PROJECT REPORT

ON
ADVANCED AUDITING

IN PARTIAL FULFILLMENT OF
THE DEGREE AWARDED AT
M.COM PART II
(ACCOUNTANCY)
SEMESTER III

SUBMITTED TO
UNIVERSITY OF MUMBAI
FOR ACADEMIC YEAR 2019-2020

SUBMITTED BY
GUPTA SNEHA JAYPRAKASH
ROLL NO: 12

VIVA COLLEGE OF ARTS, COMMERCE & SCIENCE

VIRAR (WEST)
401303
 DECLARATION

I hereby declare that the project titled ―ADVANCED

AUDITING” is an original work prepared by me and is being submitted to University
of Mumbai in partial fulfillment of ―M.COM – PART II SEM III
(ACCOUNTANCY)” degree for the academic year 2019-2020.

To the best of my knowledge this report has not been submitted earlier to the
University of Mumbai or any other affiliated college for the fulfillment of
“M.COM” degree.

Date: Name:
Place: Signature:
 ACKNOWLEDGEMENT

I GUPTA SNEHA JAYPRAKASH the student of VIVA College pursuing my

―M.COM – II (ACCOUNTANCY)” would like to pay the credits, for all those who
helped in the making of this project.
The first in accomplishment of this project is our Principal Dr. A. P. Pandey,
Vice-Principal Prof. Prajakta Paranjape, Course Co-Ordinator Dr. Nilima
Bhagwat and Guide Prof. Suraj wadhwa and teaching & non-teaching staff of
VIVA college.
I would also like to thank all my college friends those who influenced my project in
order to achieve the desired result correctly.
4
 INDEX

Sr.no Content Page no

SECTION – I - INTRODUCTION

1.1 Nature And Purpose Of Financial Statements

1 1.2 Auditing And Assurance Standards
1.3 Definition Of Auditing 1
1.4 Objectives Of Audit
1.5 Aspects To Be Covered In Audit

SECTION – II - LITERATURE REVIEW

2.1 Basic Principles Governing An Audit

2.2 Scope Of Audit
2 25
2.3 Inherent Limitations Of Audit
2.4 Auditing And Investigation
2.5 Types Of Audit
2.6 Advantages Of An Independent Audit
2.7 Relationship Of Auditing With Other Disciplines

SECTION – III - RESEARCH METHODOLOGY

3
 Case Studies 39

SECTION – IV - DATA ANALYSIS AND 45

4
INTERPRETATIONS

5 SECTION – V - CONCLUSION AND BIBLIOGRAPHY 55

6 SECTION – VI - APPENDIX 60

5
 SECTION – I -
INTRODUCTION

6
INTRODUCTION

Auditing along with other disciplines such as accounting and law, equips you with all
the knowledge that is required to enter into auditing as a profession. No business or
institution can effectively carry on its activities without the help of proper records and
accounts, since transactions take place at different points of time with numerous
persons and entities. The effect of all transactions have to be recorded and suitably
analysed to see the results as regards the business as a whole. Periodical statements of
account are drawn up to measure the success or failure of the activities in achieving
the objective of the organisation.

This would be impossible without a systematic record of transactions. Financial

statements are often the basis for decision making by the management and for corrective
action so as to even closing down the organisation or a part of it. All this would be
possible only if the statements are reliable; decisions based on wrong accounting
statements may prove very harmful or even fatal to the business. For example, if the
business has really earned a profit but because of wrong accounting, the annual accounts
show a loss, the proprietor may take the decision to sell the business at a loss.

Thus from the point of view of the management itself, authenticity of financial
statements is essential. It is more essential for those who have invested their money in
the business but cannot take part in its management, for example, shareholders in a
company, such persons certainly need an assurance that the annual statements of
accounts sent to them are fully reliable. It is auditing which ensures that the
accounting statements are authentic. In today‘s economic environment, information
and accountability have assumed a larger role than ever before. As a result, the
independent audit of an entity‘s financial statements is a vital service to investors,
creditors, and other participants in economic exchange.

Historically, the word ‗auditing‘ has been derived from Latin word ―audire‖ which
means ―to hear‖. In fact, such an expression conveyed the manner in which the
auditing was conducted during ancient time. However, over a period of time, the
manner of conducting has undergone revolutionary change. According to Dicksee,
traditionally auditing can be understood as an examination of accounting records
undertaken with a view to establishing whether they completely reflect the
transactions correctly for the related purpose. But this is not the end of matter.

7
1.1 NATURE AND PURPOSE OF FINANCIAL STATEMENTS
For correctly realising the role of auditing, you must understand the nature and purpose of
the financial statements. ‗Financial statements‘ is a set of documents which show the
result of business operation during a period - how the result was achieved and the position
of assets and liabilities on the given date. Progress made or success achieved during a
certain period can also be readily ascertained from such a set of documents. It also makes
an implied representation that it has been properly prepared, shows correct figures and the
figures are set against correct description and context.

Regardless of the type of entity - whether in the public or private sector or whether for
profit or not - all entities use economic resources to pursue their goals. Financial
statements enable an entity‘s management to provide useful information about its
financial position at a particular point of time and the results of its operations and its
changes in financial position for a particular period of time. External financial
reporting for these entities is directed toward the common interest of various users.
Financial statements provide owners with information about the stewardship of
management. They also provide a basis for investors‘ decisions about whether to buy
or sell securities; for credit rating services‘ decisions about the credit worthiness of
entities; for bankers‘ decisions about whether to lend money, and for decisions of
other creditors, regulators and others outside the entity.

Information contained in the statement of accounts of a business are primarily

intended for the owners. However, many others make use of the information for
different purposes. Management of the business uses it for decision-making purposes,
lenders and creditors examine it to establish the degree of safety of their money.
Government levies tax putting a prima facie reliance on the statements and regulates
the socio-economic state of affairs on a summary view of the information contained in
various accounting statement made available to it. Investors review the information
for making investment decisions and the financial analysts can use the information to
assess the performance of an entity. Financial statements are of great significance to
workers as well; they want to be assured that reasonable and legitimate share of the
revenue earned by the organisation has been paid to them as bonus and the
distribution pattern has not violated the norms of social justice.

8
You will realise, from the above the importance and utility of statements of account
and the need for their reliability. To ensure the acceptable degree of reliability and
accuracy of the financial statements, examination and appraisal of accounts and the
financial picture by an independent expert is necessary. This is what has led to the
evolution of the auditing profession.

However, you must be clear on one point. The statements of account are viewed by
different interests from different angles; consequently a statement prepared primarily
for the use of the owners may not be wholly useful to the other interests. For example,
management may need more detailed information on matters considered critical by it,
the investors and financial analysts are keen to see the projected image of the present
state of affairs. Government would look for inadmissible items under the taxation
laws, etc. Separate statements of accounting highlighting the information needed by
the interested parties, other than the owners cannot be expected to be prepared in the
ordinary course unless the same is specially called for. This makes the preparation of
the financial statements more onerous because other users of the statement would use
the information subject to such modifications and enquiry as would be considered
necessary to meet their respective objective. But they must have an honest assurance
that the statements have been properly compiled, prepared and presented to adhere to
the requirements of owners. The auditor can accomplish this by a process of
examination and appraisal.

Further, it may be noted that the management is responsible for establishing an

accounting system to identify, measure, record and adequately disclose an entity‘s
transactions and other events that affect its financial position and results of operations.
Management is responsible for selecting accounting principles that appropriately
reflect events that occur and for making other accounting estimates and judgments.
This responsibility is not lessened by an independent audit.

9
 1.2 AUDITING AND ASSURANCE STANDARDS

International Auditing and Assurance Standards Board

In 1977, the International Federation of Accountants (IFAC) was set up with a view to
bringing harmony in the profession of accountancy on an international scale. In
pursuing this mission, the IFAC Board has established the International Auditing and
Assurance Standards Board (IAASB) to develop and issue, in the public interest and
under its own authority, high quality auditing and assurance standards for use around
the world. The IFAC Board has determined that designation of the IAASB as the
responsible body, under its own authority and within its stated terms of reference, best
serves the public interest in achieving this aspect of its mission.

The IAASB functions as an independent standard-setting body under the auspices of

IFAC. The objective of the IAASB is to serve the public interest by setting high
quality auditing and assurance standards and by facilitating the convergence of
international and national standards, thereby enhancing the quality and uniformity of
practice throughout the world and strengthening public confidence in the global
auditing and assurance profession. The IAASB achieves this objective by:


Establishing high quality auditing standards and guidance for financial
statement audits that are generally accepted and recognized by investors,
auditors, governments, banking regulators, securities regulators and other

key stakeholders across the world;


Establishing high quality standards and guidance for other typesof
 assurance services on both financial and non-financial matters;
 
Establishing high quality standards and guidance for other related services;


Establishing high quality standards for quality
 control covering the scope
of services addressed by the IAASB; and


Publishing other pronouncements on auditing and assurance matters,
thereby advancing public understanding of the roles and responsibility of

professional auditors and assurance service providers.

10
The IAASB‘s Pronouncements: The IAASB‘s pronouncements govern audit, review,
other assurance and related services engagements that are conducted in accordance
with International Standards. They do not override the local laws or regulations that
govern the audit of historical financial statements or assurance engagements on other
information in a particular country required to be followed in accordance with that
country‘s national standards. In the event that local laws or regulations differ from, or
conflict with, the IAASB‘s Standards on a particular subject, an engagement
conducted in accordance with local laws or regulations will not automatically comply
with the IAASB‘s Standards. A professional accountant should not represent
compliance with the IAASB‘s Standards unless the professional accountant has
complied fully with all of those relevant to the engagement.

