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Superior University

ADVANCE AUDITING MID ASSIGNMENT

Submitted to: Madam Maryam Khawar Submitted by: AHSAN ULLAH 11407

MBP (B) E SAMESTER 5TH

TABLE OF CONTENT Description Page No

Dedication-------------------------------------------------------03 Acknowledgement --------------------------------------------04 ISA-200----------------------------------------------------------05-11 Audit Engagement Letter-----------------------------------11-14 ISA-230---------------------------------------------------------15-18 ISA-300---------------------------------------------------------19-23 Internal Audit--------------------------------------------------24-28 ISA-520-------------------------------------------------------- 29-31 ISA-620---------------------------------------------------------32-33 Conclusion------------------------------------------------------34

This assignment has been dedicated to our parents who help us in every aspect of our life and our teachers who always assist us like Madam Mariyum Khawar.

ACKNOWLEDGEMENT

By the grace of almighty Allah, I have been able to compile my assignment. Without his help, I cannot accomplish any objectives in our lives. The omnipotent Allah bestows this ability, knowledge, strength and competence required for this assignment to me as boons. Special acknowledgement for our respected Professor Maryam Khawar who gives opportunity to give summary on the International Auditing Standard. I am really thankful our teacher and her guidance for the completion of this assignment.

INTERNATIONAL STANDARD ON AUDITING 200

OBJECTIVE AND GENERAL PRINCIPLES GOVERNING AN AUDIT OF FINANCIAL STATEMENTS

INTERNATIONAL STANDARD ON AUDITING 200 (ISA):

This International Standard on Auditing (ISA) deals with the independent auditors overall Responsibilities when conducting an audit of financial statements in accordance with ISAs. Specifically, it sets out the overall objectives of the independent auditor, and explains the Nature and scope of an audit designed to enable the independent auditor to meet those Objectives. It also explains the scope, authority and structure of the ISAs, and includes Requirements establishing the general responsibilities of the independent auditor applicable in all audits, including the obligation to comply with the ISAs.

An Audit of Financial Statements:

The purpose of an audit is to enhance the degree of confidence of intended users in The financial statements. This is achieved by the expression of an opinion by the Auditor on whether the financial statements are prepared, in all material respects, In accordance with an applicable financial reporting framework. In the case of most General purpose frameworks, that opinion is on whether the financial statements Are presented fairly, in all material respects, or give a true and fair view in Accordance with the framework. An audit conducted in accordance with ISAs and A relevant ethical requirement enables the auditor to form that opinion.

Financial Statements Includes:

1. Balance sheet 2. Profit and loss account 3. Cash flow statements 4. Notes to the accounts 5. Statements of changes in equity 6. Any other information

Objective of an Audit of Financial Statements:

ISA 200 states there are two overall objectives of the auditor. To obtain reasonable assurance about whether the financial statements as a Whole are free from material misstatement, whether due to fraud or error, Thereby enabling the auditor to express an opinion on whether the financial Statements are prepared, in all material respects, in accordance with an Applicable financial reporting framework.' Secondly: 'To report on the financial Statements, and communicate as required by the ISAs in accordance with the Auditors findings. In addition, ISA 200 contains an objective relating to situations where Reasonable assurance cannot be obtained, in which case the auditor, depending On the circumstances, may qualify the audit opinion, or disclaim an opinion, or withdraw from the assignment.

General principles of an audit

These are the general principle of an audit. A) Ethical requirements relating to an audit of financial statement. B) Conduct of an audit in accordance with ISAs C) Plan and perform an audit with an attitude of professional skepticism.

Ethical requirements
The auditor shall comply with relevant ethical requirements, including those Pertaining to independence, related to financial statement audit engagements.' ISA 200 reminds us that the auditor is bound by one or more ethical codes, Depending on the jurisdiction in which the auditor operates. The ethical code, Including compliance with quality control measures, therefore underpins the Conduct of an audit.

1. Independence:
Auditor conducts his work independently and is not influenced or controlled by The management. Example: The auditor should not be influence by the management.

2. Integrity:
It is expected that the role of auditor with integrity, an honest person who does Not indulge in malpractices. Example: He should perform all his assign duties with integrity and honesty and Does not involve in any immoral activity.

