0.>.Dic9see. /uditin# is n e7intion o" ccountin#records undert9en !it5 vie! to estb%is5 !5et5er t5e3correct%3 nd co%ete%3 re"%ect t5e trnsctions to !5ic5 t5e3re%te.

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    T5e boo9 /n introduction to Indin Governent ccountsnd udit/ /issued b3 t5e Cotro%%er nd Auditor Gener%o" Indi8 de"ines udit Fn instruent o" "innci% contro%. Itcts s s"e#urd on be5%" o" t5e rorietor (!5et5er nindividu% or #rou o" ersons) #inst e7trv#nce8cre%essness or "rud on t5e rt o" t5e rorietors #entsor servnts in t5e re%ition nd uti%istion o" t5e one3or ot5er ssets nd it ensures on t5e rorietors be5%"t5t t5e ccounts intined tru%3 reresent "cts nd t5tt5e e7enditure 5s been incurred !it5 due re#u%rit3 nd

    roriet3. T5e #enc3 e%o3ed "or t5is urose is c%%edn uditor./

    1.5 FEATURES OF AUDITING

    1 Audit is s3stetic nd scienti"ic e7intion o" t5e boo9s o"ccounts o" business2 Audit is undert9en b3 n indeendent erson or bod3 o"ersons !5o re du%3 u%i"ied "or t5e job.

    Audit is veri"iction o" t5e resu%ts s5o!n b3 t5e ro"it nd%oss ccount nd t5e stte o" ""irs s s5o!n b3 t5eb%nce s5eet.

    Audit is critic% revie! o" t5e s3ste o" ccountin# nd intern%contro%.

    Audit is done !it5 t5e 5e% o" vouc5ers8 docuents8 in"ortionnd e7%ntions received "ro t5e ut5orities.

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    T5e uditor 5s to stis"3 5ise%" !it5 t5e ut5enticit3 o" t5e"innci% stteents nd reort t5t t5e3 e75ibit true nd "irvie! o" t5e stte o" ""irs o" t5e concern.

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    # T5e uditor 5s to insect8 core8 c5ec98 revie!8scrutinie t5e vouc5ers suortin# t5e trnsctions nd e7inecorresondence8 inute boo9s o" s5re 5o%ders8 directors8=eorndu o" Assocition nd Artic%es o" ssocition etc.8 inorder to estb%is5 correctness o" t5e boo9s o" ccounts.

    1.6 OBJECTIVES OF AUDITING

    T5ere re t!o in objectives o" uditin#. T5e rir3 objectivend t5e secondr3 or incident% objective.

    1 Pri!r" #$%&'(i)& *s er Section 22* o" t5e Conies Act1'8 t5e rir3 dut3 (objective) o" t5e uditor is to reort to t5eo!ners !5et5er t5e b%nce s5eet #ives true nd "ir vie! o" t5eCon3

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    1.

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    EPRESSION OF OPINIO

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    N

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    @5en !e se9 o" t5e objective8 !e rtion%ie t5e t5in9in#rocess to "oru%te set o" ttinb%e #o%s8 !it5 re"erence tot5e circustnces8 "esibi%it3 nd constrints. In one3 tters8

    "ruds nd errors re coon %ce o" occurrence. Art "rot5is8 t5e stteents o" ccount 5ve t5eir o!n urose nd useo" ortr3in# t5e "innci% stte o" ""irs. T5e objective o" udit8ntur%%38 s5ou%d be to see t5t !5t t5e stteents o" ccountconve3 is true nd not is%edin# nd t5t suc5 errors nd "rudsdo not e7ists s to distort !5t t5e ccounts s5ou%d re%%3 conve3.

    Ti%% recent%38 t5e rinci% e5sis !s on rit5etic% ccurc3deute ttention !s not id to rorite %iction o"ccountin# rinci%es nd disc%osure8 "or ensurin# rertion o"ccountin# stteent in suc5 !3 s to enb%e t5e reder o"

    t5e ccountin# stteent to "or correct vie! o" t5e s%te o"""irs. Huite "e! n#eents too9 dvnt#e o" t5e situtionnd niu%ted ro"it or %oss nd ssets nd %ibi%ities to5i#5%i#5t or conce% ""irs ccordin# to t5eir o!n desi#n. T5isstte o" ""irs ce u "or considertion in t5e Royal Mail SteamPacket Companys Case s resu%t o" !5ic5 t5e Conies Actso" En#%nd nd Indi !ere ended in 1&, nd 1'resective%3 to reuire t5e uditor to stte inter %i !5et5er t5estteents o" ccount re true nd "ir. T5is is !5t !e cn t9es t5e resent d3 udit objective. T5e i%iction o" t5esubstitution o" Ftrue nd "ir need to be understood. T5ere 5s

    been s5i"t o" e5sis "ro rit5etic% ccurc3 to t5euestion o" re%ibi%it3 to t5e "innci% stteents. A stteent 3be re%ib%e even t5ou#5 t5ere re soe errors or even "ruds8rovided t5e3 re not so bi# s to vitite t5e icture. T5e !ordFcorrect !s soe!5t is%ced s t5e ccountin# %r#e%3consists o" estites.Bo!ever8 3ou s5ou%d not in"er t5t t5e detection o" errors nd"ruds is no %on#er n udit objective it is indeed n uditobjective becuse stteents o" ccount dr!n u "ro boo9scontinin# serious ist9es nd "rudu%ent entries cnnot beconsidered s true nd "ir stteent. To estb%is5 !5et5er t5e"innci% stteent s5o! true nd "ir stte o" ""irs8 t5euditors ust crr3 out rocess o" e7intion nd veri"iction

    nd8 i" errors nd "ruds e7ist t5e3 !ou%d coe to 5is notice in t5eordinr3 course o" c5ec9in#. 4ut detection o" errors o" "ruds isnot t5e rir3 i o" udit t5e rir3 i is t5e estb%is5ento" de#ree o" re%ibi%it3 o" t5e nnu% stteents o" ccount. I"t5ere reins dee %id "rud in t5e ccounts8 !5ic5 in t5enor% course o" e7intion o" ccounts 3 not coe to %i#5t8it !i%% not be construed s "i%ure o" udit8 rovided t5e uditor!s not ne#%i#ent in t5e crr3in# out 5is nor% !or9. T5isrinci%e !s estb%is5ed s er%3 s in 1, in t5e %edin# csein Re-Kingston

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    Cotton Mills Co.

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    1./ DETECTION OF FRAUD 0 ERRORS

    T5e ter "rud ens t5e !i%%"u% isreresenttion de !it5n intention o" deceivin# ot5ers. It is de%iberte ist9ecoitted in t5e ccounts !it5 vie! to #et erson% #in. Inccountin#8 "rud ens t!o t5in#s.

    1 De"%ction invo%vin# isrorition o" eit5er cs5 or#oods nd2 6rudu%ent niu%tion o" ccounts not invo%vin#de"%ction.

    1./.1. FRAUD COVERS TE

    FOLLOWING

    1./.2 FRAUD TROUGDEFALCATION.

    6o%%o!in# re t5e et5ods o" de"%ction invo%vin#isrorition o" cs5 or #oods

    1 43 isroritin# t5e receit b3 not recordin# t5e sein t5e cs5boo9

    2 43 destro3in# t5e crbon co3 or counter "oi% o" t5ereceit nd isroritin# t5e cs5 received

    $ 43 enterin# %esser ount on t5e counter"oi% ndisroritin# t5e di""erence bet!een one3 ctu%%3-received nd t5e ount entered on t5e counter"oi% o" t5e receitboo9

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    &

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    43 not recordin# t5e receit o" s%e o" csu% nture "ore7%e s%e o" scr8 s%e o" o%d ne!sers etc.

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    ' 43 oittin# to record cs5 dontions received b3 non-ro"it 9in# c5ritb%e institutions

    43 isroritin# t5e cs5 received on discountin# t5ebi%%s receivb%e nd s5o!in# t5e s bi%%s outstndin# on 5nd.

    * 43 isroritin# cs5 received "ro debtors ndconce%in# t5e se b3 #ivin# rti"ici% credit to t5e debtors in

    t5e "or o" bd debts8 discount or s%es return etc.

    , 43 dotin# t5e et5od o" /teein# nd %din#/ or/%in# rocess/. Under t5is et5od cs5 received "ro onedebtor is isrorited nd de"icienc3 in t5t debtors ccountis de #ood !5en not5er 3ent is received "ro seconddebtor b3 creditin# t5e second debtors ccount %ess b3 t5tount. T5is rocess is crried out round t5e 3er.

    43 suressin# t5e cs5 s%es b3 not recordin# t5e orb3 tretin# t5e cs5 s%es s credit s%es.

    1 43 isroritin# t5e s%e roceeds o" ?++ s%es ors%es o" #oods on rov% bsis b3 tretin# t5e trnsction s#oods received or not roved.

    11 43 under cstin# receit side tot% o" t5e

    cs5boo9

    12 43 recordin# "ictitious or bo#us3ents

    1$ 43 recordin# ore 3ents t5n ctu% ounts id b3%terin# t5e "i#ures on t5e vouc5ers.

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    1& 43 s5o!in# t5e se 3ent t!ice.

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    43 s5o!in#crediturc5sesisroritin# t5eount

    s

    cs5

    urc5ses

    nd

    >ecordin# erson% e7enses sbusiness e7enses

    43 not recordin# discounts nd%%o!nces #iven b3 t5e creditorsnd isroritin# t5eounts

    43 overcstin# t5e 3ent sidetot% o" t5e cs5boo9

    >ecordin# "ictitious nd in"%tedurc5ses nd isroritin#t5t ount.

    43 suressin# t5e credit notes"or returns nd s5o!in# t5e "u%%3ent to creditors.

    43 inc%udin# t5e nes o" du3!or9ers or t5e !or9ers !5o5veJ T5e job in t5e !#e s5eetsnd isroritin# t5e ount.

    43 over cstin# t5e tot% o" !#ess5eets nd dr!in# t5t ount"or isrorition.

    43 isroritin# t5eundisbursed !#es.

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    1./.3

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    FRAUD TROUG ANIPULATION OF ACCOUNT

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    It i%ies resenttion o" ccounts ore "vorb%3 t5n !5t t5e3 ctu%%3 re.

    @indo! dressin# ens s5o!in# !ron# icture. T5e "rud t5rou#5

    niu%tion o" ccounts is %so 9no!n s !indo! dressin# becuseccounts re niu%ted to s5o! !ron# icture o" t5e ro"it or %oss o" t5e

    business nd its "innci% stte o" ""irs. Gener%%3 t5is t3e o" "rud is

    coitted b3 t5e eo%e t t5e to n#eent %eve%. T5is does not invo%ve

    n3 isrorition o" cs5 or #oods but it is eit5er over stteent o" ro"it

    or understteent o" t5e se. Suc5 "rud is coitted !it5 certin objective

    nd is re%tive%3 di""icu%t to detect.

    1./.4 TE AUDITOR CAN SUSPECT FRAUD UNDER TE

    FOLLOWING CIRCUSTANCES.

    1. @5en vouc5ers8 invoices8 c5eues8 contrcts re issin# etc.

    2. @5en contro% ccount does not #ree !it5 subsidir3 boo9s.

    $. @5en t5e di""erence in tri% b%nce is di""icu%t to %octe.

    &. @5en t5ere re #reter "%uctution in G.+. nd N.+. rtios.

    '. @5en t5ere is di""erence bet!een t5e b%nce nd t5e con"irtion

    o" t5e b%nce b3 t5e rties.

    . @5en t5ere is di""erence bet!een t5e stoc9 s er records nd t5e

    stoc9 53sic%%3 counted.

    *. @5en t5e e7%ntion #iven b3 t5e c%ient is not stis"ctor3.

    ,. @5en t5ere is over!ritin# o" soe "i#ures.

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    .

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    @5en t5ere is contrdiction in t5e e7%ntion #iven b3 di""erent rties.