Auditing and Assurance Standards Board

The Institute of Chartered Accountants of India is a member of the IFAC and is

committed to work towards the implementation of the guidelines issued by the IFAC.
The Institute of Chartered Accountants of India constituted the Auditing Practices
Committee (APC) in 1982. The main function of the APC is to review the existing
auditing practices in India and to develop Statements on Standard Auditing Practices
(SAPs) so that these may be issued by the Council of the Institute. While formulating
the SAPs in India, the APC gives due consideration to the international auditing
guidelines issued by the IAPC and then tries to integrate them to the extent possible in
the light of the conditions and practices prevailing in India. While formulating the
SAPs, the APC takes into consideration the applicable laws, customs, usages and
business environment in India. In July, 2002, the Auditing Practices Committee has
been converted into an Auditing and Assurance Standards Board (AASB) by the
Council of the Institute, to be in line with the international trend. A significant step
has been taken aimed at bringing in the desired transparency in the working of the
Auditing and Assurance Standards Board, through participation of representatives of
various segments of the society and interest groups, such as, regulators, industry and
academics. The nomenclature of SAPs have also been changed to Auditing and
Assurance Standards (AASs).

11
The AASs will apply whenever an independent audit is carried out; that is, in the
independent examination of financial information of any entity, whether profit
oriented or not, and irrespective of its size, or legal form (unless specified otherwise)
when such an examination is conducted with a view to expressing an opinion thereon.
While discharging their attest function, it will be the duty of members of the Institute
to ensure that the AASs are followed in the audit of financial information covered by
their audit reports. If for any reason a member has not been able to perform an audit
in accordance with the AASs, his report should draw attention to the material
departures therefrom, auditors will be expected to follow AASs in the audits
commencing on or after the date specified in the statement. Remember all AASs are
mandatory from the date mentioned herein and it is obligatory upon members of
Institute to adhere to these whenever an audit is carried out.

The Council of the ICAI has issued following AASs so far. The title of each statement
and the date from which it comes into force is given below :

AAS-1 : Basic Principles Governing an Audit (April 1, 1985)

AAS-2 : Objective and Scope of the Audit of Financial Statements

AAS-3 : Documentation (July 1, 1985)

AAS–4 : Auditor‘s Responsibility to Consider Fraud and Error in

an Audit of Financial Statements (April 1, 2003)

AAS-5 : Audit Evidence (January 1, 1989)

AAS–6 : Risk Assessments and Internal Control (April 1, 2002)

AAS-7 : Relying upon the Work of an Internal Auditor

AAS-8 : Audit Planning (April 1, 1989)

AAS-9 : Using the Work of an Expert (April 1, 1991)

AAS – 10 : Using the Work of Another Auditor (April 1, 2002)

AAS - 11 : Representations by Management (April 1, 1995)

AAS - 12 : Responsibility of Joint Auditors (April 1, 1996)

AAS - 13 : Audit Materiality (April 1, 1996)

12
AAS - 14 : Analytical Procedures (April 1, 1997)

AAS - 15 : Audit Sampling (April 1, 1998)

AAS - 16 : Going Concern (April 1, 1999)

AAS - 17 : Quality Control for Audit work (April 1, 1999)

AAS - 18 : Audit of Accounting Estimates (April 1, 2000)

AAS - 19 : Subsequent Events (April 1, 2000)

AAS – 20 : Knowledge of the Business (April 1, 2000)

AAS - 21 : Consideration of Laws and Regulations

AAS - 22 : Initial Engagements – Opening Balances (July 1, 2001)

AAS - 23 : Related Parties (April 1, 2001)

AAS – 24 : Audit Considerations Relating to Entities Using

Service Organisations (April 1, 2003)

AAS - 25 : Comparatives (April 1, 2003)

AAS - 26 : Terms of Audit Engagements (April 1, 2003)

AAS - 27 : Communications of Audit Matters to those charged with

Governance (April 1, 2003)

AAS - 28 : The Auditor‘s Report on Financial Statements (April 1, 2003)

AAS - 29 : Auditing in a Computer Information Systems Environment

AAS 30 : External Confirmations (April 1, 2003)

AAS 31 : Engagements to Compile Financial Information (April 1, 2004)

AAS 32 : Engagements to Perform Agreed-upon Procedures

Regarding Financial Information (April 1, 2004)

AAS 33 : Engagements to Review Financial Statements (April 1, 2005)

AAS 34 : Audit Evidence – Additional Consideration for Specific Items

13
1.3 DEFINITION OF AUDITING

According to General Guidelines on Internal Auditing issued by the ICAI,

―Auditing is defined as a systematic and independent examination of data,
statements, records, operations and performances (financial or otherwise) of an
enterprise for a stated purpose. In any auditing situation, the auditor perceives
and recognises the propositions before him for examination, collects evidence,
evaluates the same and on this basis formulates his judgement which is
communicated through his audit report.‖

The nature of the propositions which an auditor is called upon to review varies.
Thus an auditor may review the financial statements of an enterprise to ascertain
whether they reflect a true and fair view of its state of affairs and of its working
results. In another situation, he may analyse the operations of an enterprise to
appraise their cost-effectiveness and in still another, he may seek evidence to
review the managerial performances in an enterprise. In yet another type of audit,
the auditor may examine whether the transactions of an enterprise have been
executed within the framework of certain standards of financial propriety.
However, the variations in the propositions do not change the basic philosophy of
auditing, though the process of collection and evaluation of evidence and that of
formulating a judgment thereon may have to be suitably modified.

According to AAS-1 on ―Basic Principles Governing an Audit‖, ―An audit is

independent examination of financial information of any entity, whether profit
oriented or not, and irrespective of its size or legal form, when such an
examination is conducted with a view to expressing an opinion thereon.‖ The
person conducting this process should perform his work with knowledge of the
use of the accounting statements discussed above and should take particular
care to ensure that nothing contained in the statements will ordinarily mislead
anybody. This he can do honestly by satisfying himself that :

(i) the accounts have been drawn up with reference to entries in the books of
account;

(ii) the entries in the books of account are adequately supported by

underlying papers and documents and by other evidence;

14
 (iii) none of the entries in the books of account has been omitted in the
process of compilation and nothing which is not in the books of
account has found place in the statements;

(iv) the information conveyed by the statements is clear and unambiguous;

(v) the financial statement amounts are properly classified, described and
disclosed in conformity with accounting standards; and

(vi) the statement of accounts taken as an integrated whole, present a true and
fair picture of the operational results and of the assets and liabilities.

The aforesaid definition is very authoritative. It makes clear that the basic
objective of auditing, i.e., expression of opinion on financial statements does not
change with reference to nature, size or form of an entity. The definition given in
AAS-1 is restrictive since it covers financial information aspect only. However,
the scope of auditing is not restricted to financial information only but, today, it
extends to variety of non-financial areas as well. That is how various expressions
like marketing audit, personnel audit, efficiency audit, production audit, etc. came
into existence. Students may note that study material deals with various aspects of
financial audit only unless otherwise specified.

15
THE AUDITOR

The person conducting audit is known as the auditor; he makes a report to the person
appointing him after due examination of the accounting records and the accounting
statement in the form of an opinion on the financial statements. The opinion that he is
called upon to express is whether the financial statement reflect a true and fair view.
Auditing, especially of companies and for public purposes has become the preserve of
persons having recognised professional training and qualification. In India, under the
authority of the Companies Act, 1956, only Chartered Accountants, are professionally
qualified for the audit of the accounts of companies. Students may note that the
provision relating to restricted state auditors was a transitory provision and has no
relevance now. Chartered Accountants are in a position to undertake auditing of
almost any accounting aspect, unlike cost accountants whose sphere has been
restricted to audit of the cost accounting records and statements. By and large, it is
chartered accountants or a firm whose all partners are chartered accountants who act
as auditors in India.

Functional Classification of Auditors : Internal Audit vs. External Audit

On the basis of functional division, auditors can be classified in two broad categories,
namely, external auditors and internal auditors. External auditors are the persons who
practise the profession of accountancy having qualified in the professional
examination and are external vis-a-vis the organisation of which they audit the
accounts. The internal auditors, on the other hand, may also be professionally
qualified and are internal vis-a-vis the organisation in which they are appointed to
perform specific work. They are considered internal because their appointment is
done by the management and the scope of work is also specified by it. They may be
appointed either on a contract basis or as employees to undertake auditing of the
books and records as a part of management control and appraisal system. The external
auditors, on the other hand, are appointed by the owners of the organisation, say,
shareholders of the company and thus they are treated external to the organisation in
which they have been appointed. When an external auditor is appointed under a
particular statute, such auditor may be known as the statutory auditor. Their scope of
work is determined by the statute under which they have been appointed.

16
Another significant distinction between the internal and external auditor is that the
former is not considered independent vis-a-vis the management of the organisation
while the latter is independent of the management of the organisation which is
responsible for the preparation of the books of account. Finally the scope of work of
an internal auditor may extend even beyond the financial accounting and may include
cost investigation, inquiries relating to losses and wastages, production audit,
performance audit, etc. It must be remembered that the basic foundation of any type
of auditing, whether internal or external, envisages that the auditor must be
independent of the activity for which he is going to conduct an audit. Even though the
internal auditor is an employee yet he must be independent to the extent practicable.

Qualities of an Auditor

So far we have discussed the question of formal qualifications of an auditor. But it is

not enough to realise what an auditor should be. He is concerned with the reporting on
financial matters of business and other institutions. Financial matters, inherently are to
be set with the problems of human fallibility; errors and frauds are frequent. The
qualities required, according to Dicksee, are tact, caution, firmness, good temper,
integrity, discretion, industry, judgement, patience, clear headedness and reliability. In
short, all those personal qualities that go to make a good businessman contribute to
the making of a good auditor. In addition, he must have the shine of culture for
attaining a great height. He must have the highest degree of integrity backed by
adequate independence. In fact, AAS-1 mentions integrity, objectivity and
independence as one of the basic principles.