3. Objectivity:
The auditor focuses on his work to obtain relevant information and evidence Which is only related to or assist in forming his audit opinion? This is the basic Objective of the audit. Example: The main purpose of the auditor is to conduct audit during the course Of the audit work he should have the focus only to his work and should not be Involve in any other activity.

4. Professional Competence and Due Care:

The auditor must be a chartered accountant and in certain cases cost and Management accountant. The auditor must have the proper training for the Conduct of an audit.

5. Confidentiality:
The auditor should have to keep all the information of his client. The auditor is Not allowed to disclose any information of his client to the third party except as Permitted / allowed by law. Example: The auditor should keep all the informations of his clients secret and Should not share with any other except order by law.

6. Professional Behavior:
Behavior and attitude of an auditor should reflect highest standard of Professionalism throughout the audit process. Example: the auditor should behave professionally during the course of the Audit.

7. Technical Standards:
Auditor conducts the audit in accordance with national and international Auditing standards and acceptable auditing standards.

B) Audit should conduct an Audit in Accordance with ISAs

Auditor should audit according to international standard of Audit .the auditor is also aware of international Auditing practice statements (IAPSs) applicable to the audit engagement.

C) Professional skepticism
The auditor shall plan and perform an audit with professional skepticism, recognizing that circumstances may exist which causes the financial statements to be materially misstated. The ISA explains that it is necessary to maintain an Attitude of skepticism throughout the audit, and is especially important in the Critical assessment of audit evidence.

SCOPE OF AN AUDIT
It refers to procedures that are used to achieve the objectives of audit by Auditors. For example 1. Insurance Act 1938 2. Companies Ordinance 1984 3. Baking companies ordinance 1962 4. ISAs 5. IASs

Reasonable Assurance
An auditor cannot give absolute guarantee that the statements of an Organizations are true and fair in every aspect because there are some Limitations due to followings a. The use of testing. b. The inherent limitations of internal control (for example, the possibility Of management override or collusion). c. The fact that most audit evidence is persuasive rather than conclusive.

Persuasive evidence:
Persuasive evidence is evidence that has the power to influence or persuade Someone to believe in its truth. For example stationery is purchased and Auditor checking its invoices as proof of its occurrence.

Conclusive Evidence:
Evidence is conclusive which is directly and easily verifiable. For example a building Is purchased and auditor verifies it by seeing it physically.

AUDIT RISK INHERENT RISK CONTROL RISK DETECTION RISK

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Audit Risks:
Auditors risk is the risk that the auditor may give an inappropriate opinion When the financial statements are materially misstated. Audit risk has three Components.

Inherent Risk:
Inherent risk is the susceptibility of an account balance or class of transaction to a Material misstatement either individually or when aggregated with misstatements Of other balances or classes, assuming that there were no internal controls. The Auditor should study and evaluate the degree of inherent risk in order to determine The audit plan. He should also consider other factors, which might compensate for An otherwise high degree of inherent risk.

Control Risk
Control risk is the risk that misstatements could occur in an account balance or Class of transaction and that could be material, either individually or when Aggregated with other misstatements, will not be prevented or detected and Corrected on a timely basis by the accounting and internal control system.

Detection Risk
Detection risk is the risk that an auditor's substantive procedures will not detect a Misstatement that exists in an account balance or class of transactions that could Be material, either individually or when aggregated with misstatements in other Balances or classes. There is an inverse relationship between detection risks and The combined level of inherent and control risks. Thus when inherent and control risks are high, acceptable detection risk should be Low to reduce the audit risk to an acceptably low level. It should, however, be noted That the assessed levels of inherent and control risk cannot be sufficiently low to Eliminate the need to perform substantive procedures. When the auditor Determines that the detection risk regarding material assertion in the financial Statements cannot be reduced to an acceptably low level, the auditor should Express a qualified opinion or a disclaimer of opinion as may be appropriate.

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Responsibility for the Financial Statements

The managements responsibility includes: 1. Designing, implementation and maintaining internal control relevant to the Preparation of financial statements that is free from material misstatement, Whether due to fraud or error. 2. Selecting and applying appropriate accounting policies 3. Making accounting estimates that are reasonable in the circumstances

Audit Engagement Letter

To,

The Board of Directors, ABC Company LTD, Kot lakhpat Lahore Pakistan

To, The Board of Directors, ABC Company LTD, kot lakhpat Lahore Pakistan.