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    1./.5 PROCEDURE TO BE FOLLOWED TO DETECT ERRORS.

    6o%%o!in# rocedures 3 be doted b3 t5e uditor to detect t5e errors.

    1. C5ec9 t5e oenin# b%nces "ro t5e b%nce s5eet o" t5e %st 3er.

    2. C5ec9 t5e ostin# into resective %ed#er ccounts

    $. C5ec9 t5e tot% o" t5e subsidir3 boo9s.

    &. ?eri"3 %% t5e cstin#s nd t5e crr3 "or!rds.

    '. Ensure t5t t5e %ist o" debtors nd creditors t%%3 !it5 t5e %ed#er

    ccounts.

    . =9e sure t5t %% ccounts "ro t5e %ed#er re t9en into ccounts.

    *. ?eri"3 t5e tot% o" t5e tri% b%nce.

    ,. Core t5e vrious ites "ro t5e tri% b%nce !it5 t5t o" t5e

    revious 3er.

    . 6ind out t5e ount o" di""erence nd see !5et5er n ite o" 5%" or

    suc5 ount is entered !ron#%3.

    1. C5ec9 di""erences invo%vin# round "i#ures s >s. 18 >s. 1 etc .

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    11.

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    See !5ere t5ere is is%ceent or trnsosition o" "i#ures t5t is &' "or '&or ,1 "or 1, etc.

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    12. U%tite%3 cre"u% scrutin3 is t5e on%3 reed3 "or detection o" errors.

    1$. See t5t no entr3 o" t5e ori#in% boo9 5s reined unosted.

    1./.6. TE AUDITOR SOULD PERFOR TE FOLLOWING DUTIES IN

    RESPECT OF FRAUD.

    1. E7ine %% sects o" t5e"innce.

    2. ?ouc5 %% t5e receits "ro t5e counter"oi%s or crbon coies or cs5eos8 s%es rt reorts etc.

    $. C5ec9 t5orou#5%3 t5e s%r3 nd !#es re#ister.

    &. ?eri"3 t5e et5ods o" v%ution o"stoc9s.

    '. C5ec9 u stoc9 re#ister8 #oods in!rds notes8 #oods out !rds boo9snd de%iver3 c5%%ns etc

    . C%cu%te vrious rtios in order to detect "rudu%ent niu%tion o"ccounts

    *. Go t5rou#5 t5e deti%s o" unusu%ites.

    ,. +robe into t5e deti%s o" t5e rob%es !5en t5ere is susicion.

    . E7ercise resonb%e s9i%% nd cre !5i%e er"orin# t5e dut3.

    1. =9e surrise visit to c5ec9 t5e ccounts.

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    1.

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    ADVANTAGES AND INERENT LIITATIONS OF AUDIT

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    A.4usinessns

    oint o"vie!

    4.Investorsoint o"vie!

    C. Ot5erAdvnt#es.

    1Detec"ono"errorsnd"ruds

    1 .+rotectsinterest

    1.Ev%ute"innci%sttus

    2 0on"robn9s

    2. =or%c5ec9

    2. Ustin#o" s5res

    $ 4ui%dsreuttion

    $. +roerv%utiono"investents

    $.Sett%eents o"c%is

    & +roer

    v%utiono" ssets

    & Good

    securit3

    &

    Evidencein court

    '.Governentccetnce

    '.Sett%eent o"ccounts

    .Udteccounts

    '. 6ciSttesc%cu%tion o"+urc5se.Cons9terton.

    *Su##estions "oriroveent

    *6ci%ittest7tion

    ,. Use"u%"or#enc3

    1..1 ADVANTAGES OF AUDIT

    A,)!+(!& # !7,i(

    1..2 LIITATIONS OF AUDITING

    At t5is st#e8 it ust be c%er t5t t5e objective o" n udit o" "innci%

    stteents is to enb%e n uditor to e7ress n oinion on suc5

    "innci% stteents. In "ct8 it is t5e uditor

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    over%% objectives o" n udit. T5e in5erent %iittions re:

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    I. 6irst o" %%8 uditor

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    &

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    .

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    C#+;i'( =i(< #(

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    - Auditor 3 5ve di""erences o" oinion !it5 t5e ccountnts8 n#eent8en#ineers etc. In suc5 cse erson% jud#eent %3s n iortnt ro%e. Itdi""ers "ro erson to erson.

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    '. E&'( # i+;!(i#+ : - 6innci% stteents 3 not disc%ose trueicture even "ter udit due to in"%tionr3 trends.

    . C#rr79( 9r!'(i'& (# i+;7&+'& (i+ +#( 9#i$;& :-Auditor cnnot c5ec9 ec5 nd

    ever3 trnsction. Be 3 be reuired to do test c5ec9in#.

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    1.1?

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    ISCELLANEOU

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    S

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    1.1?.1 AUDITING V INVESTIGATION

    P#i+( # ,i&r&+'& A7,i(i+ I+)&(i!(i#+

    1. objects T5e object is to "ind It is undert9en to out !5et5er b%nce

    9no! t5e essenti% s5eet nd ro"it nd

    "cts bout tter %oss ccount e75ibit

    under inuir3. It is done true nd "ir vie! o"

    !it5 soe seci% business.

    urose o" vie!.

    It usu%%3 covers oneIt 3 cover ore t5n ccountin# 3er.one ccountin# 3er.

    2 eriod It is conducted "or

    It is crried out on rorietors on%3.

    be5%" o" n3 rt3

    interested in t5e tter.

    $ conducted

    It is !ider in scoe. It

    3 be crried outIt is restricted tobe3ond b%nce s5eet.

    b%nce s5eet nd ro"it nd

    toss ccount.

    & scoe

    It is vo%untr3. It isAudit is %e#%%3 reuired under certin

    cou%sor3 "orcircustnces.conies.

    It 3 be conducted tIt 3 be conducted tn3 tie in cse o"t5e end o" t5e 3er. susicion bout n3'. cou%sion

    trnsction.

    6or o" reort is not

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    rescribed. It is resented tot5e c%ient.

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    tie 6or o" reort is rescribed. It is resented to

    t5e s5re5o%ders.

    Even t5ird rt3 cn

    oint n investi#tor.

    O!ners oint t5e

    uditors.

    *. reort Even n e%o3eere"erb%3 c5rtered

    T5e sttutor3 uditorsccountnt 3 be ust osses roer

    ointed s u%i"ictions.

    investi#tor.

    >e - investi#tion 3,. ointent be undert9en.

    >e -udit is not #ener%%3

    undert9en.

    1. u%i"ictions2. re!or9

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    1.1?.2

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    DISTINCTION BETWEEN ACCOUNTING AND AUDITING

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    +ointso"di""erence

    Accountin# Auditin#

    1.enin

    #

    It isrecordin#

    o" %% t5ed3 to d3trnsctions in t5eboo9s o"ccounts%edin# torertiono" "innci%stteents.

    It is t5ecritic%

    e7intion o" t5etrnsctionsrecordedin t5eboo9s o"ccounts.

    2.nture

    It isconcerned

    !it5"in%istiono"ccounts.

    It isconcerne

    d !it5estb%is5ent o"re%ibi%it3o""innci%stteents.

    T5eobjectscertin t5e

    resu%ts.

    istotrdi

    n#

    T5eobject isto certi"3t5ecorrectne

    ss o""innci%stteents.

    $.objects

    Accountin#coences !5enboo99eein#ends.

    Auditin#be#ins!5enccountin#

    ends.

    &.coenceent

    It invo%vesvrious"innci%stteents. It invo%vesintennce o" boo9so"ccounts. Itdoes not#o be3ondboo9s o"ccounts.

    Itdeendsuon t5e#reeent oruon t5erovisions o" %!. It#oesbe3ondboo9s o"ccounts.

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    '.scoe

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    1.1?.3

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    .

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    An udit o" ccounts b3 n indeendent e7ert ssures t5e outside users t5t

    t5e ccounts re roer nd re%ib%e. T5e outsiders cn re%3 on t5e ccounts i"

    t5e uditor reorts t5t t5e ccounts re true nd "ir. T5e ccounts re sidto be true nd "ir:

    1 W

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    $

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    .

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    T5e c%osin# stoc9 is 53sic%%3 veri"ied nd v%ued roer%3.

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    &. Intn#ib%e ssets %i9e #ood!i%%8 tents8 re%iinr3 e7enses or

    ot5er de"erred revenue e7enses re !ritten o"" roer%3.

    '. +roer rovision is de "or bd nd doubt"u% debts.

    . Cit% e7enses is not treted s revenue e7enses nd vice vers.

    *. Cit% receits re not treted s revenue receits.

    ,. E""ect o" c5n#es in rte o" "orei#n e7c5n#e on v%ue o" ssets nd

    %ibi%ities is recorded in t5e boo9s roer%3.

    . Contin#ent %ibi%ities re not treted s ctu% %ibi%ities nd vicevers.

    1. +rovision is de "or %% 9no!n %osses nd %ibi%ities

    11. A reserve is not s5o!n s rovision nd vice vers

    12. Cut o"" trnsctions re recorded roer%38 so t5t %% s%es invoices

    re tc5ed !it5 #oods de%ivered nd %% urc5se invoices re

    tc5ed !it5 #oods received.

    1$. Trnsctions re recorded on ccru% bsis8 i.e. outstndin#

    e7enses8 reid e7enses8 incoe ccrued nd dvnce incoe re

    recorded roer%3.

    1&. E7ected or nticited #ins re not credited to t5e ro"it nd %oss

    ccount.

    1'. E""ect o" events "ter t5e b%nce s5eet dte on t5e v%ue o" n sset

    nd %ibi%it3 is disc%osed in t5e ccounts roer%3

    1. T5e e7cetion% or non-recurrin# trnsctions re disc%osed

    serte%3 in t5e ccounts.

    3. Di';#& !;; !(&ri!; !'(:T5e boo9s o" ccounts ust disc%ose %%teri% "cts re#rdin# revenue8 e7enses8 ssets nd %ibi%ities. =teri%ens iortnt nd essenti%. T5e disc%osure o" iortnt tters in t5eccounts 5e%s t5e users in t9in# business decisions. T5ere s5ou%d beneit5er suression o" vit% "cts nor is-stteents.

    4. L&!; r&7ir&&+(: In cse o" %iited con3 t5e ccount ust disc%oset5e tters reuired to be disc%osed under t5e Conies Act. T5e "in%ccounts ust be in t5e "ort rescribed under Sc5edu%e ?I o" t5eConies Act8 1'. Seci% conies suc5 s bn9s8 insurnce8e%ectricit3 su%3 conies rere ccounts s rescribed under seci%%!s. A co-oertive societ38 trust etc. ust %so rere t5e ccounts sreuired under re%evnt %!s.

    5. R&7ir&&+( # I+(i(7(& # C

    es3 to understnd. Art "ro t5is bvious uti%it38 t5ere re ot5er dvnt#e

    o" udit. Soe or %% o" t5ese re o" considerb%e v%ue even to t5ose

    enterrises nd or#nition !5ere udit is not cou%sor38 t5ese

    dvnt#es re #iven be%o!:

    () It s"e#urds t5e "innci% interest o" ersons !5o re not ssocited !it5

    t5e n#eent o" t5e entit38 !5et5er t5e3 re rtners or s5re5o%ders.

    (b) It cts s or% c5ec9 on t5e e%o3ees "ro coittin# de"%ctions or

    ebe%eent.

    (c) Audited stteents o" ccount re 5e%"u% in settin# %ibi%it3 "or t7es8

    ne#otitin# %ons nd "or deterinin# t5e urc5se considertion "or business.

    (d) T5is re %so use "or sett%in# trde disutes or 5i#5er !#es or bonus s

    !e%% s c%is in resect o" d#e su""ered b3 roert38 b3 "ire or soe

    ot5er c%it3.

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    (e)

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    An udit cn %so 5e% in t5e detection o" !st#e nd %osses to s5o! t5edi""erent !3s b3 !5ic5 t5ese i#5t be c5ec9ed8 eseci%%3 t5ose t5t occurdue to t5e bsence o" indeuc3 o" intern% c5ec9s or intern% contro%esures.