He must have a thorough knowledge of the general principles of law which govern
matters with which he is likely to be in intimate contact. The Companies Act, 1956
and the Partnership Act, 1932 need special mention but mercantile law, specially the
law relating to contracts, is no less important.

Needless to say, where undertakings are governed by a special statute, its knowledge
will be imperative; in addition, a sound knowledge of the law and practice of taxation
is unavoidable.

17
He must pursue an intensive programme of theoretical education in subjects like
financial and management accounting, general management, business and corporate
laws, computers and information systems, taxation, economics, etc. Both practical
training and theoretical education are equally necessary for the development of
professional competence of an auditor for undertaking any kind of audit assignment.

The auditor should be equipped not only with a sufficient knowledge of the way in which
business generally is conducted but also with an understanding of the special features
peculiar to a particular business whose accounts are under audit. AAS-8 on ‗Audit
Planning‘ emphasises that an auditor should have adequate knowledge of the client‘s
business. The auditor, who holds a position of trust, must have the basic human qualities
apart from the technical requirement of professional training and education.

He is called upon constantly to critically review financial statements and it is obviously

useless for him to attempt that task unless his own knowledge is that of an expert. An
exhaustive knowledge of accounting in all its branches is the sine qua non of the practice
of auditing. He must know thoroughly all accounting principles and techniques.

Auditing is a profession calling for wide variety of knowledge to which no one has yet set
a limit; the most useful part of the knowledge is probably that which cannot be learnt
from books because its acquisition depends on the alertness of the mind in applying to
ever varying circumstances, the fruits of his own observation and reflection; only he who
is endowed with common sense in adequate measure can achieve it.

Lord Justice Lindley in the course of the judgment in the famous London & General
Bank case had succinctly summed up the overall view of what an auditor should be as
regards the personal qualities. He said, ―an auditor must be honest that is, he must not
certify what he does not believe to be true and must take reasonable care and skill
before he believes that what he certifies is true‖.

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1.4 OBJECTIVES OF AUDIT

Expression of opinion

When we speak of the objective, we rationalise the thinking process to formulate a set
of attainable goals, with reference to the circumstances, feasibility and constraints. In
money matters, frauds and errors are common place of occurrence. Apart from this,
the statements of account have their own purpose and use of portraying the financial
state of affairs. The objective of audit, naturally, should be to see that what the
statements of account convey is true and not misleading and that such errors and
frauds do not exist as to distort what the accounts really should convey.

Till recently, the principal emphasis was on arithmetical accuracy; adequate attention
was not paid to appropriate application of accounting principles and disclosure, for
ensuring preparation of accounting statements in such a way as to enable the reader of
the accounting statement to form a correct view of the state of affairs. Quite a few
managements took advantage of the situation and manipulated profit or loss and
assets and liabilities to highlight or conceal affairs according to their own design. This
state of affairs came up for consideration in the Royal Mail Steam Packet Company‘s
Case as a result of which the Companies Acts of England and India were amended in
1948 and 1956 respectively to require the auditor to state inter alia whether the
statements of account are true and fair. This is what we can take as the present day
audit objective. The implication of the substitution of ―true and correct‖ by ―true and
fair‖ need to be understood. There has been a shift of emphasis from arithmetical
accuracy to the question of reliability to the financial statements. Mind you, a
statement may be reliable even though there are some errors or even frauds, provided
they are not so big as to vitiate the picture. The word ―correct‖ was somewhat
misplaced as the accounting largely consists of estimates.

However, you should not infer that the detection of errors and frauds is no longer an audit
objective : it is indeed an audit objective because statements of account drawn up from
books containing serious mistakes and fraudulent entries cannot be considered as a true
and fair statement. To establish whether the financial statements show a true and fair state
of affairs, the auditors must carry out a process of examination and verification and, if
errors and frauds exist they would come to his notice in the ordinary course of

19
checking. But detection of errors and frauds is not the primary aim of audit; the primary
aim is the establishment of a degree of reliability of the annual statements of account.

If there remains a deep laid fraud in the accounts, which in the normal course of
examination of accounts may not come to light, it will not be construed as failure of
audit, provided the auditor was not negligent in the carrying out his normal work.
This principle was established as early as in 1896 in the leading case in Re-Kingston
Cotton Mills Co.

The nature of audit objectives was also highlighted in the leading case Re The
London and General Bank Ltd. [1895]. It was held that an auditor must ascertain that
the books of account show the true financial position of the company. For the first
time, the duties of the company auditor were spelled out in specific terms. Lord
Justice Lindley observed, ―It is no part of an auditor‘s duty to give advice either to
directors or shareholders as to what they ought to do. An auditor has nothing to do
with the prudence or imprudence of making loans without security. It is nothing to
him whether the business of company is being conducted prudently or unprudently,
profitably or unprofitably; it is nothing to him whether dividends are properly or
improperly declared, provided he discharges his own duty to the shareholders. His
business is to ascertain and state the true financial position of the company at the time
of the audit and his duty is confined to that.‖

(Note : Appendix I deal with summary of certain leading case laws. A careful reading
of such case laws would not only provide you a peep into the historical evolution of
auditing but enable you to master the subject of auditing by developing understanding
about audit objective, role of an auditor, scope of an audit and how an auditor should
proceed about his work).

The AAS-2 ―Objective and Scope of the Audit of Financial Statements‖ states that the
objective of an audit of financial statements, prepared within a framework of recognised
accounting policies and practices and relevant statutory requirements, if any, is to enable
an auditor to express an opinion on such financial statements. Further it clarifies that ―the
auditor‘s opinion helps determination of the true and fair view of the financial position
and operating results of the enterprise. The user, however, should not assume that the
auditor‘s opinion is an assurance as to the future viability of an enterprise or the
efficiency or effectiveness with which the management has conducted the affairs of

20
the enterprise‖. So it follows from above that it is no part of the auditor‘s duty to
probe into the propriety of business conduct. This contention has been held perfectly
valid as it has been asserted that the conventional financial audit is concerned with
examination of the transactions to ascertain the true and fair nature of the financial
statements. The auditor is merely concerned with evaluating the evidence in support
of transactions but need not examine the regularity and prudence of various decisions
taken by the management.

However, of late, this has undergone a change as some of the requirements of law
introduced in the past require the company auditor to go beyond the functions of
reporting and express an opinion about the propriety or prudence of certain
transactions in certain specific areas. Sub-sections (1A) and (4A) of the section 227 of
the Companies Act, 1956 contain various such matters. It may also be clarified that
the usage of words ―true and fair‖ is restricted to certain countries such as U.K. while
in other countries like United States the expression ―full and fair‖ is prevalent.
However both expressions aim to convey same meaning.

On a consideration of what has been discussed, it may be summed up that auditing

has the principal objective of seeing whether or not the financial statement portray a
true and fair state of affair and of reporting accordingly. An incidental and secondary,
but by no means an insignificant audit objective, flowing from the former, is detection
of errors and frauds and making recommendations to prevent their occurrence.

Errors and Frauds

Accounting is a device for collecting and presenting useful information in financial terms
about a business enterprise. It should as well be recognised that accounting data may
contain errors for a variety of reasons, and those who rely on accounting data frequently
have no way of determining for themselves the reliability of data presented. Even today
the human element is the most significant element for recording and processing the
accounting data. Human beings as they are, are always open to personal failures and
allurement. The audit objective, in the past was, primarily concerned with the detection of
errors and frauds and now, though the general audit engagement do not specifically
require their detection, they do not rule them out and in fact stipulate their detection on
the premise that no statements of account can be considered true and fair if substantial
errors and frauds remain to distort the picture.

21
 Another presumption about errors and frauds which has wide recognition, is that the audit
techniques and processes, if carried on conscientiously would bring to light errors and
frauds even though the examination was not specifically directed to reveal them.

In the context of auditor‘s role in detection of frauds, a significant development in the

sphere of management is the installation of control devices by the management to
ensure compilation of reliable statements of account. These are designed to plug the
possibilities of errors and frauds as they provide means for their early detection. It is
true that management is responsible for prevention of errors and frauds. It can be
argued that the auditor‘s role in their detection is very much conditioned by these
developments. The auditor can achieve a lot by a purposeful review of those control
systems and their operation.

While conducting audit, the auditor may come to know the area where control is not
fool proof or where control measures have not been properly operated with a view to
ensuring better control over errors and frauds. In such instances, the auditor may
provide the management with practicable suggestions for alteration or modification of
the controls and checks. This is a safety for the future. It is a matter of safety for the
business because by acting on the expert suggestions, a better assurance for obtaining
reliable accounts is there. It is a safety for the auditor, if in future he is hauled up
before the Court to defend a charge of negligence for non-detection of errors and
frauds; it would be to his defence that he had already made the management aware of
the weaknesses in the book-keeping system and procedures and the management had
failed to act on his suggestions [Re S. P. Catterson & Sons Ltd.].

If the books of account are not properly maintained and if the control system is weak,
the possibility of frauds and errors are enormous and the auditor, even with the best of
his efforts, may not be able to detect all of them. The fact is recognised by the Courts
as is obvious from a study of the various judgments. The auditor‘s performance is
judicially viewed by applying the following tests :


the auditor has exercised reasonable care and skill in carrying out his
whether
 work;


whether the errors and frauds were such as could have been detected  in the
ordinary course of checking without the aid of any special efforts;

22
 
whether theauditor had any reason to suspect the existence of the errors and
 frauds; and


might not have been
whether the error or fraud was so deep laid that the same
detected by the application of normal audit procedures.
We have so far discussed the general background and the position of the auditors as
regards errors and frauds and we know that the auditor has a certain amount of
responsibility for their detection.