Subject: Audit Engagement Letter

Dear Sir/Madam, as certified public accountants licensed to practice in Pakistan, we are pleased to confirm our understanding of the services we are to provide to your company (ABC Company LTD) for the year ended December 31, 2012.Principle contents of the audit engagement letter are as follows:

1. Object of the audit:

The objective of our audit is the expression of opinions as to whether your basic financial statements are fairly presented, in all material respects, in conformity with generally accepted accounting principles, and to report on the fairness of the additional information provided during the course of the audit.

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2.

Management Responsibilities:

Management of you company (ABC Company.)is responsible for the basic financial statements and all accompanying info, as well as all representations contained therein. You are responsible for making all management decisions and performing all management functions relating to the financial statements, schedule of expenditures, and related notes, and for accepting full responsibility for suchdecisions.Management is responsible for making all financial records and related information available to us. Management is responsible for the design and implementation of programs and controls to prevent and detect fraud, and for informing us about all known or suspected fraud or illegal acts. In addition, you are responsible for identifying and ensuring that the entity complies with applicable laws, regulations, contracts, agreements, and grants. It is managements responsibility to follow up and take corrective action unreported audit findings, and to prepare a summary schedule of prior audit findings and a corrective action plan. The summary schedule of prior audit findings should be available for our review on (Date December 31, 2012)

3. Scope of Audit:
We will audit the financial statements, each major fund, and the aggregate remaining fund information, which collectively comprise the basic financial statements, of your company (ABC Company LTD) by applicable regulations, legislations or professional standards etc as of and for the year ended December 31, 2012.

4. Form of Audit Report:

The form or content of our report may need to beam ended in the light of our audit findings. Whether long form report as given in the companys ordinance 1984 or a simple certificate etc. will be issued on the completion of the audit.

5. Unrestricted Access to records, Documents and Books:

Unrestricted Access to records, Documents and Books: The auditor should have free and unrestricted access to the entitys records, documents and books etc.

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6. Management Representation letter:

You will be required to acknowledge in the management representation letter that you have reviewed and approved the financial statements, schedule of expenditures, and related notes prior to their issuance, and have accepted responsibility for them. This letter wills be signed by the Chief Executive Officer (CEO) or Chief financial officer (CFO).

7. Inherent Limitations of some material misstatement Remaining Undiscovered:

Because of the inherent limitations of an audit, together with the inherent limitations of internal control, there is an unavoidable risk that some material misstatements may not be detected, even though the audit is properly planned and performed in accordance with ISAs.

8. Audit Planning:
Our audit team consisting 8 members will audit your financial statements from 6 January 2012 to 30 February 2012.

9. Management Letter / Letter of Recommendation:

We will points out the shortcoming; discrepancies and weaknesses observed during the course of the audit and specify recommendations for rectification and improvements thereon in the management letter.

10.Involvement of Internal Auditor:

If it is required by our Auditor to obtain or discuss information related to audit they can involve the internal auditor in the process of audit.

11. Involvement of other auditors and expertise:

If I have need of other auditor and any expertise. I am independent to call these expertises for auditing .the charges of this specialized person you will pay.

12. Audit Fee:

Our fees for all services are related to our standard hourly rates in effect at the time services are performed. Our standard hourly rates vary according to the degree of responsibility involved and the experience level of the personnel assigned to your

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engagement. Our fee for this engagement, which we estimate, will range from PKR.____ to PKR.____, plus out-of-pocket expenses, except that we agree that our maximum fee, including expenses, will not exceed PKR.____. This fee is based on the assumption that you will provide assistance, anticipated cooperation from your personnel, and the assumption that unexpected circumstances will not be encountered during the engagement. If significant additional time is necessary, we will discuss it with you and arrive at a new fee estimate before we incur the additional costs. Any amendments to the not-to-exceed amount of the fees will be in writing and signed by both our firm and the invoices for these fees will be rendered each month as work progresses and are payable upon presentation.

13. Confirmation of Terms of Engagement by Client:

Please sign and return the attached copy of this letter to indicate your acknowledgement of, and agreement with, the arrangements for our audit of the financial statements including our respective responsibilities. In accordance with the provisions of state law, this engagement agreement must be approved by the Legislative Auditor prior to commencement of our work. Upon your signature and approval, we will seek approval of the Legislative Auditor of this engagement. We look forward to a pleasant association and the opportunity to provide the services included in this engagement. If you have any questions, please let us know. This letter will be effective for future years unless it is terminated, amended or superseded. Please sign and return the attached copy of this letter to indicate that it is in accordance with your understanding of the arrangements for our audit of the financial statements. Yours Very truly,

XYZ & Co.

