After the appointment of the auditor and before starting the audit work, the auditor has to make necessary preparations. An action plan is prepared by the auditor to achieve the objectives of the audit and to complete the work quickly and satisfactorily. Before preparing this work plan and selecting the methodology, it is necessary to get the following information:
  1. Scope of work – The scope of statutory audit which is predetermined by the Act. Which can be increased according to the agreement between the employer and the auditor, but cannot be reduced.But the work area must be determined in the private audit. While determining the scope of work, the object of audit should be in accordance with the instructions of the employer, mutual agreement, legislation. And the rules of the organization should be kept in mind. The mention of the field of work is clear in the appointment letter
  2. Accounting system – Which method of bookkeeping has been adopted. It is also necessary for the auditor to get this information. It is essential to get this information whether Mahajani Bahi Accounting System or Double Accounting System has been adopted.
  3. List of business books – Along with the list of books kept for the accounts of economic transactions, a list of legal and related books should also be obtained.
  4. Internal Control System – The auditor should see how the internal control system is. Whether this system is theoretical and practical or not. Complete information should be obtained about the system of internal inspection and internal audit.
  5. Work division of employees – It is necessary to get information about how the work is divided among the employees working in the business.
  6. Other information related to the business organization – It is necessary to get information about the profit and loss account of the previous year, the rules, bye-laws of the organization, in which items / permanent and temporary properties the business buys and sells. It is necessary for the auditor to get this information whether current audit will be done or current audit will be done. It is also advisable to fix the remuneration of the auditor in advance.

Meaning of the audit program – Before starting the audit work, the audit work is easy and determined, the audit work remains appropriate in consistency and in the stipulated time. The audit program is required to be completed at the time of completion. The recording of audit work details in the form of a plan is called an audit program.

According to Howard Statler, “The outline of all the procedures to be followed to form an opinion about the financial statements of the employer is called an audit program”

According to Arthur W. Holmes, “The process of an elastic schematic check is called an audit program.

Conclusion: – It is clear from the above definitions that the systematic plan to adopt the audit process is called audit program. By this, the responsibility of checking is fixed and it is the proof that the audit work has been done according to the audit criteria.

Objectives of Audit Program According to the International Audit Practices Committee, the following objectives of the audit program are –

  1. To obtain information about the accounting system, policies and internal control procedures of the organization.
  2. To determine the extent to which the internal control system can be relied upon.
  3. To determine the nature, timing and extent of audit procedures.
  4. Coordinating the entire work.

Other Objectives –

  1. To act as a guide about audit procedures during audit.
  2. To bring attention to the progress of the audit work as well as the missing of any process.

In the design of the audit program, mainly according to the nature of the work, it is determined that according to which method the auditor will do the work in how many times, so that the work can be completed in the stipulated time. The auditor should tailor the audit program to the circumstances of his employer’s business. Characteristics of a good audit program: –
  1. To be written – The audit program should be written so that in future there may be no difference of opinion between the employees and the auditor regarding checking of any item.
  2. Clarity – There should be clarity in the audit program. All information related to their business should be given to the auditing staff. The audit program should have full knowledge of those articles where the chances of errors and embezzlement are high.
  3. Division of Departmental Work – The audit program should be divided into different parts corresponding to the different aspects of the accounts. So that information about irregularities, clarification etc. can be easily obtained and the liability of the officers can be determined.
  4. Consistent flow of accounting – The flow of processes in the audit program should be in line with that of accounting of transactions so that there is no fear of missing an entry from scrutiny.
  5. Flexibility – The audit program should be prepared in such a way that it is possible to make necessary changes according to the circumstances.
  6. Scope – The audit program should be as per the prescribed scope of work as per the terms and conditions of the employer. Without it, it will take more money and time.
  7. Responsibility assessment – There should be a clear mention of work allocation and responsibility in relation to the work done by the auditor’s employees, so that they realize that so that they do their work efficiently.
  8. Best evidence – At the time of audit work, every behavior should be checked by the best evidence related to it.
Cash Book Vouched
Cash Book Postings Checked (Dr side)Cash Book Postings Checked
(Cr side)
Bought ledger vouchersBought ledger postingSales Book Additions & PostingReturn Book Additions & PostingPur. Book Additions & PostingJournal Entries Exam & PostingStock AccountBought Ledger Balances CheckedSales Ledger Balance CheckedTrial Balance Checked Gen. Ledger Balances CheckedProfit & Loss A/C CheckedBalance SheetRemarks
  • (a) Advantages of audit program –
  1. Division of work according to merit – In the audit program, the audit work is divided among the employees according to their ability and interest. This makes the work easier for the employees and also increases the work efficiency.
  2. Determination of Responsibilities – In the audit program each task is assigned to a specific person. He is responsible for that work, that’s why that person does that work with special care.
  3. Uniformity in work – If the organization is to be audited again in future, then a new program can be prepared on the basis of the old audit program. This allows uniformity in both the functions to be maintained.
  4. Evaluation of audit work progress – With the help of the audit program, the auditor can evaluate the progress of the inspections being carried out by his employees. Can also evaluate the efficiency and ability of the employees from time to time. If necessary, they can also make suitable changes in their work.
  5. Security in Court – If in future a suit for negligence of work is presented against the auditor in the court, the auditor can present the audit program as evidence in his security.
  6. Time Saving – Time is saved due to working as planned, the work gets completed in stipulated time.
  7. No effect of change of employees – Even if there is a change in the work of the employees due to any reason or circumstance, there will be no adverse effect on the audit work. In the absence of an audit program, there can be difficulty at such times.
  8. Adherence to audit principles – Audit program assures that audit principles have been fully followed in the audit work.
  9. Facility of review – With the help of audit program, the work done by the employees can be reviewed by the auditor.
  10. Ease – Due to the audit program, the audit work is completed easily and there is no fear of missing any part without checking while working.
  • (b) Disadvantages of auditing program –
  1. Mechanism of work – Due to the sequence of procedures of checking in the program, the audit work becomes mechanical and the work becomes monotonous.
  2. Lack of independent decision – All possible process in the program is predetermined and work has to be done accordingly. While working, the employee becomes accustomed to working on the prescribed procedure and is not able to take independent decisions.
  3. Non-appearance of fraud – Due to mechanical work, common deceit, fraud and errors are revealed, but the deceit done by well-planned fraud remains hidden.
  4. Misappropriation of funds – Audit fees for audit work in small businesses are low. For this, more expenditure is incurred on preparing a detailed audit program. A lot of time and money and energy of the auditor is wasted on this task. In such a situation, the expenditure incurred on preparing the program will be considered as misuse of funds.
  5. Used against the auditor in court – If there is an allegation of negligence or breach of duty against the auditor in the court, then the auditor program can also be presented against the auditor as evidence in the court.