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    (") Audit scertins !5et5er t5e necessr3 boo9s o" ccounts nd %%ied

    records 5ve been roer%3 9et nd 5e%s t5e c%ient in 9in# #ood

    de"iciencies or indeucies in t5is resects.

    (#) As n ris% "unction8 udit revie!s t5e e7istence nd oertions o"

    vrious contro%s in t5e or#nitions nd reorts !e9ness8 indeuc38 etc.8

    in t5e.

    (5) Audited ccounts re o" #ret 5e% in t5e sett%eent o" ccounts t t5e

    tie o" dission or det5 o" rtner.

    (i) Governent 3 reuire udited nd certi"icted stteent be"ore it #ives

    ssistnce or issues %icence "or rticu%r trde.

    1.1?.5 UALITIES OF AN AUDITOR

    So "r !e 5ve discussed t5e uestion o" "or% u%i"ictions o" n

    uditor. 4ut it is not enou#5 to re%ise !5t n uditor s5ou%d be. Be is

    concerned !it5 t5e reortin# on "innci% tters o" business nd ot5er

    institutions. 6innci% tters in5erent%3 re to be set !it5 t5e rob%es

    o" 5un "%%ibi%it3 errors nd "ruds re "reuent. T5e u%ities

    reuired8 ccordin# to Dic9see8 re tct8 cution8 "irness8 #ood

    teer8 inte#rit38 discretion8 industr38 jud#ent8 tience8 c%er5ededness nd re%ibi%it3. In s5ort8 %% t5ose erson% u%ities t5t

    #oes to 9e #ood businessn contribute to t5e 9in# o" #ood

    uditor. In ddition8 5e ust 5ve t5e s5ine o" cu%ture "or ttinin#

    #ret 5ei#5t. Be ust 5ve t5e 5i#5est de#ree o" inte#rit3 bc9ed b3

    deute indeendence. In "ct8 AAS-1 entions inte#rit38 objectivit3

    nd indeendence s one o" t5e bsic rinci%es.

    Be ust 5ve t5orou#5 9no!%ed#e o" t5e #ener% rinci%es o" %!

    !5ic5 #overn tters !it5 !5ic5 5e is %i9e%3 to be in intite contct.

    T5e Conies Act8 1' nd t5e +rtners5i Act8 1$2 need seci%

    ention but ercnti%e %!8 seci%%3 t5e %! re%tin# to contrcts8 is

    no %ess iortnt.

    Need%ess to s38 !5ere undert9in#s re #overned b3 seci%

    sttute8 its 9no!%ed#e !i%% be iertive in ddition8 sound

    9no!%ed#e o" t5e %! nd rctice o" t7tion is unvoidb%e.

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    Be ust ursue n intensive ro#re o" t5eoretic% eduction insubjects %i9e "innci% nd n#eent ccountin#8 #ener%n#eent8 business nd cororte %!s8 couters nd in"ortions3stes8 t7tion8 econoics8 etc. 4ot5 rctic% trinin# ndt5eoretic% eduction re eu%%3 necessr3 "or t5e deve%oent o"ro"ession% coetence o" n uditor "or undert9in# n3 9ind o" udit

    ssi#nent.

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    T5e uditor s5ou%d be euied not on%3 !it5 su""icient 9no!%ed#e o"

    t5e !3 in !5ic5 business #ener%%3 is conducted but %so !it5 n

    understndin# o" t5e seci% "etures ecu%ir to rticu%r business

    !5ose ccounts re under udit. AAS-, on ;Audit +%nnin#esons And Circustnces2.$ T3es O" Errors2.& T3es O" 6ruds2.' >is9 O" 6rud And Error In Audit2. Auditoresonsibi%ities In >esect O" 6rud2.* 4sic +rinci%es O" Audit2., Audit T3es2. Accountin# Concet >e%evnt To Auditin#

    2.? OBJECTIVES

    A"ter stud3in# t5e unit t5e students !i%% be b%e to

    Understnd t5e enin# o" Errors nd 6ruds C%ssi"3 t5e resons nd circustnces o" errors nd"ruds.

    E7%in t5e t3es o" Errors nd "rud E%borte t5e Aut5ors dut3 in cse o" Errors nd "ruds. E7%in t5e t3es o" Audit Understnd t5e rinci%es o" Audit

    2.1 EANING AND DEFINITION OF ERRORS ANDFRAUDS

    DEFINITIONS :

    Error re"ers to unintention% is-stteents or isdescritions in t5erecords or boo9s o" ccounts b3 t5e boo9s 9eeers. In ot5er !ords8t5e3 re unintention% ist9es risin# on ccount o" ne#%i#ence ori#nornce. Errors 3 be bsic%%3 o" t!o t3es :

    () +rinci% Errors nd (b) C%eric% Errors

    () rinci% Errors nd : t5ese errors rise #ener%%3 !5ent5e rinci%s o" ccountnc3 re not observed !5i%e recordin# trnsction. 6or instnce cit% e7enditure is recorded s revenue e7enditure or vice vers. Suc5 errors re di""icu%t todetect s t5e Tri% 4%nce t%%ies insite o" suc5 errors. 4sic%%3 itrises on ccount o" i#nornce o" ccountin# rinci%es. 6o%%o!in#re t5e e7%es o" rinci%es errors :

    (1) @#es id "or inst%%tion o" %nt nd

    c5iner3 is recorded s !#es id to

    !or9ers

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    >evenue receit is recorded s cit% receit

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    ($) Incorrect rovisions "or doubt"u%debts(&) Incorrect rovisions "or discount ondebtors(') >ent id to %nd%ord debited to t5e

    %nd%ord ccount insted o" rent c ccount() Overv%ution or underv%ution o" stoc9

    on ccount o" i#nornce

    (b) C%eric% Errors t5ese errors rise on ccount o" ne#%i#ence o" t5eccountin# st"". T5e3 re c%%ed tec5nic% errors c%eric% errors 3be "urt5er divided s errors o" oission8 Errors o" Coission8Du%ictin# Errors nd Coenstin# Errors.

    2.2 REASONS AND CIRCUSTANCES

    >.. =ut8 5s c%ssi"ieds t5e resons nd circustnces o" errors

    nd 5e 5s inc%ude "rud in t5e brod cte#or3 o" errors. T5e

    c%ssi"ictions re t5e "o%%o!in#.

    1. i#nornce on t5e rt o" e%o3ees o" ccountin# deve%oent8#ener%%3 cceted ccountin# rinci%es8 rorite ccountc%ssi"iction o" t5e necessr3 reconci%in# subsidir3 %ed#ers !it5contro%%in# ccounts nd o" #ood ccountin# rctices in #ener%.

    2. cre%essness on t5e rt o" t5ose doin# t5e ccountin#!or9.$. A desire to conce% t5e e""ect o" de"%ctions o" s5ort#e o" one9ind or not5er.

    &. A tendenc3 o" t5e n#eent to erit rejudice or bis toin"%uence t5e interrettion o" trnsctions or events or t5eirresenttion in t5e "innci% stteents.

    '. An ever resents desires to 5o%d t7es on incoe toiniu.

    A si7t5 cuse 3 be dded to t5ose =r.=ut 5s %isted nd t5t is

    ore serious in nture. It is t5e intention% e""ort coitted b3 ersons

    in ositions o" ut5orit3 to :

    I. S5o! u t5e icture deicted b3 t5e stteentsII. Deress t5e icture deicted b3 t5e stteents nd

    III. Convert t5e error to erson% bene"it.

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    2.3

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    TPES OF ERROR

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    S

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    +A>TICU0>S

    +>INCI+0E

    CO=+ENSATING

    EANI

    NG

    ATrnsctio

    n Is4sic%%3>ecordedIn T5e4oo9s In

    AnIncorrect=nner.

    A+ &rr#r!5ic5 is

    counterb%nced b3not5ererror8 so t5tit is notdisc%osed b3t5e tri%b%nce.

    T3es.

    () &rr#r=

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    ctontri%b%nce.

    not ""ectt5e tri%b%nce.

    t5e tri%b%nce.

    E""ectonro"it

    Error t5tinvo%vesincoende7enditure c e.#.!ron#distinctionbet!eencit% ndrevenue

    Coenstin# errors8invo%vin#incoe nd""ect ro"it.4ut i" error isin sset nd%ibi%it3ccountson%38 ro"its3 not be

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    2.4.2

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    i!99r#9ri!(i#+ # C!

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    =isrorition o" cs5 is %so c%%ed ebe%eent o" cs5. It

    ens "rudu%ent rorition o" cs5 be%on#in# to not5er erson b3

    one !5o 5s been entrusted to it. =isrorition 3 t9e %ce in

    t5e "o%%o!in# !3s:1) Not recordin# "u%% cs5 s%es nd oc9etin# rt o" t5e

    roceeds2) Teein# nd 0din#$) =isrorition t5e one3 received "ro s%e o" #oods sent

    on s%e or return bsis

    &) =9in# "ictitious entries in custoerecordin# "ictitious cs5 urc5se*) >ecordin# 3ents to "ictitious creditors,) Not recordin# discounts received "ro creditors) >ecordin# 3ents to du3 or #5ost !or9ers nd

    oc9etin# t5e one38 etc.

    2.4.3 i!99r#9ri!(i#+ # G##,It re"ers to "rudu%ent %iction o" #oods b3 t5ose !5o 5nd%e t5e.

    It cn be done b3 recordin# s%es o" %r#er untities nd

    isroritin# t5e b%nce or b3 recordin# urc5se o" %r#e

    untities receivin# %ess untit3 nd t5en receivin# t5e b%nce

    ount rivte%3.

    2.5 RIS OF FRAUD AND ERROR IN AUDIT

    T5e "o%%o!in# events 3 increse t5e ris9 o" "rud or error -1 I+(&r+!; C#+(r#; F!7;(: @e9nesses in t5e desi#n o" intern%contro% s3ste nd non-co%ince !it5 %id do!n contro% rocedures8 e.#. sin#%e erson bein# resonsib%e "or receit o" %% sts i%s nd r9in#it ti t5e re%evnt secions or t!o ersons resonsib%e "or receit o" %% ostsi%s but t5e se is not "o%%o!ed in t5e rctice.

    2 D#7$( !$#7( (

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    5

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    .

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    Pr#$;& i+ #$(!i+i+ 7i'i&+( !+, !99r#9ri!(& !7,i( &)i,&+'&@

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    E.#. indeute docuenttion si#ni"icnt di""erences bet!een t5e"i#ures s er ccountin# records nd con"irtion received "rot5ird rties. Etc.

    2.6 AUDITORS DUTIES AND RESPONSIBILITIES INRESPECT OF FRAUD

    T5e rir3 objective o" n uditor is to e7ress n oinion on t5e

    "innci% stteents. Bo!ever8 t5e uditor !5i%e conductin# t5e udit

    is reuired to consider t5e ris9 o" teri% isstteents in t5e

    "innci% stteents resu%tin# "ro "rud or error.

    An udit conducted in ccordnce !it5 t5e uditin# stndrds

    #ener%%3 cceted in Indi is desi#ned to rovide resonb%e

    ssurnce t5t t5e "innci% stteents t9en s !5o%e re "ree "ro

    teri% isstteent8 !5et5er cused b3 "rud or error. T5e "ct t5tn udit is crried out 3 ct s deterrent8 but t5e uditor is not nd

    cnnot be 5e%d resonsib%e "or t5e revention o" "rud nd error.

    T5e uditor

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    e7intion reco#nied "or t5is urose nd rctic% e7erienceunder roer suervision.

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    4. W#r> 9&r#r&, $" #(

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    T5e udit reort s5ou%d contin !ritten e7ression o" oinion o" t5e"innci% in"ortion. It s5ou%d co%3 !it5 t5e %e#% reuireents. Incse o" u%i"ied oinion8 dverse oinion or disc%ier o" oinion is#iven or reservtion on n3 tter is to be de resons t5ereo".