Chartered Accountants (Signature) (Name of the Member)

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ISA-230 Documentation
Documentation
Documentation is one of the International Standards on Auditing. It serves to direct The documentation of audit working papers in order to assist the audit planning and Performance; the supervision and review of the audit work; and the recording of Audit evidence resulting from the audit work in order to support the auditor's Opinion.

Audit Working Papers

A working paper is any document or record containing a report, correspondence and Any other information that an auditor collects or any record which the auditor Produces in the course of the audit procedures to discharge his professional duty to Clients. An audit is erroneously regarded as a process by which the auditor piles up Papers or heaps of books. However, the more paper the auditor amasses, the better The audit he has done. (a) The auditor should document matters which are important in providing audit Evidence to support the auditors opinion and evidence that the work was carried Out in accordance with ISAs. (b) The auditor should prepare working papers which are sufficiently complete and Detailed to provide an overall understanding of the e-audit. (c) The auditors should record in the working papers information on planning the Audit, the nature, timing and extent of the audit procedures performed and the Results thereof and the conclusions drawn from the audit evidence obtained. The Extent of working papers which the auditor produces or obtains is a matter of Professional judgment since it is neither necessary nor practical to document every Matter the auditor considers. In assessing the extent of working papers to be prepared or retained, it may be Useful for the auditor to consider what would be necessary to provide another

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Auditor who has no previous experience of the audit work with an understanding of The work performed and the basis of the principal decisions taken but not the Detailed aspects of the audit.

Purpose of the audit working Papers

The main objective of the auditors working papers is to record and demonstrate the Steps which have been taken by the auditor to enable him form an independent Opinion on the financial statements upon which they are required to report. Therefore, in order to achieve this objective, audit working papers should provide: (a) Information about the organization being audited, including its recent history; (b) Evidence of work done in the course of the audit; (c) A means of controlling the current years audit work and also as a means of Planning the subsequent years audit; and (d) Schedules in support of the accounts audited and summaries of the clients Books.

Audit working paper should show that:

Audit work planned according to engagement contract. Assistances work properly supervised and checked by auditor.

Preparation of Audit working paper:

No standard format is advocated for audit working papers. It is however, important to ensure that working papers not only conform with the requirements of a particular firm but also satisfy the requirements of an independent reader. The following guidelines should be observed when writing up working papers: (a) Each working paper should be clearly headed with the clients name, the subject Matter of the working paper, the date of the engagement, the initials of staff Preparing the working paper and the date. (b) As far as possible, working papers should be prepared on standard stationery. (c) Details of work done must be clearly shown as to leave no doubt in the minds of readers.

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Audit Working Papers files:

Audit working papers are usually arranged in two files according to their contents, Namely,

Permanent audit file. Current audit file

Permanent audit file.

This file contains information of continuing importance, which will be required for More than one audit. With the contents of this file, the auditors will have a better Understanding of the clients operations and business. The file will also typically Contain the following information: (i) A brief history of the business as to the nature of business, major competitors, Major sources of revenue and operating industry. (ii) List of major accounting policies (iii) Copies of statutes and regulations governing the entitys accounts and audit; (iv) Names and addresses of the companys directors including details of service Contracts with them. (v) The memorandum and articles of association of the business. (vi) Copies of documents of continuing importance and relevance, such as Legal Mortgages and Debenture deeds; (vii) An organizational chart of the business showing names of responsible officials and lines of reporting. (viii) Addresses of the registered office and all other premises, with a short description of the work carried on at each; (ix) Names and addresses of the companys subsidiaries and associated companies. (x) List of books, other records and where they are kept.