We shall now analyse the causes and nature of errors and frauds. If an auditor is aware of
these, detection becomes easier in the sense that he can direct his enquiry more
objectively and plan his work having regard to general possibility of errors and frauds.

Errors and frauds both distort the true picture either by omission or by commission
but the distinction between the two lies in intent. Error is an involuntary act whereas
fraud is a deliberate act. Mautz also has classified the types of errors. These are :
 
 Self-revealing and not self-revealing
 
 Unintentional and intentional

 
Unconcealed and concealed


Affecting general ledger balances and not affecting general ledger balances.
Self-revealing errors: These are such errors the existence of which becomes apparent
in the process of compilation of accounts. A few illustrations of such errors are given

hereunder, showing how they become apparent.

From the above, it is clear that certain apparent errors balance almost automatically
by double entry accounting procedure and by following established practices that lie
within the accounting system but not being generally considered to be a part of it, like
bank reconciliation or sending monthly statements of account for confirmation.

Many other errors, however, are not revealed by either of these possibilities. If an
item of expense which should have been charged to repairs account has been charged
by mistake to the building account or if the amount of depreciation is calculated
incorrectly, there is nothing in the book-keeping system which will bring the error to
notice. Such errors are non self-revealing errors.

23
Suppose a debit entry is omitted to be posted in the ledger and there are one or more of
such omissions of credit entries which exactly compensate the effect of the former
omission, then another self-revealing error turns to be not so. Such mistakes may remain
undetected indefinitely unless measures aimed at discovering such errors are applied.

Intentional Errors or Frauds: Fraud is the word used to mean intentional error. This is
done deliberately which implies that there is an intent to deceive, to mislead or at least to
conceal the truth. It follows that other things being equal, they are more serious than
unintentional errors because of the implication of dishonesty which accompanies them.

As per AAS-4, ―Auditor‘s Responsibility to Consider Fraud and Error in an Audit of

Financial Statements‖, two types of intentional misstatements are relevant to the
auditor‘s consideration of fraud- misstatements:

Fraudulent Financial Reporting: It involves intentional misstatements or omissions of

amounts or disclosures in financial statements to deceive financial statement users.
Fraudulent financial reporting may involve:

Deception such as manipulation, falsification, or alteration of accounting records or

supporting documents from which the financial statements are prepared. For example,
in a period of rising prices, sales contract documents may be ante-dated to record
sales at prices lower than the prices at which sales have actually taken place.

Misrepresentation in, or intentional omission from, the financial statements of events,

transactions or other significant information. For example, goods sold may not be
recorded as sales but included in inventories.

Intentional misapplication of accounting principles relating to measurement,

recognition, classification, presentation, or disclosure. For example, where a
contracting firm follows the ‗completed contract‘ method of accounting but does not
provide for a known loss on incomplete contracts.

Misappropriation of Assets: It involves the theft of an entity‘s assets.

Misappropriation of assets can be accomplished in a variety of ways (including
embezzling receipts, stealing physical or intangible assets, or causing an entity to pay
for goods and services not received); it is often accompanied by false or misleading
records or documents in order to conceal the fact that the assets are missing.

24
Therefore, it is clear from the above that the ‗fraud‘ deals with intentional
misrepresentation but, ‗error‘, on the other hand, refers to unintentional mistakes in
financial information.

Intentional errors are most difficult to detect and auditors generally devote greater
attention to this type because out of long and sometimes unfortunate experience, auditors
have developed a point of view that if they direct their procedures of discovering the
more difficult intentional errors, they are reasonably certain to locate the more simple and
far more common unintentional errors on the way. The auditors have also learnt by
experience that although most people are honest under different circumstances but they
may be unable to resist temptations. When circumstances are such that the possibility of
being caught is rather remote, most people are likely to respond to temptation. This is a
well known aspect of human behaviour. Auditors while studying the possibility and
nature of fraud, must keep this always in mind and should not make any exception for
those who held high offices. Factors, like job satisfaction in terms of responsibility, trust
and reward, personal habits, temporary requirements etc., have great bearing on the
matter of commission of fraud. These things generally start in a non-consequential way-
often a subordinate staff member first borrows small amounts from the cash box to meet
his temporary difficulty and then gradually it becomes his habit to borrow in such manner
whenever he is in difficulty; when he finds that nobody has even an inkling of the matter,
he ventures with far larger amounts which on many occasions, he finds himself unable to
replace. Fraud also takes place in forms other than cash defalcation, discussed above. It
may be misappropriation of goods or manipulation of accounts with a view to presenting
a false state of affairs.

25
Detection of Fraud and Error : Duty of an Auditor

AAS-4, ―Auditors Responsibility to Consider Fraud and Error in an Audit of

Financial Statements‖, deals at length with the auditor‘s responsibilities for the
detection of material misstatements resulting from fraud and error when carrying out
an audit of financial information and to provide guidance as to the procedures that the
auditor should perform when he encounters circumstances that cause him to suspect,
or when he determines, that fraud or error has occurred. Broadly, the general
principles laid down in the AAS may be noted as under:

In planning and performing his examination, the auditor should take into consideration
the risk of material misstatement of the financial information caused by fraud or error. He
should inquire of management as to any fraud or significant error which has occurred in
the reporting period and modify his audit procedures, if necessary.

If circumstances indicate the possible existence of fraud or error, the auditor should
consider the potential effect of the suspected fraud or error on the financial
information. If the auditor believes the suspected fraud or error could have a material
effect on the financial information, he should perform such modified or additional
procedures as he determines to be appropriate.

The auditor should satisfy himself that the effect of fraud is properly reflected in the
financial information or the error is corrected in case the modified procedures performed
by the auditor confirm the existence of the fraud. In case auditor is unable to obtain
evidence to confirm or dispel a suspicion of fraud, the auditor should consider relevant
laws and regulations and may wish to obtain legal advice before rendering any report on
the financial information or before withdrawing from the engagement.

The reporting responsibilities would also include communicating with management.

When those persons ultimately responsible for the overall direction of the entity are
doubted, the auditor may seek legal advice to assist him in the determination of
procedures to follow. The auditor should also consider the implications of the
circumstances on the true and fair view which the financial statements ought to
convey and frame his report appropriately. Where a significant fraud has occurred the
auditor should consider the necessity for a disclosure of the fraud in the financial
statements and if adequate disclosure is not made, the necessity for a suitable
disclosure in his report.

26
AAS 4, ―Auditor‘s Responsibility to Consider Fraud and Error in an Audit of
Financial Statements‖, by way of example lists certain risk factors and circumstances
relating to possibility of fraud which may be considered by the auditor are dealt in the
following paragraphs.

Examples of Risk Factors Relating to Misstatements Resulting from Fraud: The

fraud risk factors identified below are examples of such factors typically faced by
auditors in a broad range of situations. However, the fraud risk factors listed below
are only examples; not all of these factors are likely to be present in all audits, nor is
the list necessarily complete. Furthermore, the auditor exercises professional
judgment when considering fraud risk factors individually or in combination and
whether there are specific controls that mitigate the risk.

27
1.5 ASPECTS TO BE COVERED IN AUDIT

The principal aspect to be covered in an audit concerning final statements of account

are the following :

1. An examination of the system of accounting and internal control to ascertain

whether it is appropriate for the business and helps in properly recording all
transactions. This is followed by such tests and enquiries as are considered
necessary to ascertain whether the system is in actual operation. These steps
are necessary to form an opinion as to whether reliance can be placed on the
records as a basis for the preparation of final statements of account.

2. Reviewing the system and procedures to find out whether they are adequate
and comprehensive and incidentally whether material inadequacies and
weaknesses exist to allow frauds and errors going unnoticed.

3. Checking of the arithmetical accuracy of the books of account by the

verification of postings, balances, etc.

4. Verification of the authenticity and validity of transaction entered into by

making an examination of the entries in the books of accounts with the
relevant supporting documents.

5. Ascertaining that a proper distinction has been made between items of capital
and of revenue nature and that the amounts of various items of income and
expenditure adjusted in the accounts corresponding to the accounting period.

6. Comparison of the balance sheet and profit and loss account or other statements
with the underlying record in order to see that they are in accordance therewith.

7. Verification of the title, existence and value of the assets appearing in the
balance sheet.

8. Verification of the liabilities stated in the balance sheet.

9. Checking the result shown by the profit and loss and to see whether the results
shown are true and fair.

10. Where audit is of a corporate body, confirming that the statutory requirements
have been complied with.

28
 11. Reporting to the appropriate person/body whether the statements of account
examined do reveal a true and fair view of the state of affairs and of the profit
and loss of the organisation.
It will thus be realised that the duties are not limited to the verification of the
arithmetical accuracy of the books of account kept by his client; he must also satisfy
himself that entries in the books are true and contain a complete record of all the
transactions of the business and these are recorded in such a manner that their real
nature is revealed. On that account, he must examine all vouchers, invoices, minutes
of directors or partners correspondence and other documentary evidence that is
available to establish the nature and authenticity of the transactions. Besides, he must
verify that there exists a proper authority in respect of each transaction; that each
transaction is correctly recorded, etc. Finally, he must verify that the form in which
the final accounts are drawn up is the one prescribed by law or is the one that
ordinarily would present a true and fair picture of state of affairs of the business.