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    2./ AUDIT TPES

    EANING:Audit is not %e#%%3 ob%i#tor3 "or %% t3es o" business or#nitions orinstitutions. On t5is bsis udits 3 be o" t!o brod cte#ories i.e.8udit reuired under %! nd vo%untr3 udits.

    (i) Audit reuired under %! : T5e or#nitions !5ic5 reuire uditunder %! re t5e "o%%o!in#:

    () conies #overned b3 t5e Conies Act81'(b) bn9in# conies #overned b3 t5e 4n9in# >e#u%tion Act81&

    (c) e%ectricit3 su%3 conies #overned b3 t5e E%ectricit3su%3 Act8 1&,

    (d) co-oertive societies re#istered under t5e co-oertiveSocieties Act8 112

    (e) ub%ic nd c5ritb%e trusts re#istered under vrious >e%i#iousnd Endo!ent Acts

    (") corortions set u under n Act o" r%ient or Stte0e#is%ture suc5 s t5e 0i"e Insurnce Corortion o" Indi.

    (#) Seci"ied entities under vrious sections o" t5e Incoe-t7 Act811.

    (ii) In t5e vo%untr3 cte#or3 re t5e udits o" t5e ccounts o"rorietr3 entities8 rtners5i "irs8 Bindu undivided "i%ies8 etc. inresect o" suc5 ccounts8 t5ere is no bsic %e#% reuireent o" udit.=n3 o" suc5 enterrises s tter o" intern% ru%es reuire udit.Soe 3 be reuired to #et t5eir ccounts udited on t5e directiveso" Governent "or vrious urose %i9e snction o" #rnts8 %ons8 etc.4ut t5e iortnt otive "or #ettin# ccounts udited %ies in t5edvnt#es t5t "o%%o! "ro n indeendent ro"ession% udit. T5is iser5s t5e reson !53 %r#e nubers o" rorietr3 nd rtners5ibusiness #et t5eir ccounts udited.

    Governent conies 5ve soe seci% "eture !5ic5 !i%% be seen

    %ter.

    INTERI AUDIT:An udit t5t is t9en u bet!een t!o nnu% udits is c%%ed nInteri Audit. A seci"ic dte8 s er t5e c%ient

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    b%nce s5eet uroses. Indeendence is considered %essindeendent t5n t5e sttutor3 Auditor #ener%%3 n e%o3ee o"t5e enterrise !i%% be t5e intern% uditor. In t5e interi udit no"ort is rescribed. It deends on t5e nture o" !or98 cover#end udit observtions.

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    bot5 t5e over%% "innci% in"ortion %eve% nd in re%tion toindividu% ccount b%nces nd c%sses o" trnsctions.=teri%it3 3 %so be in"%uenced b3 ot5er considertions8suc5 s t5e %e#% nd re#u%tor3 reuireents8 non-co%ince !it5 !5ic5 3 5ve si#ni"icnt berin# on t5e"innci% in"ortion8 nd considertion re%tin# to individu%

    ccount b%nces nd re%tions5is. T5is rocess 3 resu%tin di""erent %eve%s o" teri%it3 deendin# on t5e tter bein#udited.

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    &. A%t5ou#5 t5e uditor ordinr3 estb%is5es n ccetb%eteri%it3 %eve% to detect untittive%3 teri% isstteents8bot5 t5e ount (untit3) nd nture (u%it3) o" isstteentsneed to be considered. An e7%e o" u%ittive isstteent!ou%d be t5e indeute or iroer descrition o" n ccountin#o%ic3 !5en it is %i9e%3 t5t user o" t5e "innci% stteents !ou%dbe isted b3 t5e descrition.

    '. T5e uditor needs to consider t5e ossibi%it3 o"

    isstteents o" re%tive%3 s%% ounts t5t8 cuu%tive%38cou%d 5ve teri% e""ect on t5e "innci% in"ortion. 6ore7%e8 n error in ont5-end (or ot5er eriodic) rocedurescou%d be n indiction o" otenti% teri% isstteent i" t5terror is reeted ec5 ont5 or ec5 eriod8 s t5e cse 3be.. =teri%it3 s5ou%d be considered b3 t5e uditor!5en-

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    3 not be b%e to re%ie its ssets t t5e recorded ountsnd t5ere 3 be c5n#es in t5e ounts nd turit3 dteso" %ibi%ities. As conseuence8 t5e ounts ndc%ssi"iction o" ssets nd %ibi%ities in t5e "innci%stteent 3 need to be djusted.

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    AUDIT PLANNING

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    (d)

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    Coordintin# t5e !or9 to be er"ored.

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    +%ns s5ou%d be "urt5er deve%oed nd revised s necessr3durin# t5e course o" t5e udit.

    AAS-, "urt5er e7ounds t5is rinci%e. Accordin# to it8 %nnin#

    s5ou%d be continuous t5rou#5out t5e en##eent nd invo%ves Deve%oin# n over%% %n "or t5e e7ected scoe ndconduct o" t5e udit nd Deve%oin# n udit ro#re s5o!in# t5e nture8 tiin#nd e7tent o" udit rocedures.

    C5n#es in conditions or une7ected resu%ts o" udit rocedures3 cuse revisions o" t5e over%% %n o" nd t5e uditro#re. T5e resons "or si#ni"icnt c5n#es 3 bedocuented.

    3.2 OBJECTIVES OF PLANNING

    A,&7!(& !7,i( 9;!++i+

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    rticu%r ttention to tters t5t reuired seci% considertionnd decide !5et5er t5e3 i#5t ""ect t5e !or9 to be done in t5ecurrent 3er.

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    +#=;&,& # (

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    ?isits to t5e c%ients reises nd %nt"ci%ities.

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    (i) T5t t5e dte o" t5e vouc5er "%%s !it5in t5e ccountin#eriod"ii$ T5t t5e vouc5er is de out in t5e c%ient

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    e7ress n in"ored oinion on suc5 stteents. 6or t5eurose o" ro#re construction8 t5e "o%%o!in# oints s5ou%dbe 9et in vie!:

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    1 st3 !it5in t5e scoe nd %iittion o" t5e ssi#nent.

    2 deterinin# t5e evidence resonb%e vi%b%e nd identi"3 t5ebest evidence "or derivin# t5e necessr3 stis"ction.$ A%3 on%3 t5ese stes nd rocedures !5ic5 re use"u% incco%is5in# t5e veri"iction urose In t5e seci"ic sitution.& consider %% ossibi%ities o" error.' co-ordinte t5e rocedures to be %ied to re%ted ites.

    A%i"iction is not necessr3 o" t5e bove oints e7cet t5e oneunder evidence: t5t is t5e ver3 bsis "or "oru%tion o" oinionnd n udit ro#re is desi#ned to rovide "or t5t b3rescribin# rocedures nd tec5niues. @5t is best evidence"or testin# t5e ccurc3 o" n3 ssertion is tter o" e7erts

    9no!%ed#e nd evidence. T5is is t5e rir3 t9s be"ore t5euditor !5en 5e dr!s u t5e udit ro#re. Trnsctionsre vried in nture nd ict rocedures to be rescribeddeend on rior 9no!%ed#e o" !5t evidence is resonb%evi%b%e in resect o" ec5 trnsction

    3. FACTORS ADVANTAGES AND DISADVANTAGES OF

    AUDIT PROGRAE

    3..1 FACTORS

    W

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    3..2

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    1 It rovides t5e ssistnt crr3in# out t5e udit !it5 tot% ndc%er set o" instructions o" t5e !or9 #ener%%3 to be done.2 It is essenti%8 rticu%r%3 "or jor udits8 to rovide tot%ersective o" t5e !or9 to be er"ored.

    $ Se%ection o" ssistnts "or t5e jobs on t5e bsis o" cotibi%it3becoes esier !5en t5e !or9 is rtion%%3 %nned8 de"ined ndse#re#ted.& @it5out !ritten nd re-deterined ro#re8 !or9 isnecessri%3 to be crried out on t5e bsis o" soe ;ent%< %n. Insuc5 sitution t5ere is %!3s dn#er o" i#norin# or over%oo9in#certin boo9s nd records. Under roer%3 "red ro#re8 t5edn#er is si#ni"icnt%3 %ess nd t5e udit cn roceed s3stetic%%3.' T5e ssistnce8 b3 uttin# t5eir si#nture on ro#re8ccets t5e resonsibi%it3 "or t5e !or9 crried out b3 t5e individu%%3nd8 i" necessr38 t5e !or9 done 3 be trced bc9 to t5e ssistnt.

    T5e rinci% cn contro% t5e ro#ress o" t5e vrious udits in5nd b3 e7intion o" udit ro#res initited b3 t5e ssistntsdeuted to t5e jobs "or co%eted !or9.* It serves s #uide "or udits to be crried out in t5esucceedin# 3er., A roer%3 dr!n u udit ro#re serves s evidence int5e event o" n3 c5r#e o" ne#%i#ence bein# brou#5t #inst t5euditor. It 3 be o" considerb%e v%ue in estb%is5in# t5t 5ee7ercised resonb%e s9i%% nd cre t5t !s e7ected o" ro"ession%uditor.

    3..3 DISADVANTAGES OF AUDITPROGRAE

    1 T5e !or9 3 becoe ec5nic% nd rticu%r rts o" t5ero#re 3 be crried out !it5out n3 understndin# o" t5eobject o" suc5 rts in t5e !5o%e udit sc5ee.2 T5e ro#re o"ten tends to becoes ri#id nd in"%e7ib%e"o%%o!in# set #rooves t5e business 3 c5n#e in its oertion o"conduct8 but t5e o%d ro#re 3 sti%% be crried on. C5n#es inst"" or intern% contro% 3 render recution necessr3 t ointsdi""erent "ro t5ose ori#in%%3 decided uon.

    c.Ine""icient ssistnts 3 t9e s5e%ter be5ind t5e ro#rei.e.8 de"end de"iciencies in t5eir !or9 on t5e #round t5t noinstructions in t5e tter is contined t5erein.

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    A 5rd nd "st udit ro#re 3 9i%% t5e inititive o"e""icient nd enterrisin# ssistnts.

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    A%% t5ese disdvnt#es 3 be e%iinted b3 i#intivesuervision o" t5e !or9 crried on b3 t5e ssistnts t5e uditor

    ust 5ve recetive ttitude s re#rds t5e ssistnts t5essistnts s5ou%d be encour#ed to observed ttersobjective%3 nd brin# si#ni"icnt tters to t5e notice o"suervisorrinci%.

    3./ AUDIT WORING PAPERS

    3./.1EANING:T5e udit !or9in# ers constitute t5e %in9 bet!een t5euditor

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    III

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    .

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    It cts s n evidence in t5e court in t5e court o" %! !5en c5r#e o" ne#%i#ence is brou#5t #inst t5e uditor.

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    I?. It cts s t5e rocess o" %nnin# "or t5e uditor so t5t5e cn estite t5e tie t5t 3 be reuired "or c5ec9in# t5esc5edu%es.

    T5e uditor s5ou%d dot resonb%e rocedures "or custod3 ndcon"identi%it3 o" 5is !or9in# ers nd s5ou%d retined t5e "or eriod o" tie su""icient to eet t5e needs o" 5is rctice ndstis"3 n3 ertinent %e#% or ro"ession% reuireents o" recordretention.