The Current Audit File

This file contains information relevant to the year under consideration and it is Based on the contents of this file, that the auditors form opinion on the clients Financial statements. The current file will typically contain the following documents:

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(i)

A copy of the financial statements being audited and the trial balance;

(ii) The audit program, which will contain the list of audit work to be done and The list of audit tests to perform; (iii) Schedules of major items in the profit and loss accounts and the balance sheet; (iv) List of audit queries and their dispositions; (v) List of matters requiring the engagement audit partners attention; (vi) Extracts of minutes of meetings of the board and management; (vii) A description of the internal control systems in operation; (viii) Letters of Representations from management; (ix) Checklists for compliance with statutory disclosure requirements and Accounting standards; and (x) Management letter setting out internal control weaknesses in the system to the client.

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ISA-300 PLANNING AN AUDIT OF FINANCIAL STATEMENT

Audit Planning:
Audit planning involves how to work of audit. Complete audit work planning .an audit plan, in order to reduce the audit risk. Planning the audit includes establishing the overall audit strategy for the engagement and developing an audit plan, which includes, in particular, planned risk assessment procedures and planned responses to the risks of material misstatement. Planning enables an auditor to conduct an effective, efficient and timely audit. Effective Efficient Timely Result oriented; reliable Give maximum output with efficient performance Complete audit within due date.

Planning Involves:
a) According to engagement letter establish overall audit strategy .and also manage his team members according to engagement. b) Developing audit plan according to scope of audit and conduct according to scope. c) Time of audit .how much data should checked. Process of audit.

Advantages of Audit Planning:

a) Complete attention to key Areas and effectively checked key areas through audit planning. b) Proper Identification of major problems. c) Work done very speedily. Through planning complete the work on key dates. d) Utilization of Audit staff very effectively.

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e) If some experts hires and also other auditors coordination is very good through audit planning.

Extent of planning:
Vary with: a) Size of organization or company. b) One mistake case of many mistakes which make complexity of audit. c) Previous experience and knowledge also vary because change in management or any other organization change. d) Change in circumstance that occurs during the audit engagement. Some areas that the organization not comfortable of audit. Auditor should consternate on that area.

PLANNING ACTIVITES
The auditor should established overall audit strategy for the audit .The overall audit strategy sets the scope, timing direction of audit and guides the development of more detailed audit plan.

The establishment of overall audit strategy involves:

a) Determining the Characteristics of the engagement that define its scope ,such as: (i) Financial reporting framework used; (ii) Cost factor planning through scope .for Example cemat and cammical industry. (iii) Manage work branch to branch. b) Ascertaining the reporting objectives of the engagement to plan the timing of the audit and the nature of communications required, such as: (i) Due date for interim and final audit report and (ii) Key dates for expected communication with management and charged with governance. c) Considering the important factors that will determine the focus of the engagement team effort such as : (i) More worthily area of organization checked first. (ii) Identification of area which is more risky of material misstatement.

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The overall audit strategy sets out clearly, in response to the matters identified above, and subject to the completion of the auditors risk assessment procedures:
a) The resources to deploy for specific audit areas, such as: (i) Experienced team members sent for higher risk area. Before coming you should planned specific areas and members for that area. (ii) For complex area you should involve experts. b) The amount of resources to allocate to specific audit areas, such as : (i) One member of team assigned to check and observed the inventory count at material location. (ii) Review that area which is assign to other auditor when group is held. Perfect planned. (iii)Allocate the hours to all team members to finish their work within. c) When these resources are deployed, such as: (i) Whether at an interim audit stage; and (ii) At key cut-off dates d) How such resource are managed, directed and supervised, such as: (i) Audit manager should assigned the targets and due date to the team members. After that he will come on due date to check. (ii) Surprise visited for checking his team. (iii) Quality control record .after an audit ICAP should audit the auditor work.

THE AUDIT PLAN

Purpose of the audit plan The auditor should develop audit plan to eliminate risk and low level of risk. Ensure work will accomplish with objectives. Keep auditor on track The nature, timing and extent of audit procedure to be performed according engagement.

