ADVANTAGES OF AUDITING

• Evaluation of books and statements

• Discover and prevention of errors
• Discovery and prevention of fraud
• Moral check
• Independent check
• Protects the interest of shareholders
• Check on directors
• Proper supervision
• Valuable advice
• Disputes settlements
• Insurance claims
• Loan facility
• Correct information about business
• Advantage for general public
DISADVANTAGES OF AUDITING
• Non-detection of errors/frauds
• Dependence on explanation by others
• Dependence on opinions of others
• Conflict with others
• Effect of inflation
• Corrupt practices to influence the auditors
Factors to be considered on a new audit
To know about the scope of duties: if the auditor is
appointed for a joint stock company the duties, rights, powers
and liabilities etc of the auditor is laid down in the companies
act.
NATURE OF THE BUSINESS: If business is of technical
nature, the auditor should be clear with the technical nature
of the business
KNOWLEDGE ABOUT THE ACCOUNTING SYSTEM: if the
repeat audit, the auditor should obtain the previous year’s
KNOWLEDGE ABOUT THE INTERNAL CONTROL AND
INTERNAL AUDIT: on the basis of the realibility and
efficiency of these control measured the auditor can decide
about the sample verification or detailed checking
Study of the important documents:
memorandum of association, articles of association, reports
of directors and shareholder’s meeting, prospectus, the
underwriting agreement.
Organization structure: it is helpful to know about
the authority and responsibility of different individuals
Change of auditors: the auditor so appointed must
communicate with the retiring auditor to confirm the reasons;
given by the client or it is against the code of professional
ethics of CA
Previous years audited B/S:
INSTRUCTIONS TO THE CLIENT
The data should be arranged data wise
The following schedules should be kept ready for reference
a. Schedule of debtors & creditors
b. Schedule of bad and doubtful debts
c. A complete schedule of o/s expns, prepaid expns &
accrued incomes
d. A schedule of investments showing their cost price as
well as the market price
A list showing the details of capital expenditure incurred
during the period
A duly certified detailed list of returns inward & returs
outwards of goods
PREPARATIONS BY THE AUDITOR
1.DIVISION OF WORK
2. AUDIT PROGRAMME
3. AUDIT FILES
4. AUDIT NOT BOOK
DIVISION OF WORK
The work is divided among the staff consisting of senior &
junior audit clerk. The work should be divided into different
components such as confirmation of debtors & creditors a/cs,
valuation of inventory plant & machinery. The difference
works can be assigned to different audit clerks based on their
level and of competence & experience
OBJECTIVES OF AN AUDIT PROGRAMME
• To operate within the scope and limitations of the assignment
• To determine the evidence reasonably available and identity
the best evidence for deriving necessary satisfaction.
• To apply only those steps and procedures, which are useful in
accomplishing the verification purpose in the specific situation
• To consider all possibilities of error
• To co-ordinate the procedures to be applied to related items
TYPES OF AUDIT PROGRAMME
A) Fixed audit programme: in this all conceivable audit
procedures are included even though all these may not be
required for the specific audit engagement. This is kept by
the auditors usually in a printed form
B) Flexible audit programme: in this only the general scope,
character & the limitations of the audit are outlined
FEATURES OF AN AUDIT PROGRAMME
• It is always in writing & drawn by the chief auditor
• It contains full details & procedures of the work to be
conducted during audit
• It contains the distribution of the work of the audit staff
• It states the responsibilities of the client’s staff
• It must be flexible
AUDIT NOTE BOOK
It is a book, register, or a diary maintained by the staff during the
course of an audit. This is used to note the errors, difficulties,
doubts and new points to be discussed with the seniors or the
auditor. It is also known as audit meroranda.
CONTENTS
Nature & nature of the business
Technical details about the business
A list of books and accounts maintained
The points that require further explanation & clarification, etc
MATTERS TO BE RECORDED IN THE AUDIT NOTE BOOK
Routine queries not cleared i.e., missing receipts and
vouchers etc
Details of mistakes and errors discovered
The points to be incorporate in the audit report
The points which needs further explanation and clarification
Date of commencement and completion of the audit
ADVANTAGES OF AUDIT NOTE BOOK
• It helps in the preparation of the audit report
• It is useful in assessing the efficiency, ability & sincerity of the
audit staff
• It acts as an evidence of court of law
• Important points & queries that need clarifications &
explanations can be discussed
DISADVANTAGES OF AUDIT NOTE BOOK
• It develops a fault finding attitude in the minds of audit staff
• It places too much reliance on the staff of the client for its
preparation
• It creates misunderstanding b/w the clients staff & the audit
staff
• It prepared negligently, the auditor can use it as evidence in
the court of law