    3./.3 FACTOR DETERINING FOR AND CONTENTS OFAUDIT WORING PAPERS:

    @or9in# ers s5ou%d record t5e udit %n8 nture8 tiin# nd

    e7tent o" uditin# rocedures er"ored8 nd t5e conc%usionsdr!n "ro t5e evidence obtined. T5e "or nd content o"!or9in# ers re ""ected b3 tters suc5 s:

    .Nture o" t5e en##eent. .6or o" t5e uditor

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    A P&r!+&+( A7,i( Fi;&

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    3./.6

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    AIN FUNCTIONS8 IPORTANCE

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    i. It rovides #uidnce to t5e udit st"" !it5 re#rds to t5enner o" c5ec9in# t5e sc5edu%es.ii. T5e uditor is b%e to "i7 resonsibi%it3 on t5e st""eber !5o si#n ec5 sc5edu%e c5ec9ed b3 5i.iii. It cts s n evidence in t5e court o" %! !5en c5r#eo" ne#%i#ence is brou#5t #inst t5e uditor.iv. It cts s t5e rocess o" %nnin# "or t5e uditor so t5t5e cn estite t5e tie t5t 3 be reuired "or c5ec9in# t5esc5edu%es.

    T5e uditor s5ou%d dot resonb%e rocedures "or custod3 ndcon"identi%it3 o" 5is !or9in# ers nd s5ou%d retin t5e "or eriod o" tie su""icient to eet t5e needs o" 5is rctice ndstis"3 n3 ertinent %e#% or ro"ession% reuireent o" recordretention.

    C%ri"iction On T5e Auditori#5ts @5ere C%ients And Ot5erAuditors See9 Access To T5eir Audit @or9in# +ers.

    1. Auditin# nd Assurnce stndrd (AAS) 18 F4sic rinci%es#overnin# n udit8 sttes in r: FT5e uditor s5ou%d resectt5e con"identi%it3 o" in"ortion cuired in t5e course o" 5is!or9 nd s5ou%d not disc%osed n3 suc5 in"ortion to t5irdrt3 !it5out seci"ic ut5orit3 or un%ess t5ere is %e#% orro"ession% dut3 to disc%osed. Auditin# nd Assurnce stndrd(AAS) $8 FDocuenttion (r#r5 1$)8 sttes: ;!or9in#

    ers re t5e roert3 o" t5e uditor. T5e uditor 3 t 5isdiscretion8 9e ortions o" or e7trcts "ro 5is !or9in# ersvi%b%e to 5is c%ient. FAAS $ "urt5er reuires (r#r51&)8inter %i8 t5t t5e Fuditor s5ou%d dot resonb%erocedures "or custod3 nd con"identi%it3 o" 5is !or9in# ers.2. rt % o" t5e second sc5edu%e to t5e c5rtered Accountnts

    Act8 1&8 rovides t5t FA C5rtered Accountnt in rctices5%% be deeed to be #ui%t3 o" ro"ession% isconduct8 i" 5edisc%osed in"ortion cuired in t5e course o" 5is ro"ession%en##eent to n3 erson ot5er t5n 5is c%ient8 !it5out t5econsent o" 5is c%ient or ot5er!ise t5n s reuired b3 n3 %! "ort5e tie bein# in "orce.

    $. >euest re soetie received b3 t5e ebers o" t5einstitute8 !5o 5ve5d been er"orin# t5e duties s t5e uditoro" n enterrises8 to rovide ccess to t5eir udit !or9in#ers. T5e reuest 3 be de b3 t5e c%ients or ot5eruditors o" t5e enterrise or its re%ted enterrise suc5 s rent enterrise.&. It is 5ereb3 c%ri"ied t5t e7cet to t5e e7tent stted in r 'be%o!8 n uditor is not reuired to rovide t5e c%ient or t5eot5er uditors o" t5e se enterrise or its re%ted enterrisesuc5 s rent or subsidir38

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    ccess to 5is udit !or9in# ers. T5e in uditors o" nenterrise do not 5ve ri#5t o" ccess to t5e udit !or9in#ers o" t5e brnc5 uditors. In t5e cse o" con38 t5esttutor3 uditor 5s to consider t5e reort o" t5e brnc5 uditornd 5s ri#5t to see9 c%ri"ictions ndor to visit t5e brnc5 i"5e dees it necessr3 to do so "or t5e er"ornce o" t5e duties

    s uditor. An uditor cn re%3 on t5e !or9 o" not5er uditor8!it5out 5vin# n3 ri#5t o" ccess to t5e udit !or9in# ers o"t5e ot5er uditor. 6or t5is urose8 t5e ter

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    ;

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    uditor

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    inc%udes

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    ;

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    intern% uditor

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    .

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    '. As stted in r &8 t5e c%ient does not 5ve ri#5t to ccesst5e !or9in# ers o" t5e uditor. Bo!ever8 t5e uditor 38 t5is discretion8 in cse considered rorite b3 5i8 9eortions o" or e7trcts "ro 5is !or9in# ers vi%b%e to t5ec%ient.

    3./.FEATURESA udit !or9in# ers re uite use"u% t5e3 s5ou%d berered roer%3. T5e3 s5ou%d 5ve t5e "o%%o!in# essenti%s:

    ) S(!+,!r, #r -t5e3 s5ou%d be rered in stndrd"or. T5e subject tter s5ou%d be rrn#ed under vrious5edin# nd sub5edin#s.b) +roer %3out t5ere s5ou%d be roer desi#n nd %3outo" t5e !or9in# ers. T5is !i%% brin# uni"orit3 into t5eintennce o" !or9in# ers.c) S9!'& #r !ri+ * t5ere s5ou%d be enou#5 sce "orr#in "ter ec5 note "or notin# do!n t5e uditor

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    roert3 o" t5e uditor nd 5e is entit%ed to retin t5e.(c5nter3 rtin P co. v. rtin).

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    ...

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    4

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    AUDITING TECNIUES AND INTERNAL AUDIT

    INTRODUCTION I

    STRUCTURE&. Objectives&.1 Test C5ec9in# =enin#&.2 6etures O" Test C5ec9in#&.$ 6ctors To 4e Considered&.& Advnt#es And Disdvnt#es O" Test C5ec9in#&.' Test C5ec9in# ?s >outin# C5ec9in#&. Audit S%in#

    4.? OBJECTIVES

    no! t5e enin# o" Test C5ec9in# Understnd t5e "etures o" Test C5ec9in# no! t5e dvnt#es nd disdvnt#es o" TestC5ec9in# Distin#uis5 bet!een test c5ec9in# nd routin# c5ec9in# Understnd t5e enin# o" Audit s%e

    4.1 TEST CECING EANING

    4.1.1 &!+i+: E7intion in Det5 ens e7intion o"

    "e! se%ected trnsctions "ro t5e-be#innin# %o. t5e end t5rou#5t5e entire "%o! o" t5e trnsction. It invo%ves stud3in# t5erecordin# o" trnsctions t5e vrious st#es t5rou#5 !5ic5 t5e35ve ssed 2. A9&'( # V&rii'!(i#+

    () At ec5 st#e8 re%evnt records nd ut5orities ree7ined it is %so jud#ed !5et5er t5e erson !5o 5s Re7ercised t5e ut5orit3 in re%tion to t5e trnsctions is "it to doso in ters o"-t5e rescribed rocedure.

    (b) @5i%e uditin# in det58 t5e Auditor revie!s %% t5eccountin#nd oertion% sects o" t5eR trnsction "ro t5e

    ori#in to t5e end. T5is enb%es 5i to 5ve n over%% vie! ndev%ute t5e rocedures t5rou#5 se%ected trnsctions.

    3. A R&9r&&+(!(i)& S!9;& ust be oen nd ec5 ite se%ected ustbe trced eticu%ous%3. :

    4. A !;;&r +7$&r # (r!+!'(i#+ rec5ec9ed t ec5 successive st#e !it5 in-det5 test8 on sttistic% #rounds (bsedonrobbi%it3 t5eor3) t5t t5e otiu s%e siedecreses st5e Auditors /%eve% o"t con"idence/concernin# t5e "unctionin# o" t5e

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    s3steincreses.

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    5. E!i+!(i#+ i+ ,&9(< reconstructs t5e udit tri% ndreve%s ore bout t5e "unctionin# (or %"unctionin#) o" t5ec%ients s3ste in rctice t5n t5e 55rd nd ec5nic%roc5 to testin#

    6. E!9;&:Audit in det5 o" trnsctions re%tin# tourc5se o" #oods invo%ves veri"iction o" t5e "o%%o!in#

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    cn be re%ied uon to #reter e7tent t5n n3 rbitrr3tec5niue !5ic5 %c9s bsis nd ccetbi%it3.

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    2. E(i!(i#+ Pr#'&: Test C5ec9in# nd S%in# cnnever .brin# co%ete re%ibi%it3 it cnnot #ive ccurte resu%ts. Itis rocess o" estition. @5t error is to%erb%e "or rticu%r

    tterunder e7intion is tter o" t5e individu%s jud#entin t5t rticu%r

    3. C#)&r!& # !(&ri!; i(&: Entries invo%vin# %r#e ountsor re%tin# to teri% ccounts re ..seen e75ustive%3 nd ot5erentries re ic9ed u "or veri"iction "ro t5e reinderccordin# to certin %n. Soeties entries re c5ec9ed "or "e! seci"ied ont5s e75ustive%3 nd t5e rest #o unc5ec9ed.

    4. F7;; C#)&r!& #)&r ! (i& 9&ri#,: Test C5ec9 isnor%%3%nned in suc5 !3 t5t t5e udit ro#res "or $to ' 3erscover %% t3es o" trnsctions in cse o" ediu or

    %r#e siedCon3. T5us8 i" in one 3er t5e ont5s o"Knur38 Kune ndDeceber re c5ec9ed Ari%8 Ku%3 ndSeteber 3 be c5ec9ed int5e second 3er nd so on.5. S7r9ri& E;&&+(: T5e st"" nd n#eent o" t5e

    AuditeeCon3 s5ou%d not be b%e to nticite t5e ttern o"test c5ec9in#8ot5er!ise t5e3 !i%% redict t5e res nd eriodsto be covered in n3 one 3er nd !i%% be cre"u% re#rdin# t5ese.6. F;&i$i;i(": I" test c5ec9in# becoes routine8 redictb%e ndec5nic%8 it %oses its v%ue. Bence8 t5e Auditor s5ou%d9eec5n#in# t5e et5ods o" test c5ec9in# t resonb%3"reuent interv%s.. J7,&+( B!&,: T5e e7tent o" test c5ec9in# !ou%d riri%3

    deend on t5e Auditors jud#ent o" rticu%r sitution. T5isjud#eent in turn deends on tne revious e7erience o" t5eAuditor8 current deve%oents nd t5e e""icc3 o" Intern% Contro%S3ste.

    4.3 FACTORS TO BE CONSIDERED

    T5e "ctors to be considered "or decidin# uon t5e e7tent o"

    c5ec9in# on s%in# %n re

    1. Sie o" t5e or#nition underudit.2. Stte nd e""icc3 o" t5e intern%

    contro%.$. Adeuc3 nd re%ibi%it3 o" boo9s ndrecords.&. To%erb%e errorrn#e.'. De#ree o" t5e desiredcon"idence.

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    WEN TEST CEC CAN BEUSED

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    Test c5ec9s cn be doted in t5e "o%%o!in# cses -

    1. V#;7& # Tr!+!'(i#+: In cse o" bi# concerns !5erenuber o" trnsctions is uite %r#e.

    2. Ti& !'(#r: @5ere t5e Auditor 5s ver3 %itt%e tie t 5isdisos% to c5ec9 %% t5e trnsctions o" ediu or %r#e siedconcern.

    I,&+(i'!; Tr!+!'(i#+: @5en t5ere re nuber o"

    trnsctions o" identic% nd 5oo#eneous nture. I+(&r+!;

    C#+(r#;: @5en t5ere e7ists stis"ctor3 intern% contro%

    s3ste8 nu% nd or couteried.4.4 ADVANTAGES AND DISADVANTAGES OF TEST

    CECING

    4.4.1 ADVANTAGES OF TEST CECING

    T5e dvnt#es o" Test C5ec9in# inc%ude

    A7,i( O$%&'(i)&: T5e Auditor is reuired to "or n oinion ont5e 6innci% Stteents. Even "ter 1 c5ec9in#8 5e 3not derive bso%ute stis"ction. Bence8 roer nd cre"u% testc5ec9in# servest5e udit objective in obtinin# resonb%e uditssurnce.E9&r(i&: A%iction o" test c5ec9 rinci%es invo%ves t5e%iction o" ind nd inte%%i#ent jud#ent. It enb%es t5e

    Auditor to use 5ise7ertise e""ective%3.

