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TitleAudit Procedure
TagsAudit Expert Internal Audit Financial Audit
File Size196.7 KB
Total Pages11
Document Text Contents
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4-Terms of Audit Engagement

According to ISA 210 these terms should be considered regarding to engagement.

1) The purpose of ISA to establish standards and provide guidance on:

a) Agreeing the terms of the engagement with the client
b) The auditor’s response to a request by a client to change the terms of a

engagement to one that provides a lower level of assurance.

2) The auditor and client should agree on the terms of the engagement. The
agreed terms need to be recorded in an audit engagement letter or other
suitable form of contract.

4.2-Audit engagement letters:
It is in the interest of both client and auditor that the auditor sends an engagement
letter, preferably before the commencement of the engagement, to help the avoiding

misunderstanding with respect to the engagement. It involves the acceptance of the
appointment, the objective and scope of the audit.

4.3-Principal contents:
The form and content of audit engagement letter may vary for each client, but they

would generally include reference to:
1) The objective of the audit of financial statements.
2) Management’s responsibilities for the financial statements.

3) The scope of audit, including regulations and legislations.
4) The form of any reports or other communication of result of the engagement.

5) Unrestricted access to whatever records, documentation and other information
requested in connection with the audit and

6) Management’s responsibility for establishing and maintaining effective

internal control.

4.4-Audits of the components:
The auditor of the parent entity is also the auditor of the subsidiary, branch or
division. Then we have to send a separate engagement letter to the component include

the following:
1) Who appoint the auditor of components?

2) Whether a separate auditors report is to be issued on the components.
3) Legal requirements.
4) Degree of ownership by parent.

5) Degree of the independence of the component’s management.

4.5-Recurring audits:
On recurring audits, the auditor should consider whether circumstances require the
terms of the engagement to be revised and whether there is a need to remind the
client of the existing terms of the engagement.

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4.6-Acceptance of a Change in Engagement:
An auditor, who, before the completion of the engagement, is requested to change the
engagement to one which provides a lower level of assurance, should consider the

appropriate of doing so.

5-Using the Work of another Auditor

ISA 600 is in respect of Using the Work of another Auditor and is currently effects.
This is given below:

1) When the principal auditor uses the work of another auditor, the principal

auditor should determine how the work of the other auditor will affect the

2) “Principal Auditor” means the auditor with the responsibility for reporting on
the financial statements of an entity when those financial statements include

the financial information of one or more components audited by another

3) “Other Auditor” means an auditor, other than the principal auditor, with
responsibility for reporting on the financial information of a component which

is included in the financial statement audited by the principal auditor. Other
auditors include affiliated firms, whether using the same name or not, and
correspondents, as well as unrelated auditors.

4) “Components” means a division, branch, subsidiary, joint venture, associated

company or other entity whose financial information is included in financial
statements audited by principal auditor.

5.2-Acceptance as Principal Auditor:

1) The auditor should consider whether the auditor’s own participation is
sufficient to be able to act as principal auditor. For this purpose the principal

auditor would consider:

2) The materiality of the portion of the financial statements which principal

auditor audits;

3) The principal auditor’s degree of knowledge regarding the business

4) The risk of material misstatements in the financial statements of the
components audited by the other auditor;

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8.6-Techonical Operations:
He should acquaint himself as far as possible with the technical operations of the
company. It is advisable that he should visit works before starting the audit.

8.7-List of Books:
He should obtain a list of books –statutory, statistical and accounting, which are in use
together with names and duties of various clerks who are to write them up.

8.8-System of Accounting:
A note on the system of accounting employed by the company should be obtained.

8.9-Internal Check:
He should ascertain whether the whole internal check system on operation appears in
black and white in some accounting manuals. If so, he should go through the same

and carefully note any loopholes. The system, whatever exists in practice, should be
tested in all practical aspects.

8.10-Privious Years Audited Accounts and Reports:
With the exception of a new company, the auditor should examine the last balance

sheet for the for the purposes of checking the opening entries for the period under
audit. The previous year auditor’s report should also be inspected and if ant
qualifications are contained in it, the possibility of their being applicable the year

under audit should be carefully examined.

8.11-Audit Report:
He should then draft an audit programme and commence the work of audit.

9-Audit Programme

An audit programme is a written scheme of the exact details of the work to be done by

the auditor and his staff in connection with a particular audit. It is generally contained
in the audit notebook and is variably in black and white. A space is also provided in

the audit programme against each of the work to be done so that each audit clerk,
responsible for any portion of the particular work, may put done his signature or
initial. One audit program is prepared for one audit. The details of the audit

programme will depend upon the adequacy or otherwise of the system of internal
control, special provisions of Memorandum and Articles of Association affecting the

duties of an auditor and the nature of the business etc.

The audit programme must be developed with due care and skill. Particular attention
should be given to the following:

1) Exact scope oh the duties of an auditor.
2) Books of original entry and ledgers in use.
3) The system of book-keeping employed, and its weaknesses (if any).

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