Page 28 - DCOM204_AUDITING_THEORY

Auditing Theory

Notes The Institute of Chartered Accountants of India has recognized the training and examinations of
the Institute of Chartered Accountants in England and Wales, the Institute of Chartered
Accountants of Scotland, and the Institute of Chartered Accountants in Ireland as being equivalent
to the training and examination prescribed for its members. As a result, members of these three
institutes are also eligible to become members of the Indian Institute, subject to their fulfilling
certain conditions, and may consequently engage in practice in India.
The need for independence in mental attitude in an auditor is recognized. However, it is not
considered improper for auditors to have a financial interest in a company on which they report.
If, however, the auditor has a substantial interest in the company’s finances, the Chartered
Accountants Act 1949 requires that this be disclosed. The phrase “substantial interest” has been
defined by the Act, as a holding of shares carrying not less than 20 percent of the voting power
beneficially either by the member or jointly with relatives. Members of the Institute are also
required to adhere to a code of professional ethics, failing which they are deemed guilty of
professional misconduct and are subject to disciplinary action.

Did u know? Accounting and Auditing practice in India is derived largely from practice in
the United Kingdom. However, with the introduction of the Manufacturing and Other
Companies (Auditors’ Report) Order, 1988 [see the sample Auditor’s Report (Caselet)]
various other enactments in the Companies Act and other legislation connected with such
things as employee remuneration, auditing practice in India is gradually becoming more
independent. And the demands made by the Government, the public and other agencies
on the auditors are far greater than before. For the guidance of its members, the Indian
Institute from time-to-time published briefs on various matters relating to auditing and
accounting practices.
2.6 Auditing Standards

The Institute of Chartered Accountants of India (ICAI) is a member of the International Federation
of Accountants (IFAC), and the Auditing Practices Committee (APC) of the Indian Institute is
committed to giving due consideration to the auditing guidelines issued by the International
Auditing Practices Committee of IFAC and integrating them to the extent possible with the Indian
Auditing Standards being issued by APC, in the light of conditions and practices prevailing in
India.

The Institute of Chartered Accountants of India was set up in 1949 to regulate the profession of
chartered accountancy in India. Since its establishment, the Institute has taken numerous steps to
ensure that its members discharge their duties with due professional care, competence and
sincerity. One of the steps is the establishment of the Auditing Practices Committee, or the
Auditing and Assurance Standards Board, as it is now known in September, 1982.
One of the main objectives of the Board is to issue auditing standards. Accordingly, the Board
issues Statements on Standard Auditing Practices and Auditing and assurance Standards under
the authority of the Council.

2.6.1 Underlying Principle of Auditing Standards

In simplest possible terms, auditing standards represent a codification of the best practices of the
profession, which are already existing. Auditing standards help the members in proper and
optimum discharge of their profession duties. Auditing standards also promote uniformity in
practice as also comparability.

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