    E'&9(i#+ Pri+'i9;&: Test C5ec9in# dots t5e rinci%e o"e7cetion in contro%. I" certin sects o" intern% contro% do notcretesusicion8 t5ere is no need to veri"3 %% t5ose trnsctionse75ustive%3.S'i&+(ii' A&&+( # Ri>: T5e Auditor ssesses t5e ris9o" teri% isstteents in t5e 6innci% Stteents in scienti"ic nner b3 dr!in# suitb%e s%es nd stud3in# t5ese in deti%.S!)i+ i+ (i&: As "e!er trnsctions re veri"ied8 tie issved to #ret e7tent. T5is8 in turn8 enb%es co%etion o" %%t5e udits veri"iction rocedures in tie.

    R&,7'(i#+ i+ W#r>: ?o%ue o" !or9 is reduced b3 test c5ec9in#

    et5ods. Audit rocesses re not crried out ec5nic%%3 on i%trnsctions.

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    4..4.2 DISADVANTAGESPRECAUTIONS

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    T5e disdvnt#es o" Test C5ec9in# re

    N!i)& !+, Bi!&,: T5e e7tent to !5ic5 test c5ec9in# cn be

    resorted to is tter o" Auditors erson% ssessent. It doesnot ensure se%ection o" reresenttive s%es o" deute sie

    nd o""ers oortunities "or bis to enter into se%ection rocess.

    U+!7(

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    L!'> # S7r9ri& E;&&+(:

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    I" t5e surrise e%eent is bsent8 t5e c%ient 3 redict t5ettern o" c5ec9in#.

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    P!r(i'7;!r

    T&('

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    Advnt#es

    () Svin# intie. (b)+roer ndcre"u% testc5ec9in# is5e%"u% Pserves t5euditobjective. ?o%ue o"

    !or9 isreduced. (d)Tievi%b%e "orot5er udits.

    ()C5ec9in# o"ostin# nd%ed#ers. (b)

    Arit5etic%ccurc3cn bec5ec9ed. Tri%b%nce

    t%%3in# is"ci%itted.(d) Es3detection o"errors nd"ruds. (e)De%e#tiono" udit!or9 to

    junior st"".

    Disdvnt#e

    s

    () C%ientst"" 3becoe

    cre%ess. (b)Soe errorsnd "ruds3 #oundetected. A%% itesndtrnsctionsre notc5ec9ed. (d)

    An e%eentso" doubt ndris9 isresent in t5e

    Auditor

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    4.6

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    AUDIT SAPLIN

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    G

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    4.6.1 EANING:

    1. T5e urose o" t5is Auditin# nd Assurnce Stndrd (AAS) is to

    estb%is5 stndrds on t5e desi#n nd se%ection o" n udit s%end t5e ev%ution o" t5e s%e resu%ts. T5is AAS %ies eu%%3 tobot5 sttistic% s%in# et5ods. Eit5er et5od8 !5en roer%3%ied8 cn rovide su""icient rorite udit evidence

    2. W

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    ($)

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    T5e uditor is "ced !it5 s%in# ris9 in bot5 tests o" contro% ndsubstntive rocedure s "o%%o!:

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    () Tests o" contro%:

    (I) >is9 o" under re%ince: T5e ris9 t5t8 %t5ou#5 t5e s%e

    resu%t dose not suort t5e uditoris9 o" incorrect ccetnce: T5e ris9 t5t8 %t5ou#5 t5e

    s%e resu%t suorts t5e conc%usion t5t recorded ccount

    b%nce or c%ss or trnsctions is not teri%%3 isstted.(&) T5e ris9 o" under re%ince nd t5e ris9 o" incorrect rejection

    ""ect udit e""icienc3 s t5e3 !ou%d ordinri%3 %ed to ddition%

    !or9 bein# er"ored b3 t5e uditor8 or t5e entit38 !5ic5 !ou%d

    estb%is5 t5t t5e initi% conc%usions !ere incorrect. T5e ris9 o"

    over re%ince nd t5e ris9 o" incorrect ccetnce ""ect udit

    e""ectiveness nd re ore %i9e%3 to %ed to n erroneous oinion

    on t5e "innci% stteents t5n eit5er t5e ris9 o" under re%ince or

    t5e ris9 o" incorrect rejection.

    (') S%e sie is ""ected b3 t5e %eve% o" s%in# ris9 t5e

    uditor is !i%%in# to ccet "ro t5e resu%ts o" t5e s%e. T5e

    %o!er t5e ris9 t5e uditor is !i%%in# to ccet8 t5e #reter t5e

    s%e sie !i%% need to be.

    Tolerable Error

    1. To%erb%e error is t5e 7iu error in t5e ou%tion t5t t5euditor !ou%d be !i%%in# to ccet nd sti%% conc%ude t5t t5e resu%t"rot5e s%e 5s c5ieved t5e udit objective. To%erb%e error isconsidered durin# t5e %nnin# st#e nd8 "or substntive rocedures8is re%ted to t5e uditors jud#eent bout teri%it3.T5e s%%er t5eto%erb%e error8 t5e #reter t5e s%e sie !i%%need to be.

    1. In tests o" contro%8 t5e to%erb%e error is t5e 7iu rte o"

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    devition "ro rescribed contro% rocedure t5t t5e uditor !ou%dbe !i%%in# to ccet8 bsed on t5e re%iinr3 ssessent o"contro%ris9. In substntive rocedures8 t5e to%erb%e error is t5e7iu onetr3 error in n ccount b%nce or c%ss o"trnsctions t5tt5e uditor !ou%d be !i%%in# to ccet so t5t !5ent5e resu%ts o" %%udit rocedures re considered8 t5e uditor is b%e to

    conc%ude8!it5 resonb%e ssurnce8 t5t t5e "innci% stteents renot teri%%3 isstted.

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    E9&'(&, Err#r

    2. I" t5e uditor e7ects error to be resent in t5e ou%tion8 %r#ers%e t5n !5en no error is e7ected ordinri%3 needs to bee7ined to conc%ude t5t t5e ctu% error in t5e ou%tion is not#reter t5n t5e %nned to%erb%e error. S%%er s%e sies re

    justi"ied !5en t5e ou%tion is e7ected to be error "ree. Indeterinin# t5e e7ected error in ou%tion8 t5e uditor !ou%dconsider suc5 tters s error %eve%s identi"ied in revious udits8c5n#es in t5e entit3s rocedures8 nd evidence vi%b%e "ro ot5er

    rocedures

    4.6.3 SELECTION OF TE SAPLE

    1,. T

    n eu% c5nce o" se%ection8 "or e7%e8 b3 use o" rndonubertb%es.

    Systematic selection' !5ic5 invo%ves se%ectin# ites usin# a constntinterv% bet!een se%ections8 t5e "irst interv% 5vin# rndo strt.T5e interv% i#5t be bsed on certin nuber o" ites ("or e7%e8ever3 2t5 vouc5er nuber) or on onetr3 tot%s ("or e7%e8 ever3>s 18 increse in t5e cuu%tive v%ue o" t5e ou%tion). @5enusin# s3stetic se%ection8 t5e uditor !ou%d need to deterine t5tt5e ou%tion is not structured insuc5 nner t5t t5e s%in#interv% corresonds !it5 rticu%r ttern in t5e ou%tion. 6ore7%e8 i" in ou%tiono" brnc5 s%es8 rticu%r brnc5s s%es

    occur on%3 s ever3 1t5 ite nd t5e s%in# interv% se%ected is'8 t5e resu%t !ou%d be t5t t5e uditor !ou%d 5ve se%ected %%8 ornone8 o" t5e s%es o" t5t rticu%r brnc5.

    Q (ap)a*ad selection' !5ic5 3 be n ccetb%e %terntive torndo se%ection8 rovided t5e uditor ttets to dr! reresenttives%e "ro t5e entire ou%tion !it5 no intentionto eit5er inc%ude ore7c%ude seci"ic units. @5en t5e uditor usest5is et5od8 cre needs tobe t9en to #urd #inst 9in# se%ection t5t is bised8 "or e7%e8to!rds ites !5ic5 re esi%3

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    %octed8 s t5e3 3 not be reresenttive.

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    4.6.4 EVALUATION OF SAPLE RESULTS

    2?. !)i+ '!rri&, #7(@ #+ &!'< !9;& i(&@ (

    $ 9r#%&'( (

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    sub-ou%tion.

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    Projection of Errors

    2,. T5e uditor rojects t5e error resu%ts o" t5e s%e to t5eou%tion "ro !5ic5 t5e s%e !s se%ected. T5ere resever%ccetb%e et5ods o" rojectin# error resu%ts. Bo!ever8 in %%

    t5e cses8 t5e et5od o" rojection !i%% need to be consistent !it5 t5eet5od jsed to se%ect t5e s%in# unit. @5en rojectin# error resu%ts8t5e uditor needs to 9ee in ind t5e u%ittive sects o"t5e errors"ound. @5en t5e ou%tion 5s been divided into subou%tion8 t5erojection o" errors is done serte%3 "or ec5 subou%tion nd t5eresu%ts re cobined.

    Reassessing Sampling Risk

    2. T5e uditor needs to consider !5et5er errors in t5eou%tioni#5t e7ceed t5e to%erb%e error. To cco%is5 t5is8 t5euditor cores t5e rojected ou%tion error to t5e to%erb%e errort9in#into ccount t5e resu%ts o" ot5er udit rocedures re%evnt to t5e

    seci"ic contro% or "innci% stteent ssertion. T5erojectedou%tion error used "or t5is corison in t5e cse o"substntiverocedures is net o" djustents de b3 t5e entit3. @5ent5e rojected error e7ceeds to%erb%e error8 t5e uditor ressessest5es%in# ris9 nd i" t5t ris9 is unccetb%e8 !ou%d considere7tendin# t5e udit rocedure or er"orin# %terntive uditrocedures.

    ...

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    INTERNAL CONTROL

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    STRUCTURE

    '.1 Objectives

    '.2 Introduction

    '.$ =enin# nd de"inition o" intern% contro%

    '.& 6ors o" intern% contro%

    '.' Intern% udit

    '. Intern% c5ec9

    5.1 OBJECTIVES:

    A"ter stud3in# t5is unit 3ou !i%% be b%e to

    E7%in t5e enin# nd objectives o" intern% contro%. Enuerte t5e "etures o" #ood intern% contro% s3ste. Distin#uis5 bet!een intern% udit nd sttutor3 udit. Describe t5e enin# nd objectives o" intern% c5ec9 s3ste. Device s3ste o" intern% c5ec9 !it5 re#rd to cs5 s%es. credits%es8 !#es nd s%ries8 urc5ses8 stoc9 etc.

    E7%in t5e dut3 o" t5e uditor !it5 re#rd to intern% c5ec9. Understnd udit in resect o" couterised environent.

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    5.2

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    INTRODUCTIO

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    N

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    Intern% contro% is not5er iortnt re o" uditin#. Intern% contro% re"ers to nuber o" c5ec9s nd contro%s e7ercised in business to ensure its e""icient

    nd econoic !or9in#. In t5is unit 3ou !i%% %ern t5e enin# nd objectives

    o" intern% contro% nd intern% c5ec9. Vou !i%% %so %ern vrious s3ste o"

    intern% c5ec9 nd #ener%%3 understnd udit in resect o" couter

    environent.

