Page 94 - DCOM204_AUDITING_THEORY

Auditing Theory

Notes depends upon the audit task in hand, problems encountered that need to be addressed
immediately, as well as, most importantly, to the degree of direction, supervision and/or
review, that is required on the auditors. The degree of professional judgement also depends
upon the auditor’s competence, expertise, professional qualifications, aptitude and level in the
hierarchy.

General quality control policies and procedures should be communicated to its personnel in a
manner that provides reasonable assurance that the policies are understood and implemented.
Quality control requires a clear understanding of where responsibility lies for particular decisions.
It should be the responsibility of everyone involved in the audit to fully identify and understand
his or her responsibility.
Quality control processes should be carried out in a prescribed way and be documented. These
processes may be supported by questionnaires and checklists in prescribed forms.

Self Assessment

Fill in the blanks:
7. ...................... defines an expert as a person or firm possessing special skill, knowledge, and
experience in a particular field other than accounting and auditing.
8. .................................... affects client business risk and the risk of material misstatement in
the financial statements.
9. External environment of a client including .......................; ....................; ................. and .................
10. .................... stresses the importance of all members of the audit team understanding the
potential risk of misstatements in each client’s financial statements.
11. To ensure efficient and effective conduct of audit assignment ..................... are used.

Case Study Internal Auditing Planning

Background
An external audit firm is conducting internal audit in an engineering company since the
last two years. The audit committee chairman had a one to one meeting with the partner–
in-charge for a review of the present internal audit reports and the internal audit process.
During the discussions, the chairman asked the internal auditor to present an annual
internal audit plan that takes into account the bigger picture rather than smaller issues and
really adds value to the business. Based on recent corporate events and the Board’s
responsibilities in the matter of Transparency and Control, the Audit Committee
Chairperson enquired with the – Chief Audit Executive – CAE, the status of implementation
of Standards of Internal Audit of ICAI.
The CAE highlighted that a Risk Based Audit Planning process is being currently followed.
However, the process has not been benchmarked against the Standards. The CAE affirmed
that the entire activity will be aligned with Indian Standards and a report presented in the
next Audit Committee.
Methodology
The internal audit function has a five member team. The internal auditor therefore has to
select projects (areas) with high risk to the organization and direct the limited resources
Contd...

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