29
 SECTION – II -
LITERATURE REVIEW

30
LITERATURE REVIEW

2.1 BASIC PRINCIPLES GOVERNING AN AUDIT

AAS-1 describes the basic principles which govern the auditor‘s professional
responsibilities and which should be complied with whenever an audit is carried out.
Compliance with the basic principles requires the application of auditing procedures
and reporting practices appropriate to the particular circumstances. The basic
principles as stated in this guideline are:

A. Integrity, objectivity and independence : The auditor should be

straightforward, honest and sincere in his approach to his professional work.
He must be fair and must not allow prejudice or bias to override his
objectivity. He should maintain an impartial attitude and both be and appear to
be free of any interest which might be regarded, whatever its actual effect, as
being incompatible with integrity and objectivity.

B. Confidentiality : The auditor should respect the confidentiality of information

acquired in the course of his work and should not disclose any such
information to a third party without specific authority or unless there is a legal
or professional duty to disclose.

C. Skills and competence : The audit should be performed and the report prepared
with due professional care by persons who have adequate training, experience and
competence in auditing. The auditor requires specialised skills and competence
which are acquired through a combination of general education, knowledge
obtained through study and formal courses concluded by qualifying examination
recognised for this purpose and practical experience under proper supervision. In
addition, the auditor requires a continuing awareness of developments including
pronouncements of the ICAI on accounting and auditing matters, and relevant
regulations and statutory requirements.

D. Work performed by others : When the auditor delegates work to assistants or

uses work performed by other auditors and experts he continues to be responsible
for forming and expressing his opinion on the financial information. However, he
will be entitled to rely on work performed by others, provided he exercises
adequate skill and care and is not aware of any reason to believe that he should
not have so relied. In the case of any independent statutory

31
 appointment to perform the work on which the auditor has to rely in forming
his opinion, as in the case of the work of branch auditors appointed under the
Companies Act, 1956 the auditor‘s report should expressly state the fact of
such reliance. The auditor should carefully direct, supervise and review work
delegated to assistants. The auditor should obtain reasonable assurance that
work performed by other auditor or experts is adequate for his purpose.

E. Documentation : The auditor should document matter which are important in

providing evidence that the audit was carried out in accordance with the basic
principles.

F. Planning : The auditor should plan his work to enable him to conduct an
effective audit in an efficient and timely manner. Plans should be based on a
knowledge of the client‘s business. Plans should be made to cover, among
other things :

a. acquiring knowledge of the client‘s accounting system, policies and

internal control procedures;

b. establishing the expected degree of reliance to be placed on internal

control;

c. determining and programming the nature, timing, and extent of the

audit procedures to be performed; and

d. co-ordinating the work to be performed.

Plans should be further developed and revised as necessary during the course
of the audit.

G. Audit Evidence : The auditor should obtain sufficient appropriate audit

evidence through the performance of compliance and substantive procedures
to enable him to draw reasonable conclu- sions therefrom on which to base his
opinion on the financial information. Compliance procedures are tests
designed to obtain reasonable assurance that those internal controls on which
audit reliance is to be placed are in effect. Substantive procedures are designed
to obtain evidence as to the completeness, accuracy and validity of the data
produced by the accounting system.

32
 They are of two types :

1. test of details of transactions and balances; and

2. analysis of significant ratios and trends including the resulting enquiry of

unusual fluctuations and items.

H. Accounting System and Internal Control : Management is responsible for

maintaining an adequate accounting system incorporating various internal
controls to the extent appropriate to the size and nature of the business. The
auditor should reasonably assure himself that the accounting system is
adequate and that all the accounting information which should be recorded has
in fact been recorded. Internal controls normally contribute to such assurance.
The auditor should gain an understanding of the accounting system and related
controls and should study and evaluate the operation of those internal controls
upon which he wishes to rely in determining the nature, timing and extent of
other audit procedures. Where the auditor concludes that he can rely on certain
internal controls, his substantive procedures would normally be less extensive
than would otherwise be required and may also differ as to their nature and
timing.

I. Audit conclusions and reporting : The auditor should review and assess the
conclusions drawn from the audit evidence obtained and from his knowledge
of business of the entity as the basis for the expression of his opinion on the
financial information. This review and assessment involves forming an overall
conclusion as to whether :

a. the financial information has been prepared using acceptable

accounting policies, which have been consistently applied;

b. the financial information complies with relevant regulations and

statutory requirements;

c. there is adequate disclosure of all material matters relevant to the

proper presentation of the financial information, subject to statutory
requirements, where applicable.

33
 The audit report should contain a clear written opinion on the financial
information and if the form or content of the report is laid down in or
prescribed under any agreement or statute or regulation, the audit report
should comply with such requirements. An unqualified opinion indicates the
auditor‘s satisfaction in all material respects with the matters stated above or
as may be laid down or prescribed under the agreement or statute or regulation
as the case may be.

When a qualified opinion, adverse opinion or a disclaimer of opinion is to be

given or reservation of opinion on any matter is to be made, the audit report
should state the reasons therefor.

2.2 SCOPE OF AUDIT

The scope of an audit as described in AAS-2 on ―Objective and Scope of the Audit of
Financial Statements‖ is reproduced below :

The scope of an audit of financial statements will be determined by the auditor for
having regard to the terms of the engagement, the requirement of relevant legislation
and the pronouncements of the Institute. The terms of engagement cannot, however,
restrict the scope of an audit in relation to matters which are prescribed by legislation
or by the pronouncements of the Institute.

The audit should be organized to cover adequately all aspects of the enterprise as far
as they are relevant to the financial statements being audited. To form an opinion on
the financial statements, the auditor should be reasonably satisfied as to whether the
information contained in the underlying accounting records and other source data is
reliable and sufficient as the basis for the preparation of the financial statements. In
forming his opinion, the auditor should also decide whether the relevant information
is properly disclosed in the financial statements subject to statutory requirements,
where applicable. The auditor assesses the reliability and sufficiency of the
information contained in the underlying accounting records and other source data by :

1. making a study and evaluation of accounting systems and internal controls on

which he wishes to rely and testing those internal controls to determine the
nature, extent and timing of other auditing procedures; and

34
 2. carrying out such other tests, enquiries and other verification procedures of
accounting transactions and account balances as he considers appropriate in the
particular circumstances.
The auditor determines whether the relevant information is properly disclosed in the
financial statements by :

1. comparing the financial statements with the underlying accounting records and
other source data to see whether they properly summarize the transactions and
events recorded therein; and

2. considering the judgments that management has made in preparing the financial
statements accordingly, the auditor assessees the selection and consistent
application of accounting policies, the manner in which the information has
been classified, and the adequacy of disclosure.
In forming his opinion on the financial statements, the auditor follows procedures
designed to satisfy himself that the financial statements reflect a true and fair view of
the financial position and operation results of the enterprise. The auditor recognizes
that because of the test nature and other inherent limitations of an audit together with
inherent limitations of any system of internal control, there is an unavoidable risk that
some material misstatements may remain undiscovered. While in many situations the
discovery of material misstatement by management may often arise during the
conduct of the audit, such discovery is not the main objective of audit nor is the
auditor‘s programme of work specifically designed for such discovery. The audit
cannot, therefore, be relied upon to ensure the discovery of all frauds or errors but
where the auditor has any indication that some fraud or error may have occurred
which could result in material misstatement, the auditor should extend his procedures
to confirm or dispel his suspicions.

The auditor is primarily concerned with items which either individually or as a group
are material in relation to the affairs of an enterprise. However, it is difficult to lay
down any definite standard by which materiality can be judged. Material items are
those which might influence the decisions of the user of the financial statements. It is
a matter in which a decision is arrived at on the basis of the auditor‘s professional
experience and judgment.

35
2.3 INHERENT LIMITATIONS OF AUDIT

At this stage, it must be clear that the objective of an audit of financial statements is to
enable an auditor to express an opinion on such financial statements. In fact, it is the
auditor‘s opinion which helps determination of the true and fair view of the financial
position and operating results of an enterprise. It is very significant to note that the
AAS-2 makes it a subtle point that such an opinion expressed by the auditor is neither
an assurance as to the future viability of the enterprise nor the efficiency or
effectiveness with which management has conducted affairs of the enterprise. Further,
the process of auditing is such that it suffers from certain inherent limitations, i.e., the
limitation which cannot be overcome irrespective of the nature and extent of audit
procedures. It is very important to understand these inherent limitations of an audit
since understanding of the same would only provide clarity as to the overall
objectives of an audit. The inherent limitations are :

1. First of all, auditor‘s work involves exercise of judgment, for example, in

deciding the extent of audit procedures and in assessing the reasonableness of
the judgment and estimates made by the management in preparing the
financial statements. Further much of the evidence available to the auditor can
enable him to draw only reasonable conclusions therefrom. The audit evidence
obtained by an auditor is generally persuasive in nature rather than conclusive
in nature. Because of these factors, the auditor can only express an opinion.
Therefore, absolute certainty in auditing is rarely attainable. There is also
likelyhood that some material misstatements of the financial information
resulting from fraud or error, if either exists, may not be detected.

2. The entire audit process is generally dependent upon the existence of an

effective system of internal control. Further, it is clearly evident that there
always be some risk of an internal control system failing to operate as
designed. No doubt, internal control system also suffers from certain inherent
limitations. Any system of internal control may be ineffective against fraud
involving collusion among employees or fraud committed by management.
Certain levels of management may be in a position to override controls; for
example, by directing subordinates to record transactions incorrectly or to
conceal them, or by suppressing information relating to transactions.

36
2.4 AUDITING AND INVESTIGATION

To understand auditing in its correct perspective, one should know how auditing is
distinct from investigation.

Auditing is different from investigation which is another significant service, a

professional accountant renders. Investigation is a critical examination of the accounts
with a special purpose. For example if fraud is suspected and an accountant is called
upon to check the accounts to whether fraud really exists and if so, the amount
involved, the character of the enquiry changes into investigation. Investigation may be
undertaken in numerous areas of accounts, e.g., the extent of waste and loss,
profitability, cost of production, etc. It normally concerns only specified areas, but at
times, it may involve the whole field of accounting. Its essence lies in going into the
matter with some pre-conceived notion suited to the objective. The techniques fit the
circumstances of the case. For auditing on the other hand, the general objective is to
find out whether the accounts show a true and fair view.