    5.3 EANING AND DEFINITION OF INTERNAL CONTROL

    Intern% contro% is n iortnt too% o" n#eent. It ssists t5e

    n#eent in t5e er"ornce o" its vrious "unctions. It ens t5e bui%t in

    cross-c5ec9s in t5e s3ste su%eented !it5 roer suervision nd

    intern% udit crried out b3 t5e st"" ointed b3 t5e or#nistion T5ese

    d3s business 5s been becoe ore co%e7 bot5 in nture nd sie nd

    t5e n#eent "inds it di""icu%t to #et correct in"ortion bout t5e vrious

    sects o" t5e business. Intern% contro% ssures t5e n#eent t5t t5e

    in"ortion su%ied to it is re%ib%e nd ccurte. T5e Intern% contro%s re

    e7ercised to ensure t5e ccurc3 nd t5e re%ibi%it3 o" ccountin# dt nd

    ot5er records8 to identi"3 !e9er res o" oertion nd to irove t5e to

    increse oertion% e""icienc3 o" t5e business8 to s"e#urd its ssets nd toensure order%3 conduct o" business.

    T5e Aericn Institute o" +ub%ic Accountnts 5s de"ined intern% contro% s

    t5e %n o" or#nistion nd %% t5e co-ordinte et5ods8 nd esures

    doted !it5in business to s"e#urds its ssets8 c5ec9 t5e ccurc3 nd

    t5e re%ibi%it3 o" its ccountin# dt8 roote oertion% e""icienc3 nd

    encour#e d5erence to rescribed n#eri% o%icies. A s3ste o" intern%

    contro% e7tends be3ond t5ose tters !5ic5 re%te direct%3 to t5e "unction o"

    t5e ccountin# nd "innci% dertents.

    T5e Institute o" C5rtered Accountnts o" En#%nd nd @%es de"ines intern%

    contro% s /intern% contro% ens not on%3 intern% c5ec9 or intern% udit8 but

    t5e !5o%e s3ste o" contro% "innci% nd ot5er!ise8 estb%is5ed b3

    n#eent in order to crr3 on t5e business o" t5e con3 in n order%3

    nner8 s"e#urd its ssets nd secure s "r s ossib%e ccurc3 nd

    re%ibi%it3 o" its records/.

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    I" !e n%3e t5e bove de"initions it !ou%d be evident t5t intern% contro% is brod ter !it5 !ide cover#e. It consists o" nuber o" c5ec9s ndcontro%s !5ic5 re e7ercised in business to ensure its e""icient ndeconoic !or9in#. T5us intern% contro% invo%ves sort vi#i%nce nddirections over iortnt tters %i9e bud#et nd "innce8 urc5se nd s%es

    nd intern% dinistrtion b3 t5e n#eent.

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    Ever3 business enterrise is e7ected to devise suitb%e s3ste o" intern%

    contro% in order to crr3 on t5e business in n e""icient nd order%3 nner.

    T5ese contro%s re ccountin# contro%8 bud#etr3 contro%8 sttistic% n%3sis

    nd intern% c5ec9s nd intern% udit. In si%e !ords8 it ens nuber o"

    c5ec9s nd contro%s over t5e vrious ctivities o" business. Gener%%38

    s3ste o" intern% contro% !i%% inc%ude %% t5ose esures !5ic5 ssist

    business enterrises to "u%"i%% t5e "o%%o!in# objectives.

    O$%&'(i)& # i+(&r+!; '#+(r#;

    To iniie8 i" not co%ete%3 e%iinte8 !st#e nd ine""iciencies inbusiness oertions nd to s"e#urd t5e ssets o" t5e business.

    To ensure 5i#5 de#ree o" ccurc3 nd re%ibi%it3 o" ccountin# dt ndroote oertion% e""icienc3.

    To esure 5o! "r t5e o%icies o" t5e n#eent re bein#i%eented8 nd

    To ev%ute t5e e""icienc3 o" er"ornce in %% sects o" businessctivities nd to 5i#5%i#5t t5e !e9nesses.

    5.4 FORS OF INTERNAL CONTROL

    ?rious "ors o" intern% contro% 5e% in ensurin# correct nd re%ib%e records

    o" trnsctions nd oertion% e""iciencies. 0et us discuss t5e in deti%.

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    A''#7+(i+ '#+(r#;

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    It ensures correct nd re%ib%e records o" trnsctions in con"orit3 !it5

    nor%%3 cceted ccountin# rinci%es. Suc5 contro%s corise riri%3 t5e

    %n o" or#nistion nd t5e rocedures nd records t5t re concerned !it5

    nd direct%3 re%ted to t5e s"e#urdin# o" ssets nd %ibi%ities o" "innci%

    records. Accountin# "innci% contro%s inc%ude bud#etr3 contro%8 stndrd cost

    contro%8 se%" b%ncin# %ed#er8 bn9 reconci%ition nd intern% c5ec9s nd

    intern% uditin#.

    Accountin# contro%s de% !it5 t5e rocess o" recordin# o" trnsctions8

    s"e#urdin# t5e ssets nd d5erence to rescribed n#eri% o%icies

    A,i+i(r!(i)& '#+(r#;

    T5e scoe o" t5is contro% is ver3 !ide. T5e3 %so inc%ude ccountin# contro%s.

    Suc5 contro%s corise o" t5e %n o" or#nistion t5t re concerned in%3

    !it5 oertion% e""iciencies. In s5ort t5e3 3 inc%ude n3t5in# "ro %n o"

    or#nistion to rocedures8 record 9eein#8 distribution o" ut5orit3 nd t5e

    rocess o" decision 9in#. T5e3 inc%ude contro%s vi. Tie nd otion

    studies8 u%it3 contro% t5rou#5 insection8 sttistic% n%3sis nd

    er"ornce ev%ution etc. An uditor s5ou%d 9e cre"u% revie! o"

    ccountin# contro%s s t5e3 5ve direct berin# on t5e re%ibi%it3 o" t5e

    "innci% stteents. Be is riri%3 concerned !it5 t5e ccountin# contro%s.

    I+(&r+!; '#+(r#; !+, !7,i(#r

    T5e osition o" t5e uditor re#rdin# intern% contro% 5s been stted in t5estteent o" uditin# rctices issued b3 t5e Institute o" C5rteredAccountnts o" Indi !5ic5 s3s /t5e dut3 o" s"e#urdin# t5e ssets o" con3 is riri%3 t5t o" n#eent nd t5e uditor is entit%ed to re%3uon t5e s"e#urd nd intern% contro%s instituted b3 t5e n#eent8%t5ou#5 5e !i%% t9e into ccount t5e de"iciencies8 5e 3 note t5erein !5i%edr"tin# 5is udit ro#r/. It c%er%3 ens t5t n uditor is concerned on%3!it5 t5e ev%ution o" intern% contro% to 9no! its stren#t5 nd !e9nesses. Incse 5e "inds t5t t5e intern% contro%

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    s3ste is indeute8 5e s5ou%d t5en %n to crr3 out deti%ed e7intion o"t5ose res !5ere t5e s3ste is !e9. It is t5ere"ore necessr3 "or t5e uditorto cuint 5ise%" "u%%3 !it5 t5e intern% contro% in "orce nd t5eir ctu%oertion. It !i%% 5e% 5i in t5e "oru%tion o" 5is udit ro#r. Be 3 %sobrin# t5e s5ortcoin#s o" t5e intern% contro% s3ste to t5e notice o" t5en#eent.

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    .

    R&7ii(& # ! ##, i+(&r+!; '#+(r#; "(&

    T5e "o%%o!in# re t5e essenti% reuisites o" #ood intern% contro% s3ste :-

    i. A !e%% deve%oed %n o" or#nistion !it5 roer de%e#tion o"

    "unction% resonsibi%ities s5ou%d be evised. No intern% contro% s3ste cn

    be e""ective !it5out suc5 %n o" or#nistion.

    ii. A scienti"ic s3ste o" ut5oristion nd record rocedure s5ou%d be

    deve%oed !it5 vie! to rovide roer contro% over ssets8 %ibi%ities8

    revenue nd e7enses o" t5e or#nistion. It s5ou%d be deve%oed in suc5 a

    "s5ion s to ensure t5t ) ssets re under roer custod3 nd t5e3 re not

    iroer%3 %ied8 b) e7enditures re incurred on #ettin# roer

    ut5oristion nd c) revenues received re du%3 ccounted "or.

    iii. A s3ste o" 5e%t53 rctices nd trditions s5ou%d be deve%oed !it5

    vie! to disc5r#e t5e duties nd "unctions o" t5e vrious dertents o" t5e

    or#nistion soot5%3.

    iv. Since intern% contro% s3ste is to be e7ercised b3 t5e ersonne%

    e%o3ed in t5e or#nistion8 t5ere s5ou%d be te o" eo%e !it5 sound

    c5rcter nd inte#rit3 !5o re roer%3 trined nd cb%e o" disc5r#in#

    t5eir resonsibi%ities.

    Constnt n#eri% suervision nd eriodic% revie! o" t5e s3ste

    s5ou%d be introduced !it5 vie! to 9e t5e s3ste ore e""icient nd

    e""ective.

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    1

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    .

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    C

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    1 De"ine intern% contro%2 Distin#uis5 bet!een ccountin# contro% nd dinistrtive contro%.

    $ Stte !5et5er ec5 o" t5e "o%%o!in# is true or "%se: ) Intern% contro% isdi""erent "ro intern% c5ec9. b) Intern% contro% does not inc%ude ccountin# contro%c) Intern% contro% is cou%sor3 in %% business or#nistion d Intern% contro%inc%ude u%it3 contro% nd tie nd otion

    studies. e) An e""ective intern% contro% s3ste 5e%s e7tern% uditor to

    desi#n suitb%e udit.

    5.5 INTERNAL AUDIT

    Intern% udit is described s t5e veri"iction o" t5e oertions !it5in t5e

    business b3 seci%%3 ssi#ned st"". It is n iortnt too% o" n#eent

    to ev%ute t5e correctness o" records on continuous bsis in n

    or#nistion.

    T5e ter intern% udit 5s been de"ined s /n indeendent ris% o"

    ctivit3 !it5in n or#nistion "or revie! o" oertions s bsis o" service to

    n#eent. It is n#eri% contro% !5ic5 "unctions b3 esurin# nd

    ev%utin# t5e e""ectiveness o" ot5er controIs.

    Accordin# to Bo!rd 6. Stett%er8 /intern% uditin# is n indeendent ris%

    ctivit3 !it5in n or#nistion "or t5e revie! o" oertions s service to

    n#eent.

    T5e over%% objective o" intern% uditin#8 t5ere"ore8 is to ssist t5e

    n#eent in t5e e""ective disc5r#e o" t5eir resonsibi%ities b3

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    "urnis5in# t5e !it5 objective n%3sis8 ris%s8 recoendtions ndertinent coents concernin# t5e ctivities revie!ed.

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    I+

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    T5us8 intern% udit is t5orou#5 e7intion o" t5e ccountin# trnsctions

    to ensure t5t-

    T5e trnsctions re roer%3 recorded. T5e ccounts re intined s3stetic%%3 nd T5ere is no ossibi%it3 "or niu%tion o" ccounts or isrorition o"roert3 o" t5e business.

    In odern ties8 n intern% uditor crries ne! ts9. T5e trdition% "unction

    o" c5ec9in# t5e rit5etic% correctness o" t5e ccounts !it5 t5e 5e% o"

    vouc5ers nd docuents nd veri"iction o" "e! ites suc5 s stoc98 cs5 nd

    "i7ed ssets is not su""icient. T5e dut3 o" intern% uditor no! is to c5rt t5e

    rocedure8 e7ine t5e e""icienc3 nd !or9 on ro#rs o" iroveent o"

    ssessin# t5e e""ectiveness o" contro%s. Be is e7ected to %n nd rrn#e

    5is ts9 "or e""ective "unctionin#8 set c%er objectives o" 5is o!n section8 5se

    5is objectives8 #in t5e con"idence o" t5e n#eent nd deonstrte t5e

    v%ue o" 5is "unctions in res o" er"ornce.

