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    Before Planning Audit Programme: 3 Audit Checklist - For Companies

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    Mudit Kothari
    This document provides an audit checklist for companies that includes key considerations for auditors. It discusses (1) important auditing pronouncements that auditors must follow, including objectives and scope of audit, terms of engagement, audit planning, materiality, and audit evidence; (2) how the terms of audit engagement should be documented; (3) factors to consider when determining the appropriate extent and sample size of checks; and (4) how to establish materiality thresholds and qualitative factors in assessing materiality. The checklist also addresses how auditors should review work delegated to other auditors.

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    Before Planning Audit Programme: 3 Audit Checklist - For Companies

    Uploaded by

    Mudit Kothari
    20 views2 pages
    This document provides an audit checklist for companies that includes key considerations for auditors. It discusses (1) important auditing pronouncements that auditors must follow, including objectives and scope of audit, terms of engagement, audit planning, materiality, and audit evidence; (2) how the terms of audit engagement should be documented; (3) factors to consider when determining the appropriate extent and sample size of checks; and (4) how to establish materiality thresholds and qualitative factors in assessing materiality. The checklist also addresses how auditors should review work delegated to other auditors.

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    Audit

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    Chapter II

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    This document provides an audit checklist for companies that includes key considerations for auditors. It discusses (1) important auditing pronouncements that auditors must follow, including objectives and scope of audit, terms of engagement, audit planning, materiality, and audit evidence; (2) how the terms of audit engagement should be documented; (3) factors to consider when determining the appropriate extent and sample size of checks; and (4) how to establish materiality thresholds and qualitative factors in assessing materiality. The checklist also addresses how auditors should review work delegated to other auditors.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    20 views2 pages

    Before Planning Audit Programme: 3 Audit Checklist - For Companies

    Uploaded by

    Mudit Kothari
    This document provides an audit checklist for companies that includes key considerations for auditors. It discusses (1) important auditing pronouncements that auditors must follow, including objectives and scope of audit, terms of engagement, audit planning, materiality, and audit evidence; (2) how the terms of audit engagement should be documented; (3) factors to consider when determining the appropriate extent and sample size of checks; and (4) how to establish materiality thresholds and qualitative factors in assessing materiality. The checklist also addresses how auditors should review work delegated to other auditors.

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    of 2

    3

    Audit Checklist For Companies


    1. Before embarking upon devising an audit programme in detail following important auditing
    pronouncement may be kept in mind which is obligatory for auditor in carrying out his duties.
    1. Objective and scope of Audit of Financial Statement (AAS 2)
    2. Terms of Audit Engagement (AAS 26)
    3. Audit Planning (AAS8)
    4. Audit Materiality (AAS 13)
    5. Audit Sampling (AAS 15)
    6. Analytical Procedure (AAS 14)
    7. Audit Evidence (AAS 5)
    8. Audit Practice Quality control for audit work (AAS 17)
    Checklists on most of the above pronouncements have been given in chapter 8.
    2. Terms of Audit Engagement (AAS 26)
    It is necessary that terms of the Audit engagement is recorded either as a contract or as
    engagement letter. In case of company audits the objective and scope of audit is regulated
    by the Companies Act or the Pronouncements of ICAI. The engagement letter would be
    informative for clients. Such letter should be sent by the auditor before the commencement
    of the audit. The form and contents of audit engagement letter would generally include
    object of audit, Managements responsibility for things like consistent application of
    appropriate accounting policies and implementation of applicable accounting standards, fees,
    planning of audit, maintenance of adequate accounting records, going concern basis, etc.
    The letter should be sent on the first appointment and subsequently when there are any
    variations in the terms of appointment.
    3. Extent of check
    3.1 AAS 15 describes how to design and select audit sample and how to evaluate the
    sample results. Either method of sampling statistical or non statistical can be
    applied. The auditor has to select sample so that it provides sufficient audit evidence.
    Sample and its size have to be designed based on the specific audit objectives and
    population. The population means entire set of data or all transactions or full lists from
    which auditor draws sample so as to reach the goal to have efficient and effective
    sample. Through the process of stratification, population is divided into sub-populations
    having similar characteristics such as larger value of items in account receivables,
    unpaid invoices, unmatched suppliers statements etc. By the process of stratification
    the auditor can direct his efforts to items having potential monetary error.
    3.2 While determining the sample size auditor has to consider the risk in both test of
    control and substantive procedures. He has also to consider tolerable error and
    expected error.
    The samples character has to be representative of the population so that all items in
    the population have an opportunity of being selected.
    There are various methods of selection of the samples and auditor has to take care in
    selecting the sample either at random either systematically or otherwise.
    CHAPTER 2
    Before Planning Audit Programme
    4
    Audit Checklist For Companies
    3.3 An auditor is not supposed to check cent per cent transactions for the period covered
    under Audit. He has to determine the extent of checking of transactions keeping in
    mind various factors such as volume of transactions, internal control and internal
    check, extent of internal audit, value of transactions etc. He has to strike a balance
    keeping all these factors in mind. He can, for instance, check the transactions for a
    particular period in a month or for particular months in a year or one month in a
    quarter etc. He can also determine the value over which transactions should be
    checked. Clear instructions have to be given in regard to extent of check for each of
    the class of transactions e.g. purchases vouchers, payment vouchers, etc.
    4. Materiality
    4.1 AAS 13 deals with materiality and its relationship with audit risk.
    During audit planning, the auditor should make preliminary judgments regarding overall
    materiality. He should also set materiality levels for account balances and class of
    transactions based on the audit objectives set by him. The overall materiality should be
    determined by reference to key components of the financial statements. The key
    components may include profit, net worth, share capital, total assets, total liabilities,
    total revenue and total expenses. The auditor should make a preliminary judgment
    about amounts with reference to each key component. When determining overall
    materiality, the auditor should normally use the lowest materiality which has been
    established in relation to the identified key components. The auditor should set the
    materiality level at an amount which is appropriate for all key components that would
    be affected by misstatement. An error of Rs.1 million in a turnover of over Rs. 1,000
    million may not be material but for a profit level of Rs. 50 million, an error of one
    million may be material. The items which are insignificant or trivial may be dealt
    without devoting time of the auditor. This is done in case of non material individual
    items and not group of item. The determining materiality qualitative professional
    judgment is of prime importance. The Chartered Accountant in practice will be held
    guilty of professional misconduct if he fails to disclose material fact known to him which
    makes financial statement misleading or fails to report a material misstatement in a
    financial statement.
    4.2 AAS 13 covers materiality in detail. Materiality depends on the size and nature of item,
    judged in the particular circumstances of its misstatement. Thus materiality provides
    threshold or a cut-off point rather than primary qualitative characteristic, which the
    information must have to be useful. If the Companies Act, 1956 or AS require an item
    to be accounted for or disclosed in a particular manner, any misstatement in that item
    is more likely to be regarded as material than a similar misstatement in an item for
    which there is no such requirement. A misstatement in a transaction affecting Balance
    Sheet classification is less likely to be material than misstatement that affects the
    determination of profit.
    5. Work done by other Chartered Accountant
    In course of audit function, the Auditor may have to delegate certain functions to another
    auditor or audit firm, for example branch audit or unit audit. While devising programme for
    audit, the Auditor will have to verify the audit programme, extent of check and depth of
    check exercised by the other auditor or Chartered Accountant and consider extent of test
    check to be applied by him in the areas covered by that auditor.

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