Audit never undertakes discovery of specific happenings and is never started with a
pre-conceived notion about the state of affairs. The auditor seeks to report what he
finds in the normal course of examination of the accounts adopting generally followed
techniques unless circumstances call for a special probe : fraud, error, irregularity,
whatever comes to the auditor‘s notice in the usual course of checking, are all looked
into in depth and sometimes investigation results from the prima facie findings of the
auditor.

37
2.5 TYPES OF AUDIT

Audit is not legally obligatory for all types of business organisations or institutions.
On this basis audits may be of two broad categories i.e., audit required under law and
voluntary audits.

1. Audit required under law: The organisations which require audit under law are
the following:

a. companies governed by the Companies Act, 1956;

b. banking companies governed by the Banking Regulation Act, 1949.

c. electricity supply companies governed by the Electricity Supply Act,

1948;

d. co-operative societies registered under the Co-operative Societies Act,

1912;

e. public and charitable trusts registered under various Religious and

Endowment Acts;

f. corporations set up under an Act of Parliament or State Legislature

such as the Life Insurance Corporation of India.

g. Specified entities under various sections of the Income-tax Act, 1961.

2. In the voluntary category are the audits of the accounts of proprietary entities,
partnership firms, Hindu undivided families, etc. In respect of such accounts,
there is no basic legal requirement of audit. Many of such enterprises as a matter
of internal rules require audit. Some may be required to get their accounts audited
on the directives of Government for various purposes like sanction of grants,
loans, etc. But the important motive for getting accounts audited lies in the
advantages that follow from an independent professional audit. This is perhaps
the reason why large numbers of proprietary and partnership business get their
accounts audited. Government companies have some special features
which will be seen later.
As already stated, the auditor should get the scope of his duties and responsibilities
defined by obtaining instructions in writing. Also it is always a wise precaution to state in
the report, accompanying the balance sheets of proprietary or partnership firms or

38
other similar organisations, the nature of the work carried out and explain the
important features of the financial statements on which a report has been made.
Furthermore, to ensure that the report will be brought to the notice of all concerned,
the accounts should bear reference to the report.

A special reference is necessary for non-profit making institutions like schools, clubs,
hospitals. Most of these have some internal rules to govern their affairs and generally
a provision about the requirement of audit is inserted. Activity in the nature of
business is not altogether ruled out as a club may sell drinks and eatables to the
members and their guests or a school may have endowed agricultural property to yield
income. What makes them distinct, is the absence of the question of division of profit
: any surplus which may arise can only be used for achieving the objects of the
institution. Educational institutions, hospitals, associations, etc., irrespective of any
internal rules, get their accounts audited because most of them enjoy government or
municipal grants and, generally, for this purpose audited accounts are insisted upon.

Trust, however, stands on a slightly different footing; these may be public trusts or
private trusts. Trusts can carry on business as well. In the majority of cases trustees
are private persons. Trusts generally have two classes of beneficiaries; tenants for life
and remainders; persons to whom the accounts is of the supreme importance are often
widows and minors, who cannot criticise the accounts in any effective manner.
Though audit of trusts, except for public trusts, is not compulsory most of the trust
deeds contains a clause for audit of accounts. Private trustees also recognise the
advantages of audit in their own interest, since any erroneous treatment in the
accounts for which they might be personally liable will be pointed out by the auditor.

39
2.6 ADVANTAGES OF AN INDEPENDENT AUDIT

The fact that audit is compulsory by law, in certain cases by itself should show that
there must be some positive utility in it. The chief utility of audit lies in reliable
financial statements on the basis of which the state of affairs may be easy to
understand. Apart from this obvious utility, there are other advantages of audit. Some
or all of these are of considerable value even to those enterprises and organisations
where audit is not compulsory, these advantages are given below :

It safeguards the financial interest of persons who are not associated with the
management of the entity, whether they are partners or shareholders.

It acts as a moral check on the employees from committing defalcations or

embezzlement.

Audited statements of account are helpful in settling liability for taxes,

negotiating loans and for determining the purchase consideration for a business.

These are also useful for settling trade disputes for higher wages or bonus as
well as claims in respect of damage suffered by property, by fire or some other
calamity.

An audit can also help in the detection of wastages and losses to show the
different ways by which these might be checked, especially those that occur due
to the absence or inadequacy of internal checks or internal control measures.

Audit ascertains whether the necessary books of account and allied records
have been properly kept and helps the client in making good deficiencies or
inadequacies in this respect.

As an appraisal function, audit reviews the existence and operations of various

controls in the organisations and reports weaknesses, inadequacies, etc., in
them.

Audited accounts are of great help in the settlement of accounts at the time of
admission or death of partner.

Government may require audited and certified statement before it gives

assistance or issues a licence for a particular trade.

40
2.7 RELATIONSHIP OF AUDITING WITH OTHER DISCIPLINES

The field of auditing as a discipline in simple words involves review of various

assertions; both in financial as well as in non-financial terms, with a view to prove the
veracity of such assertions and expression of opinion by auditor on the same. Thus, it
is quite logical and natural that the function of audit can be performed if and only if
the person also possesses a good knowledge about the fields in respect of which he is
conducting such a review.

Auditing and Accounting

It has been pointed out earlier that both accounting and auditing are closely related with
each other as auditing reviews the financial statements which are nothing but a result of
the overall accounting process. It naturally calls on the part of the auditor to have a
thorough and sound knowledge of general- ly accepted principles of accounting before he
can review the financial statements. In fact, auditing as a discipline is also closely related
with various other disciplines as there is lot of linkages in the work which is done by an
auditor in his day-to-day activities. To begin with, it may be noted that the discipline of
auditing itself is a logical construct and everything done in auditing must be bound by the
rules of logic. Ethical precepts are the foundations on which the foundation of the entire
accounting profession rests. The knowledge of language is also considered essential in the
field of auditing as the auditor shall be required to communicate, both in writing as well
as orally, in day-to-day work.

Auditing and Law

The relationship between auditing and law is very close one. Auditing involves
examination of various transactions from the view point of whether or not these have
been properly entered into. It necessitates that an auditor should have a good
knowledge of business laws affecting the entity. He should be familiar with the law of
contracts, negotiable instruments, etc. The knowledge of taxation laws is also
inevitable as entity is required to prepare their financial statements taking into account
various provisions affected by various tax laws

41
Auditing and Economics

As is well known, accounting is concerned with the accumulation and presentation of

data relating to economic activity. Though the concept of income as put forward by
economists is different as compared to the accountants concept of income, still, there
are lot of similar grounds on which the accounting has flourished. From the auditing
view point, the auditors are more concerned with Micro economics rather than with
the Macro economics. The knowledge of Macro economics should include the nature
of economic force that affect the firm, relationship of price, productivity and the role
of Government and Government regulations. Auditor is expected to be familiar with
the overall economic environment in which his client is operating.

Auditing and Behavioural Science

The discipline of behavioural science is also closely linked with the subject of auditing.
While it may be said that an auditor, particularly the financial auditor, deals basically
with the figures contained in the financial statements but he shall be required to interact
with a lot of people in the organisation. As against the financial auditor, the internal
auditor or a management auditor are expected to deal with human beings rather than
financial figures. As it will be made clear in the chapter of ‗Internal Control‘ that one of
the basic elements in designing the internal control system is personnel. There it has been
made amply clear that howsoever a sound internal control structure is designed, it cannot
work until and unless the people who are working in the organisation are competent and
honest. The knowledge of human behaviour is indeed very essential for an auditor so as
to effectively discharge his duties.

Auditing and Statistics & Mathematics

With the passage of time, test check procedures in auditing have become part of
generally accepted auditing procedures. With the emergence of test check procedure,
discipline of statistics has come quite close to auditing as the auditor is also expected
to have the knowledge of statistical sampling so as to arrive at meaningful
conclusions. The knowledge of mathematics is also required on the part of auditor
particularly at the time of verification of inventories.

42
Auditing and Data Processing

Today, organisations are witnessing revolution in the field of data processing of

accounts. Many organisations are carrying out their financial accounting activities
with the help of computers which can document, record, collate, allocate and value
accounting data and information in very large quantity at very high speed. The
dependence on the accuracy of the programmed instructions given today, the
computer is able to carry out each of these activities with complete accuracy. With
such a phenomenal growth in the field of computer sciences, the auditor should have
good knowledge of the components, general capability of the system and the related
terms. In fact, EDP auditing in itself is developing as a discipline in itself.

Auditing and Financial Management

Auditing is also closely related with other functional fields of business such as
finance, production, marketing, personnel and other general areas of business
management. With the overgrowing field of auditing, the financial services sectors
occupies a dominant place in our system. While in general terms, the auditor is
expected to have knowledge about various financial techniques such as working
capital management, funds flow, ratio analysis, capital budgeting etc. The auditor is
also expected to have a fair knowledge of the institutions that comprise the market
place. The knowledge of various institutions and Government activities that influence
the operations of the financial market are also required to be understood by an auditor.

Auditing and Production

Regarding production function, it may be stated that a good auditor is one who
understands the client and his business. While carrying out the audit activity, the
auditor is required to evaluate transactions from the accounting aspect in relation to
the process through which it has passed through as accounting for by-products, joint-
products may also require to be done. The knowledge of production process shall
become more essential in case of an internal auditor. The auditor shall also require to
understand the cost system in operation in the factory and assess whether the same is
adequate for the particular company.