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Matters to be considered in the development of an overall audit plan include:

1. Knowledge of general economic factors and industry conditions affecting the entitys business. 2. Important characteristics of the entity its business financial performance and its reporting requirement including changes since the date of the prior audit. 3. Planning include the expected assessment of inherent and control risk. 4. Identification of complex important areas for expected assessment of inherent and control risk. 5. Also identification of complex accounting areas. 6. Term of engagement and legal responsibilities to fulfill the engagement. 7. Nature and timing of the report. 8. Clients accounting polices also considers. 9. Effect of International accounting standard and International standard of Auditing. 10. Identification of important audit areas. 11. Importance of that important area. 12. Possibility of material error or fraud. 13. How much reliance on accounting system and internal control. 14. Emphasis on specific audit area which has more opportunity of mistake and fraud. 15. Nature and extent of audit of audit evidence to be obtained. 16. How reliable internal auditors report. 17. For other branches and subsidiaries may other auditor involved. 18. Involvement of experts. 19. Companys balance sheet showing very good result but very important legal case continue in court which going against company and after decision of court company may be closed for life time auditor should also inspect that case and include in his audit report. 20. The nature and timing of the report expected under the engagement. 21. The terms of the engagement and statutory responsibilities.

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Audit program:
A listing of audit procedures to be performed in completing an audit. An audit program is set of instruction to the audit team.

Timing of Audit
Audit may be conducted in stages, depending upon the arrangement with the client i.e. the nature of the clients business activities and the availability of staff.

Interm Final Continoue

Interim Audit is usually conducted after 6 months.

Continuous audit is conducted as a continuous process throughout the year.

Final audit is conducted after the year end and covers verification of assets, liabilities and finalization of account.

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Internal Audit Concept and Role of Internal Audit

Purpose, function and limitations of internal audit:

Monitoring of internal control

The internal auditor monitors the internal control and internal checks within the Company. It is also his duty to apply internal control if there is no internal check or Control within the company. Example: If A is an internal auditor of a company than he should monitor and Implement internal controls internal checks i.e. bank reconciliation is a control that Ensures that all physical cash transactions have been correctly recorded during a Specified period. The reconciliation is performed by someone other than the Transaction clerks who are in charge of billing, accounts payable and receipts. The Reconciliation clerk reviews cancelled checks that are returned with the statements Of the examined time period to ensure that they are made out to the same names As those in the accounting system. This procedure not only catches many inadvertent transactional errors but also theft and fraud.

Examination of financial and operational information

The internal auditor examines and checks the financial statements and operational Information of the company. Example: If A is an internal auditor of a company than he will have to verify and check all the information whether financial or operational. He checks the financial information that all the information presenting true and fair view in accordance with the international accounting standards This helps management understand where weaknesses are in their
accounting processes and allows them to take corrective measures quickly and also checks

the employees of the organization that how they are Performing and evaluate their performance.

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Review of economy, efficiency and effectiveness of Operations

Review of economy, efficiency and effectiveness is also the function of internal auditor. The Internal auditor gives suggestion to the management by his experience and information to take effective decision to improve the efficiency of the company. Example: The internal auditor of manufacturing concern will keep eye on the government Policies and on the economy of the country as if the auditor have information of government Policies than he will able to make effective, economical and efficient plans.

Review of compliance
The internal auditor checks that the company is performing according to the rules and Regulation defined by the government and other legal authorities. Example: The internal auditor checks that the accounts department of the company makes All the repots and statements with the companys ordinance 1984 and in accordance with The international accounting standards.

Special investigation
It is the internal auditors responsible to perform any special investigation regarding any

Company operation. Example: The auditor will do special investigation if he came to know that any employee of The company doing fraud or putting false statements

Internal Audit and risk assessment

Operational risk Operational risk can be summarized as human risk; it is the risk of business operations failing due to human error. Operational risk will change from industry to industry, and is an important consideration to make when looking at potential investment decisions. Industries with lower human interaction are likely to have lowered the operational risk. Example: Employment Practices and Workplace Safety - discrimination, workers Compensation, employee health and safety, Execution, Delivery, & Process Management - data entry errors, accounting errors, failed mandatory reporting, Negligent loss of client assets.

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Financial risk
The risk that a company will not have adequate cash flow to meet financial obligations. Financial risk is the additional risk a shareholder bears when a company uses debt in addition to equity financing. Companies that issue more debt instruments would have higher financial risk than companies financed mostly or entirely by equity. Example: All the risk which is associated with the finance of the business.

Compliance risk
Compliance risk is defined as the potential threat to the earnings or businesses of a company resulting from violations or infringement of laws, regulations or stipulated practices and standards within the company, industry and government. Compliance is therefore, the system of procedures and controls required to ensure conformance to these established rules and regulations. The impact of compliance risk can be rather farreaching. It could even lead to loss of earnings and business opportunities, tarnished company image and imminent lawsuits. Example: The auditor will have to check that the company is fulfilling all the legal requirements as per the government rules and Regulations. The Company paying tax as per the order of the government.

