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Unit 6: Laws and Regulations in Audit

2. Payment for unspecified services or loans to consultants, related parties, employees or Notes
government employees.
3. Sales commission or agent’s fees that appear excessive in relation to those ordinarily paid
by the entity or in its industry or to those ordinarily paid by the entity or in its industry or
to the services actually received.

4. Purchases at prices significantly above or below market price.
5. Unusual payments in cash and other unusual transactions.
6. Unusual transactions with companies registered in tax havens.
7. Payments for goods or services made other than to the country from which the goods or
services originated.
8. Payments without proper exchange control documentation.
9. Existence of an accounting system which fails, whether by design or by accident, to provide
an adequate audit trail or sufficient evidence.
10. Unauthorized transactions or improperly recorded transactions.
11. Media comment.

6.8 Audit and Accounting Standards

Accounting Standards are the statements of code of practice of the regulatory accounting bodies
that are to be observed in the preparation and presentation of financial statements. In layman
terms, accounting standards are the written documents issued by the expert institutes or other
regulatory bodies covering various aspects of measurement, treatment, presentation and
disclosure of accounting transactions.

Notes The Institute of Chartered Accountants of India (ICAI) recognizing the need to
harmonize the diverse accounting policies and practices at present in use in India
constituted Accounting Standards Board (ASB) on April 21, 1977. The main role of ASB is to
formulate Accounting Standards from time-to-time.
When an auditor conducts the audit of accounts of a business entity such as a company there are
three fundamental accounting assumptions that he must keep in mind. These are laid down by
the Accounting Standard (AS-I) prescribed by the Institute of Chartered Accountants of India.
These fundamental accounting assumptions are as follows: (1) Going Concern, (2) Consistency,
and (3) Accrual. The above mentioned accounting assumptions underlie the preparation and
presentation of financial statements. Each one of these accounting assumptions has been dealt
with in detail in this research paper.

6.8.1 Going concern as per AS-I

The definition of a going concern as given in AS-I states that “the continuance of an entity is assumed
for a foreseeable future and that there is neither an intention nor necessity of liquidation or of curtailing
materially the scale of operations”. Thus, if an entity is in a position to normally produce and sell its
goods and perform its obligations towards various bodies, whether governmental or otherwise,
then it could be called a ‘going concern’. SAP 16 has now specified that the “foreseeable period”
should be a period not exceeding one year after the balance sheet date. There may be situations
within the fundamental accounting assumptions of going concern, consistency and accrual,

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