43
SECTION – III - RESEARCH
METHODOLOGY

44
RESEARCH METHODOLOGY

CASE STUDIES

1. THE LEEDS ESTATE BUILDING AND INVESTMENT COMPANY V.

SHEPHERD (1887)

This case was decided by Mr. Justice Stirling in the Chancery Division on 9th August,
1887.
Held, that it was an auditor‘s duty to ascertain that the accounts he certifies are correct
and that if he fails in this duty he is liable in damages for dividends wrongly paid out
of capital.
The company was formed in 1869 under the Companies Act, 1862. In 1882 it went
into voluntary liquidation and the action was brought by the company in liquidation
against the directors, the manager, and the auditor, to make them liable in respect of
certain sums paid out of capital as dividends, and for fees and bonuses to the directors
and manager respectively.
The balance sheets, which were not shown to the shareholders as required by the
articles, were found to be false and to have been prepared to enable the declaration of
a dividend. They were prepared by the manager and examined by the auditor. The
directors trusted these two officials and did not know that the accounts were
inaccurate and that dividends were paid out of capital.
The Court found the directors liable to make good the several sums paid out of capital
and that the manager and auditor were liable to the same amount; that the auditor
must not confine himself merely to the task of ascertaining the arithmetical accuracy
of the balance sheet, but must see that it was a true representation of the company‘s
affairs; that it was no excuse that the auditor had not seen the articles; that the Statute
of Limitations enabled the auditor‘s liability to be limited to dividends paid within six
years of the commencement of the action.

45
 2. LEE v. NEUCHATEL ASPHALTE COMPANY LIMITED (1889)

This case was decided in the Court of Appeal on the 9th of February, 1889, when it
was held that a company, if allowed by its articles of association, may provide for the
distribution of profits arrived at before making good the depreciation of fixed assets.

Briefly, the facts of the case were these : The action was brought by a Mr. Lee, on
behalf of himself and all the ordinary shareholders of the Neuchatel Asphalte Co. Ltd.,
against the company and the directors. The object of the action was to restrain the
payment of a dividend proposed to be declared, because, as the plaintiff contended,
proper provision had not been made for depreciation in respect of the wasting nature
of the property. The assets of the company consisted chiefly of a concession to work
at quarry, and other subsidiary rights taken over from previously existing companies,
for which fully-paid shares in the respondent company had been allotted in payment.
The accounts for the year ended 31st December, 1885, showed an excess of receipts
over expenditure to the amount of £17,140 13s. 2d., out of which, after setting aside a
sum of £1,000, in partial recoupment of a sum of £8,000 paid in 1878 for the renewal
of the concession, it was recommended by the directors, and resolved by a majority of
the shareholders, that a dividend on the preferred shares at the rate of 9s. per share
should be paid.
The Court dismissed the appeal, refusing to grant an injunction to restrain the
proposed dividend being paid.
Lord Justice Cotton, in the course of his judgment, said that in his opinion
‗it was not necessary that the directors should set apart each year a sum to answer the
supposed annual diminution of this property by reason of its wasting nature‘, and that
‗having regard to the nature and constitution of this mercantile company, he was not
satisfied that a proper provision had not been made for depreciation by the
establishment of a reserve fund, and considered that it would be wrong for the Court
to interfere to prevent the payment of the proposed dividend‘. Lord Justice Lindley, in
the course of his judgment, said :
‗It has been very judiciously and properly left to the commercial world to settle how
the accounts are to be kept. The Acts do not say what expenses are to be charged to
Capital Account and what to Revenue Account. Such matters were left to the
shareholders; they may or may not have a sinking fund or depreciation fund, the

46
articles may or may not contain regulations on these matters; if they do, the
regulations must be observed; if they do not, the shareholders can do as they like, so
long as they do not misapply their capital. In this case one of the articles provides that
the directors shall not be bound to reserve moneys for the renewal or replacing of any
lease or of the company‘s interest in any property or concession. But if a company is
formed to acquire or work property of a wasting nature—
e.g., a mine, quarry, or patent—the capital expended in acquiring the property may be
regarded as sunk and gone, and if the company retains assets sufficient to pay its
debts, any excess of money obtained by working the property over the cost of working
it may be divided among the shareholders; and this is true, although some portion of
the property itself is sold, and in one sense the capital is thereby diminished. If it be
said that such a course involves payment of dividends out of capital, the answer is that
the Acts nowhere prohibit such a payment as is here supposed. In the present case

the articles say there need be no sinking fund; consequently, capital lost need not be
replaced; nor, having regard to these articles, need any loss of capital by removal of
bituminous earth appear in the Profit and Loss Account of the working of the
company‘s property.‘
Lord Justice Lopes, in his judgment, referred to the article providing that the directors
should not be bound to reserve moneys for the renewal or replacing of any lease or of
the company‘s interest in any property or concession and proceeded :
‗Unless this article is ultra vires no question arises. Is the article ultra vires? I know
of no obligation imposed by law or statute to create a reserve fund out of revenue to
recoup the wasting nature of capital. Subject to any provision to the contrary
contained in the articles, I believe the disposition of the revenue is entirely in the
hands and under the control of the company.‘

47
 3. BOLTON v. THE NATAL LAND AND COLONISATION COMPANY
LIMITED (1891) (92 L.T. Rep. 109)

This case was decided before Mr. Justice Romer in the Chancery Division on the 8th,
9th and 10th of December, 1891.
In 1882 the company in question, under peculiar circumstances, debited their Profit
and Loss Account with £70,000 in writing off a certain bad debt, and per contra,
credited the same Profit and Loss Account with a sum of nearly £70,000 in respect of
an increase in value attributed to their lands in South Africa above and beyond the
cost price at which such lands previously stood in the books, the result being to make
the profit and loss practically balance each other upon the year‘s accounts. The
company having subsequently earned a working profit, declared a dividend thereout,
in respect of the year 1885. Thereupon the plaintiff, in an action commenced in 1886
to restrain the payment of such dividend, contended that at the time the value of the
lands was written up in 1882 they were valued, and now stood, at an amount
considerably exceeding their true value, and that, before a profit could be deemed to
have been made which would be properly available for the payment of a dividend, the
lands in question must be written down to their true value, and the difference debited
to Profit and Loss Account in the same way as the supposed increase had been
credited to Profit and Loss Account for the year 1882.
It was held by Mr. Justice Romer that, assuming that a part of the capital had in fact
been lost, and not subsequently made good, no sufficient ground was thereby afforded
for restraining the payment of the dividend; that the fact of the company having
written up the value of their land in 1882, and credited the increase to the profit of that
year in the manner described, did not place them under any obligation to bring into
account in every subsequent year the increase or decrease in the value of their lands;
and that, having regard to the case of Lee v. Neuchatel Asphalte Co. Ltd., it was not
correct, in estimating the profits of a year, to take into account the increase or
decrease in the value of the capital assets of the company.

48
 4. LUBBOCK v. THE BRITISH BANK OF SOUTH AMERICA LIMITED
(1892)

This case was decided before Mr. Justice Chitty, in the Chancery Division, on 1st
April, 1892, when it was held that, if a company‘s articles of association so provide, a
profit made on the sale of a part of the undertaking is available for dividend.
The case was a motion by the plaintiff on behalf of himself and all the other
shareholders of the defendant company to restrain the company from acting upon or
carrying into effect a resolution passed by the directors of the company placing a sum
of £205,000 to the credit of the Profit and Loss Account, and from dealing with or
distributing the same as if it were the income of the company. The £20,000 in
question was a realised profit made by the company on the sale of a part of its
undertaking to another concern. The action was a friendly one, both parties being
desirous of obtaining the opinion of the Court.
It was held by Mr. Justice Chitty that the £205,000 was plainly profit on capital, and
not part of the capital itself, for that sum was the surplus ascertained on the assets
aside after the liabilities and capital were placed on one side of the account and the
assets on the other. Under the articles of the company the directors were justified in
carrying over the £205,000 to a Profit and Loss Account, and having appropriated to
the reserve fund so much of the sum as they thought fit they could distribute the
remainder as dividends after an ordinary meeting called in pursuance of the articles
had passed the requisite resolution.

49
SECTION – IV - DATA
ANALYSIS AND
INTERPRETATIONS

50
DATA ANALYSIS AND INTERPRETATIONS

1. Who can be Auditor?

Person No. of Respondents
Chartered Accountant (CA) 65
Company Secretory (CS) 35
Total 100

Gender

CS
35%

CA CS

CA
65%

Interpretation:

In this study 65% Respondents are CA and 35% Respondent CS.

51
 2. Which Audit Firm You Know?
Audit Firm No. of Respondents
Ernst & Young (EY) 20
Deloitte & Touche 30
Arthur Andersen 11
KPMG 39
Total 100

Audit Firm
Ernst & Young
(EY) Ernst &
20% Young (EY)
Deloitte &
KPMG Touche
39% Arthur
Andersen
KPMG

Deloitte & Touche

30%

Arthur Andersen
11%

Interpretation:

According to this chart out of 100 people the most are knowing KPMG that‘s is 39
people, after that Deloitte & touche that‘s is 30 people, after that Ernst & Young
that‘s is 20 people, and only 11 people know about Arthut Andersen.

52
 3. Who will Appoint Auditor in Company?
Person No. of Respondents
Board of Directors 27
Shares Holders 52
Security Holders 21
Total 100

Qualification
Security Holder
21% Director
27%
Director

Share
Holder
Security
Holder

Share Holder
52%

Interpretation:

Out of 100 person 52 People think that Auditor will be appointed by Shares Holders,
27 people thinks that Auditor will be appointed by Boards of Directors and remaining
21 people thinks Security Holders.