Comparison of external and internal Audit

Internal auditors are often confused with external auditors, but there are significant Differences between the two groups. Internal auditors look at all the risks facing an Organization and what is being done to manage these risks. External auditors on the Other hand looks at financial accounts. So internal audits role is broader and might, For example, include auditing the reputation risk that a company could be damaged By using cheap labor in foreign countries. It could also include auditing operational Risks such as poor health and safety procedures, or strategic risks such as the board Stretching company resources by producing too many products.

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Internal audit
Internal audit is a function that, although operating independently from other departments and reports directly to the audit committee, resides within an organization (i.e. they are company employees). It is responsible for performing audits (both financial and nonfinancial) within a wide range of areas within a business, as directed by the annual audit plan. Internal audit look at key risks facing the business and what is being done to manage those risks effectively, to help the organization achieve its objectives. For example, they may look at risks to the companys reputation such as the use of cheap labor in foreign countries, or strategic risks such as producing too many products in comparison to resources available etc. The internal auditor a) Examines the internal controls and assess risk. b) The auditor must be a competent person. c) It is appointed by the management. d) Its duties are set by management. e) He reports to the management.

External audit
External audit is an independent body which resides outside of the organization which it is auditing. They are focused on the financial accounts or risks associated with finance and are appointed by the company shareholders. The main responsibility of external audit is to perform the annual statutory audit of the financial accounts, providing an opinion on whether they are a true and fair reflection of the companys financial position. As part of this, external auditors often examine and evaluate internal controls put in place to manage the risks which could affect the financial accounts, to determine if they are working as intended. The external auditor a) Form an opinion on the financial statesmens whether they are presenting true and fair view. b) Must be a C.A or ACMA ( in exceptional cases) c) Appointed by the shareholders. d) Duties are set by the regulatory authority (ICAP) e) Report to shareholders.

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Types of assignments
Operational Audit
Audit of specific process and operations performed by an organization.

Financial Audit
Audit of financial statement is called financial Audit.

Informational technology Audit

I.T system not work correctly and not according to giving instructions. Misuse of internet.

Internal audit reports

The structure of the internal audit report is as follows

Introduction: it include the information which tells the reader that why this report is
Prepared.

Executive Summary: the auditor should mention in his report the list of directors
and profile of shareholders.

Main text: The main text of the report includes finding of the audit implications of
rules drawing conclusion of the audit and recommendation after the audit.

Appendices: At the end of the repot the auditor should explain the terms used in the
report. working papers as a avoidances.

Outsourcing
The internal audit needs of each organization are unique. Due to demand for a high level of service and expertise, many organizations prefer to have proximity meet all of their internal audit needs under a continuous, full-service outsourcing arrangement. Under this arrangement the companies hire the services of external audit teams. Following are the benefits of the external audit team:

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Flexible availability: The Company should have to provide access to the financial Statements of the company. Access to specialists: If required the company allow the auditors to consult the specialists. Reduce overhead cost: The Company should give benefits if they are helpful in reducing the overhead cost.

ISA 520 ANALYTICAL PROCEDURES

When you compare previous period to current period this is called analytical procedures. Thorough review of company risk nature is also part of analytical procedure. Analytical procedure also include ratio analysis not only compare financial ratios overall ratios checked qualitative and quantities ratios checked i.e. employee turnover ratios.

NATRUE AND PURPOSE OF ANALYTICAL PROCESDURE

Analytical procedure include the consideration of comparisons of the entitys financial information with, for example: a) Comparable ratios available. b) Budget and forecast going wrong due to some reasons. Auditor should find out the actual reason. c) Compare the data with same nature of industry not compare the banking industry to the beverages industry.

ANALYTICAL PROCEDURE ALSO INCLUDES CONSIDERATION OF RELATIONSHIP:

a) Gross profit comparisons b) Relation between numbers of employees and employee cost. METHODS OF ANALYTICAL PROCEDURE Various method maybe used in performing the above audit procedure these ranges from:

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a) Simple comparisons with previous year information. b) Comparisons through statistical techniques.

APPLICATION OF ANALYTICAL PROCEDURES

Analytical procedure may be applied to: a) If company is subsidiary or has other division than combine the whole information and then compare. b) If company has individual branch then only individual checked.