    T5e intern% udit is crried out #ener%%3 in t5e se nner s is "o%%o!ed

    "or ro"ession% udit. Bo!ever8 it vries in "or "ro enterrise to

    enterrise ccordin# to its sie nd seci"ic needs. It is inst%%ed in %r#e

    or#nistion nd is crried out b3 t5e s%ried st"" !5o re u%i"ied to

    conduct ro"ession% udit. 4ein# t5e e%o3ee o" t5e or#nistion 5e 5s to

    ensure t5t t5ere is no !ste in t5e or#nistion. Intern% uditor 5s to "o%%o!

    t5e rovisions o" %!8 stndrd uditin# rctices nd rocedure rescribed "or

    ro"ession% uditors nd b3 t5e ro"ession% bodies contro%%in# t5e udit

    s3ste in t5e countr3. At t5e se tie intern% uditor ust be !re o" t5e

    o%icies nd ro#rs o" t5e enterrise 5e s5ou%d be ro"ession%%3 coetent

    to crr3 out deti%ed e7intion o" t5e !or9in# o" t5e business. Euied!it5 ro"ession% e7ertise nd 9no!%ed#e o" t5e business8 5e !i%% be in

    better osition to 9e t5e intern% udit s3ste ore e""ective.

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    5.5.1

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    O$%&'(i)& # i+(&r+!; !7,i(

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    T5e in objectives o" intern% udit re s under:-

    To veri"3 t5e correctness nd ut5enticit3 o" t5e "innci% records ndsttistic% records resented to t5e n#eent.

    To ensure t5t t5e stndrd ccountin# rctices re strict%3 "o%%o!ed in t5eor#nistion.

    To "ci%itte er%3 detection o" errors nd "ruds. To ensure t5t %% t5e trnsctions 5ve been crried out under roerut5orit3 nd b3 ersons ut5orised "or t5e se in t5e business.

    To revie! t5e s3ste o" intern% c5ec9 "ro tie to tie to dvice t5en#eent on iroveent o" t5e s3ste nd to undert9e seci% investi#tion"or t5e n#eent.

    To con"ir t5t t5e %ibi%ities 5ve been incurred b3 t5e or#nistion "or

    %e#itite ctivities.

    T5us8 e""icienc3 o" intern% udit deends on t5e e""icienc3 o" t5e st""

    e%o3ed "or t5e urose8 intern% udit cn be e""ective on%3 i" t5e intern%

    uditor is #iven !ider ut5orit3 to investi#te t5e trnsctions not on%3 "ro

    "innci% n#%es but %so "ro ot5er or#nition% ctivities. Intern% uditor

    s5ou%d reort direct%3 to t5e to n#eent. Be ust oerte indeendent%3

    o" t5e ccountin# nd ot5er st"". Be ust be #iven n indeendent sttus s

    n iortnt "unctionr3 nd rt o" t5e n#eent.

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    5.5.2

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    I+(&r+!; !7,i( )8 (!(7(#r" !7,i(

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    Intern% udit 5e%s t5e sttutor3 udit to %r#e e7tent. 4ot5 t5e intern%

    uditor nd t5e sttutor3 uditor 5ve coon interest s "r s ut5enticit3

    o" t5e ccounts re concerned. Bo!ever soundness o" intern% udit re%ievest5e sttutor3 uditor "ro deti%ed c5ec9in#.

    T5e intern% uditor revie!s t5e oertions nd er"ors suc5 "unctions s

    ev%ution8 co%ince8 veri"iction nd ensures t5t o%icies8 rocedures8

    ru%es nd ot5er t3e o" contro%s o" t5e business re crried out e""icient%3.

    Be is 5e%"u% to sttutor3 uditor in t5e tter o" e7intion o" boo9s o"

    ccounts. Gener%%38 t5e sttutor3 uditor ccets soe o" t5e deti%ed

    c5ec9in# de b3 t5e intern% uditor. Bo!ever8 t5e re o" cooertion

    bet!een intern% uditor nd sttutor3 uditor is soe!5t %iited s t5e

    sttutor3 uditor 5s resonsibi%it3 under %! to vrious ut5orities8 !5i%e t5e

    intern% uditor is resonsib%e on%3 to t5e n#eent. T5e sttutor3 uditor

    5s to crr3 out 5is duties in ccordnce !it5 stndrd ccountin# nd

    uditin# rctices nd rovisions o" %! !5ic5 #overn t5e or#nistion. 4e"ore

    ccetin# t5e c5ec9in# o" ccounts nd ot5er docuents crried out b3

    intern% uditor8 t5e sttutor3 uditor ust undert9e suc5 test c5ec9s

    necessr3 to "ind out t5e e""ectiveness o" intern% udit.

    4ot5 intern% uditor nd sttutor3 uditor crr3 out e7intion o" records nd

    docuents nd 9e 53sic% nd ot5er veri"ictions. Desite t5ese

    sii%rities t5ere re di""erences in t5e sttus8 resonsibi%ities8 roc5 nd

    scoe o" !or9 o" intern% uditor nd sttutor3 uditor.

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    T5e "o%%o!in# re t5e oints o" di""erences bet!een intern% udit ndsttutor3 udit:

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    I+(&r+!; !7,i( S(!(7(#r" !7,i(

    1. Intern%udit is t5e

    rrn#eent

    Sttutor3 uditis t5ee7intion o"

    !it5in t5eor#nistion to

    veri"3

    t5e

    boo9

    s

    o"

    ccounts

    o

    t5

    on

    continuous

    bsis

    t5e

    business b3 ne7tern% uditornd

    correctnessnd

    trut5"u%ness o"

    to reort t5t t5ero"it nd %oss

    t5etrnsctions b3

    t5e s%ried

    ccountndb%nce

    s5eetre

    st"".dr!n ccordin#to rovisions o"

    %!nd

    t5e"innci%

    stteents

    reve% t5e truend "ir vie! o"t5eresu%ts o"oertions nd"innci%stte o" ""irs o"t5e business.

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    Sttutor3 udit is cou%sor3 in cse o"

    business 5ouses incororted under t5e

    Conies2. Intern% udit is not cou%sor3. Act nd ot5er cts.

    Sttutor3 udit cn be crried out on%3

    b3 t5ose !5o re u%i"ied "or

    ointent s er t5e rovision o"

    t5e Conies Act nd ot5er cts.

    1 Intern% udit is crried out b3 t5est"" ointed b3 t5e business enterrises. Itis not necessr3 t5t t5e intern% udit st""s5ou%d ossess t5e u%i"iction rescribed"or ro"ession% uditor

    T5e ri#5ts8 duties8 resonsibi%ities nd

    %ibi%ities o" uditors re #overned b3

    t5e rovisions o" %!.4ein# n e%o3ee o" t5e

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    udit !or9 redeterined b3t5en#eent.T5en#eentcn increset5e o!ers ndut5orit3 o" t5e

    intern% uditor.Sii%r%3 it cn%so curti% 5iso!ers. '. T5eintern% uditoroints outirre#u%rities int5e rocedur%sects ndsu##ests !3snd ens torecti"3 t5ese. Be

    ssures t5t t5e"innci%oertions ndot5er t3es o"contro% in "orcere crried outin con"orit3!it5 t5eccountin#s3stes.

    T5e sttutor3uditor isconcerned !it5t5e %e#%it3 ndv%idit3 o" t5etrnsctions o"business. Bisudit !or9 isbsed on t5e

    "innci%stteentrered b3 t5ebusiness.

    T5e uditor is indeendent o"or#nistion intern% uditor is n#eent.

    ns!erb%e to t5e n#eent. Bis

    duties8 resonsibi%ities etc. re#rdin#

    5.6 INTERNAL CEC

    Intern% c5ec9 is s3ste en"orced in business under !5ic5 t5e recordin# o"

    business trnsctions is rrn#ed in suc5 nner t5t t5e !or9 o" one st""

    eber !i%% utotic%%3 be c5ec9ed b3 ot5ers in t5e course o" recordin# o"

    trnsction itse%".

    Sicer nd +e#%er 5ve de"ined s3ste o" intern% c5ec9 s /n

    rrn#eent o" st"" duties !5ereb3 no one erson is %%o!ed to crr3 t5rou#5

    nd record ever3 sect o" trnsction suc5 t5t !it5out co%%usion bet!een

    t!o or ore ersons.8 "rud is revented nd t t5e se tie ossibi%ities o"

    errors re reduced to iniu/. De +u% 5s de"ined intern% c5ec9 s /

    continuous intern% udit crried on b3 t5e st"" itse%" b3 ens o" !5ic5 t5e

    !or9 o" ec5 individu% is indeendent%3 c5ec9ed b3 ot5er eber o" t5e

    st""./

    T5us8 under intern% c5ec9 s3ste t5e st"" duties re so rrn#ed t5t no

    one erson is %%o!ed to record ever3 sect o" t5e trnsctions nd t5e

    entire !or9 is distributed on# t5e vrious ebers o" t5e st"" in suc5

    nner t5t t5e !or9 o" one erson is utotic%%3 c5ec9ed b3 ot5ers.

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    T5e essenti% e%eents o" intern% c5ec9 re s under-

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    E7istence o" c5ec9s on d3 to d3 trnsctions. T5e c5ec9 is to be crried out continuous%3 s rt o" t5e routine s3ste.

    T5e !or9 is divided on# t5e st"" nd ec5 st"" is ssi#ned seci"icts9. T5e !or9 o" ec5 st"" t5ou#5 indeendent is co%eentr3 to t5e !or9 o"not5er.

    T5e s3ste o" intern% c5ec9 is incresin#%3 reco#nised b3 t5e uditor

    seci%%3 !5en t5e sie o" t5e concern is %r#e. T5e e7istence o" e""ective

    intern% c5ec9 s3ste re%ieves t5e e7tern% uditor o" deti%ed c5ec9in# to %r#er e7tent. T5e e7tent to !5ic5 n e7tern% uditor cn deend uon t5e

    s3ste o" intern% c5ec9 is bsed on t5e rocedur% tests %ied b3 5i to

    "ind out t5e e""ectiveness o" t5e s3ste. Bo!ever t5e uditor cn not be

    re%ieved o" 5is resonsibi%it3 i" 5e !s "ound #ui%t3 o" ne#%i#ence re#rd%ess o"

    t5e "ct t5t 5e 5d tested t5e intern% c5ec9 in e7istence in t5e or#nistion

    be"ore 5e 5d cceted it s correct.

    5.6.1 O$%&'(i)& # i+(&r+!; '

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    To 5ve n ccurte nd re%ib%e record o" %% business trnsctions.

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    E&+(i!; # ##, i+(&r+!; '

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    Se%" b%ncin# %ed#er s3ste s5ou%d be introduced to 9e t5e s3ste oree""icient nd e""ective.

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    No undue iortnce s5ou%d be #iven to n3 st"" eber nd too

    uc5 re%ince on n3 st"" eber s5ou%d be voided.

    Division nd %%oction o" duties on# t5e st"" ebers ust

    rovide "or n utotic c5ec9 b3 ot5ers.

    5.6.2 I+(&r+!; '

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    A%% 3ents on t5e cs5 eo o" t5e s%esn ust be de b3 t5ecustoer t t5e cs5 counter.

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    S!;& !r& (# $& &&'(&, i+ (

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    P#(!; !;& i.&. !;& 7+,&r !i; #r,&r

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    T5is inc%udes "o%%o!in# sects:

    A%% s%es de b3 ost i.e. ?.+.+ s5ou%d be recorded in serte re#isterto be intined "or t5e urose.

    T5e #oods returned8 i" n38 s5ou%d %so be recorded in t5e re#ister. T5e tot% ount o" cs5 receits inc%udin# dvnce8 i" n38 #inst t5ei% orders s5ou%d be entered in t5e re#ister nd t5e se s5ou%d be deosited intot5e bn9.

    A%% t5e entries in t5e ?.+.+. re#ister s5ou%d be c5ec9ed b3 soe resonsib%eo""icer nd seci% inuiries s5ou%d be de in resect o" t5ose #oods #inst!5ic5 cs5 5s not been received.

    T5ere s5ou%d be roer "i%in# o" i% orders received nd t5e cs5 bo