53
 4. What is position of Auditor in Organisation?
Position No. of Respondents
Employee 8
Director 43
No One 49
Total 100

Position
Employee
8%

Employee

No One Director
49%
Director
43%
No One

Interpretation:

In Position Group out of 100 people, 43% are belong to Lower level, 43% are belong
to Middle Level, and only 8% are belong to Top Level.

54
 5. Do you feel to be an Auditor?
Feel Auditor No. of Respondents
Yes 66
No 34
Total 100

Feel Auditor

Yes
No
34%

No

Yes
66%

Interpretation:

As per Research 66% feel to become Auditors, and 34% don‘t feel to become Auditors.

55
 6. Are Auditor permitted to use their own creativity in performing their
assigned job?
Creativity Allowed No. of Respondents
Yes 74
No 26
Total 100

Creativity Allowed

No
26%

Yes No

Yes
74%

Interpretation:

From the above Pie Chart it can be inferred that out of 100 people, 74% Auditors Feel
that creativity allowed at work place and 26% Auditors not feel same.

56
 7. How Much Salary you Expect as an Auditor
Expectation No. of Respondents
Below 100,000 8
100,000 – 150,000 19
150,000 – 175,000 36
175,000 – 200,000 25
Above 200,000 12
Total 100

Expectation
Above 200,000, Below 100,000
8% Below 100,000
12%

100,000 -
100,000 - 150,000 150,000
19%
150,000 -
175,000
175,000 -
175,000 -
200,000, 25%
200,000
Above 200,000

150,000 -
175,000, 36%

Interpretation:

Out of above figure highest expectation salary group is 150,000-175,000, i.e. 36% and
lowest expectation group is above 200,000, i.e. only 12%.

57
 8. Auditor Give accurate and error free report?
Satisfy No. of Respondents
Yes 45
No 55
Total 100

Accurate

Yes
Yes
45%

No No
55%

Interpretation:

From the above Chart it is inferred that 45% People think that auditor give accurate
and error free report and 55% are not think so.

58
 9. Auditor can withdraw his concern at between the audit?
Job Changing No. of Respondents
Yes 40
No 60
Total 100

Job Changing

Yes Yes
40%

No
No
60%

Interpretation:

Out of 100 People, 40% has thinking auditor can not withdraw his concern, and 60%
are thinking that auditor can withdraw his concern.

59
 SECTION – V -
CONCLUSION
AND REFERENCES

60
 CONCLUSION

The word audit is derived from the Latin word audire which means to hear. It is an
important tool of management. It is concerned with making an analytical and critical
analysis of the books of accounts, checking and verification of evidence in support of
entries appearing in the books of accounts, and ascertaining the authenticity of the
financial statements. It is also concerned with the examination of accounting data to
determine the extent of an audit examination is too made on the basis of evidential
document such as invoice, money receipts and other records by the authorized
representative of the client. Auditor has used to send for the accountants and hear
whatever they had to say in connection with the accounts. The auditor has to look in
to the facts behind figures and he must certify their accuracy. Auditing is to ascertain
the balance sheet and profit and loss account that they show a true and fair view of the
financial state of affairs of a concern. The Institute of Charted Accountants of India
has issued a number of statements of standard auditing practices and accounting
standards for guidance of Auditor of India.

Auditing has its origin in the necessity in the development of some system to put a check
on the persons whose duties were to record receipts and disbursements of money on the
behalf of owners. In the ancient days auditing was confined to public accounts only. With
the development of trade and commerce, the need for recording transactions was felt by
businessman. This had necessitated the development of some system of
check upon the persons who recorded such transactions on the behalf of
businessman.The audit in its present shape is the result of large-scale production
inconsequence of Industrial Revolution during the 18th Century. With
the development
of banking facilities, communication and transport means, the concept of corporatema
nagement has taken birth. It necessitated the investors to know whether their
investment is safe or not. Shareholders need an independent person having expert
knowledge of accounts to report on the working of the company and truthfulness of
the profit or loss and financial position disclosed by the management.

61
The goal of an audit is to form and express an opinion on financial statements. The
audit is performed to get reasonable assurance on whether the financial statements are
free of material misstatement. An audit also includes assessing the accounting
principles used and the significant estimates made by the management. Audit
conclusions and reporting are one of the principles governing an audit. Reporting is
the last procedure of the process of an audit.

STEPS INVOLVED IN REPORTING

An audit involves the following steps: Gathering of audit evidence, evaluation of the
evidence, deciding on their reliability and acceptability, drawing a conclusion based on
such evaluations, forming an opinion based on a set of conclusions and expressing an
opinion. The auditor should get sufficient and appropriate audit evidence both at the
transaction level, as well as the account level. He should evaluate the adequacy of the
evidence in his possession, both in terms of quality and quantity. The auditor should draw
a conclusion on each of the line items of the financial statements, based on the
transactions examined by him. A set of conclusions, on such line items, leads to forming
an opinion on the financial statements as a whole, both at the transaction level as well as
at the account level, which, he should express in his report without any fear or favour.

Gathering of audit evidence: An auditor should be thorough in his efforts to gather

the audit evidence, and be impartial in its evaluation. Substantive procedures such as
enquiry, information, confirmation, observation, compilation, verification and
valuation, etc. are used to substantiate the transactions. Carrying out such procedures
on a reasonable number of transactions provides a basis for drawing a conclusion on a
particular head of account (line item). Having gathered the audit evidence by
substantive procedures, the auditor should ensure that the entity has complied with the
necessary requirements such as requirements of law, applicable Accounting Standards
issued by the ICAI/ NACAS , accounting policies adapted by the entity from time to
time, and internal control systems.

Evaluation of audit evidence: Having gathered the audit evidence, the auditor goes
through the evidence with a fine-toothed comb to properly evaluate it, judge their
reliability and draw logical conclusions. He has to document the reasons for accepting
or rejecting certain replies and reports.

62
Analysis of evidence: The auditor uses analytical procedures such as accounting
ratios, analyses; intercompany comparisons, comparing the industry norm with the
data of the unit, etc. to analyse the data.

Audit conclusions: Such analyses help the auditor to draw conclusions regarding
various aspects of the line items of the financial statements. These conclusions should
be independent and factual, and not based on assumptions. A set of such conclusions
leads to forming an opinion.

Compliance with code of conduct: Professional ethics of the ICAI hold an auditor
guilty of professional misconduct for negligence if he doesn't gather enough evidence
to justify his opinion. He would be liable if the evidence in his possession is
contradictory to the opinion expressed by him. This makes drawing a conclusion a
critical aspect of an audit.

EXPRESSION OF OPINION

The auditor discusses his observations with those charged with governance, such as the
audit committee of the company, before finalising the report. The auditor should be firm
in his opinion, and exercise his independence at this level. This part of the audit is critical,
and calls for resilience on the part of the auditor. An audit report, being a public
document, should be drafted skilfully. The code of conduct prohibits an auditor from
divulging any information received by him in the course of his professional assignment,
unless legally required so to do. Therefore, the auditor shouldn't hesitate to take the help
of a legal expert on whether to include certain comments in his report.

63
REFERENCES

1. www.icai.org

2. Audit and Assurance study material issue by ICAI

3. Power, Michael. 1999. The Audit Society: Rituals of Verification. Oxford:

Oxford University Press.

4. ^ "Audit assurance".

5. ^ Loeb, Stephen E.; Shamoo, Adil E. (1989-09-01). "Data audit: Its place in
auditing". Accountability in Research. 1 (1): 23–32.
doi:10.1080/08989628908573771. ISSN 0898-9621. PMID 26859053.

6. ^ Assurance, Auditing and. ICAI - The Institute of Chartered Accountants of

India. Chapter 1, Volume 1: Institute of Chartered Accountants of India. p. 1.

7. ^ Derek Matthews, History of Auditing (2006-09-27). The changing audit

process from the 19th century till date. Routledge-Taylor & Francis Group. p.
6. ISBN 9781134177912.

8. ^ C. A., Moyer (January 1951). "Early Developments in American Auditing".

Accounting Review. 26 (1): 3–8. JSTOR 239850.

9. ^ Michael, Chatfield (1974). "A History of Accounting Thought". Business

History Review. 49.

10. ^ McKenna, Francine. "Auditors and Audit Reports: Is The Firm's "John
Hancock" Enough?". Forbes. Retrieved 22 July 2011.

11. ^ "CONCEPT RELEASE ON POSSIBLE REVISIONS TO PCAOB

STANDARDS RELATED TO REPORTS ON AUDITED FINANCIAL
STATEMENTS" (PDF). Retrieved 22 July 2011.

64
SECTION – VI - APPENDIX

65
APPENDIX

5.1 Questioners

Questionnaire

Personal Details:

a. Name : _________________________________

b. Gender :

i. Male

ii. Female

c. Age : ___________

d. Qualification:

i. Graduation/PG

ii. Under Graduate

iii. Others ___________________

1. Who can be Auditor?

a. Chartered Accountant

b. Company Secretory

66
 2. Which Audit Firm you know?

a. Ernst & Young (EY)

b. Deloitte & Touche

c. Arthur Andersen

d. KPMG

3. Who will Appoint Auditor in Company?

a. Board of Directors

b. Shares Holders

c. Security Holders

4. What is position of Auditor in Organisation?

a. Employee

b. Director

c. No One

5. Do you feel to be an Auditor?

a. Yes

b. No

67
6. Are Auditor permitted to use their own creativity in performing their assigned
job?

a. Yes

b. No

7. How much salary you expect as an Auditor?

a. Below 100,000

b. 100,000 – 150,000

c. 150,000 – 175,000

d. 175,000 – 200,000

e. Above 200,000

8. Auditor give Accurate and Error Free Report?

a. Yes

b. No

9. Auditor can withdraw his concern at between the Audit?

a. Yes

b. No

68