ANALYTICAL PROCEDURE AS SUBSTANTIVE PROCEDURE

The auditor designs and performs substantive procedure to be responsive to the related assessment of the risk of material misstatement at the assertion level the auditors substantive procedures at the assertion level may be derived from: a) Only one detailed test; b) Substantive analytical procedure c) Or both combination of above Which audit procedure is used to achieve particular object is based on auditors judgment.

THE RELIABILITY OF THE DATA

The reliability of data is influenced by it source and by its nature and is depend on the circumstances under which it is obtained. In determining whether data is reliable for purpose of designing substantive analytical procedure, the auditor considers the following:

a) Source of the information available

For example, information is most reliable when it obtains form outside the organization from independent person. Information from creditors etc.

b) Comparability of the information available

Only compare information with competitors. Not compare with other industry.

c) Nature and relevance of information available

Budget is only made which achievable in period not over estimate the period.

d) Controls over the preparation of the information

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For example, controls over the preparation, review and maintenance of budget. Budget always realistic.

ANALYTICAL PROCEDURESIN OVERALL REVIEW AT THE END OF THE AUDIT

Analytical procedure normally apply at the end of audit .but this exercise is not good .analytical procedure is apply at beginning and mid and end of the audit period. this is good practices.

INVESTIGATION UNUSAL ITEMS

Investigation of Deviations should make complete. If you not understand then asked to the management.

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ISA-620 USING THE WORK OF AN EXPERT

When the using of the work of an expert, the auditor should obtain (SAAE) that such work is adequate for the purpose of audit. Expert a skilled person or firm having special skill, knowledge, experience in particular filed other than accounting i.e. architecture, tax experts. Auditor only special in business matters generally, but auditor not have the other expertise of any other profession i.e. engineering.

An expert may be:

a) Contract by the entity; Some time expert contract with the entity .this is not satisfy auditor. Because expert is work for organization .risk includes. b) Contract by the auditor; Some time expert is contract with auditor. Expert is partner of auditors firm also. c) Employed by the entity; Expert is maybe employee of the entity .but risk again involve this case. d) Employed by the auditor: It is also option that some time expert is employee of the auditor.

DETERMINING THE NEED TO USE THE WORK OF AN EXPERT

Apart from the audit work carried by the auditor, audit evidence may have to b obtained in the form of report, opinions, valuations, and statements of an experts. 1. Valuation of certain types of assets (e.g. land, building, plant and machinery, work of art, and precious stone. Expert evaluate this above mention assets his market value and purchasing value or selling value. 2. Expert also determines the quality and physical composition of assets .assets includes mineral assets and gas and oil resources also include. 3. Expert also checks the methods and techniques of the production if entity has productive nature.

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4. Expert also concern for measure the work of contract if company running a contract. 5. Lawyer hire as expert for legal information about entity. If some cause is open in the court.

WHEN DETERMINING THE NEED TO USE THE WORK OF AN EXPERT, THE AUDITOR WOULD COSIDER;
1. Auditor hire the expert for the betterment of his engagement .in engagement the auditor should promise with entity he should examine all the departments which include his scope .so auditor hire expert for some department. 2. Auditor should also hire the expert for eliminate the risk of material misstatement based on the nature, on the complexity and materiality of the matter being considered. Some liquid type material should checked expert. 3. The quality and quantity of liquid material check the expert.

COMPETENCE AND OBJECTIVITY OF THE EXPERT

When the auditor thinks to use work of an expert, he should evaluate the professional competence of the expert which will involve considering the experts 1. Experts professional certificate and license is major part to check on hiring an expert. 2. Experience and reputation in his flied also consider important. The entire world knowing his reputation.

EVALUATION OF THE OBJECTIVITY OF THE EXPERT

The risk is involved with experts objectivity and increase when the expert is: 1. When the expert is employee of the entity then risk is involved with experts objectivity. More risk chances when the expert is hire by the entity. 2. When the expert is related with organization in some way than the risk is involved with experts objectivity. For example: expert invested in entity as shareholder.

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Conclusion
At the end of this assignment I am able to understand what is auditing, what are rule And regulation should the auditor have to follow, what are the ethics of the audit, How the documents and reports of the audit is prepared according to the International auditing standards.