For the effectiveness of the audit program, it is necessary that it should be flexible, it is possible to change it according to the circumstances. Because it is not possible to make 100% predictions about the circumstances that will happen in the future, therefore it is necessary to be flexible for the accountability of the audit program.
  • Advantages of Flexible Audit Program – In addition to the mentioned advantages of the audit program, the advantages of flexible audit program are as follows.
    • As changes are possible according to future circumstances, the audit work will not remain mechanical and uninteresting.
    • There is a provision in the flexible audit program that if there is any constructive suggestion in the mind of the employees to make the work effective, then do not hesitate to give it.
    • Employees will be encouraged to take independent decisions in audit work.
    • Changes in audit work will be possible.
    • It will be possible to measure the efficiency of the employees.
    • By following the suggestions of the employees, there will be an increase in the loyalty and morale of the work.

After preparing the audit program, the audit work is started by the auditor as follows.

Instructing the employer to make available the books of accounts and accounting transactions before starting the audit work gives the following instructions to the employer.

  • All the rectifiers related to the accounting transactions should be prepared sequentially.
  • The books of initial accounts should be added up.
  • The balance of all the accounts in the ledger should be removed.
  • Final accounts should be prepared from the trial balance prepared on the basis of all accounting transactions.
  • A list of debtors and creditors and bad debts should be prepared.
  • A list of investments should be prepared in which the cost price, market value, value and book value of the security should be mentioned.
  • A list of closing stock should be prepared and the method of its valuation should be mentioned.
  • A list of adjustments made at the end and beginning of the year should be prepared.
  • Complete details of fixed capital expenditure (fixed assets) should be prepared.
  • A list of doubtful liabilities, if any, shall be prepared with proof thereof.
  • A list of the names and addresses of the managers, officers and employees etc. should be prepared.

2 Commencement of work by audit staff –

The auditor does the work according to the audit program when all the above information and books of account are available.

Generally this work is done by the audit staff. The audit sees the progress of the audit work done by the employees from time to time. Guidance when necessary.

Before implementing the audit program into action, it would be appropriate to get information about the principles, procedure and methodology.
  • Audit Principles – According to Mr. Holmes, audit principles are those basic truths which give understanding of the objectives of audit. . These principles suggest the way to achieve those objectives. Like accounting, there is no universally accepted principle of audit, so the objectives for which audit is started. Those motives become fundamental truths and are called principles.
  • Audit Standards – According to Mr. Holmes, “Audit Standards are the measure of the performance of that work which is determined by the business entity and on the basis of acceptance. The standard is an indicator of the equality of qualities of performance.’
  • Audit Procedure – The process which is followed to achieve the objectives of the audit according to the above principles and criteria is called audit procedure. According to Mr. Holmes, the audit procedure is the work which is done after any investigation. “Generally these processes are neither principles”. Nor is it the method of punishment, but the method chosen for the investigation, according to which the objectives of the audit are achieved through various methods. This process is determined by the auditor according to the circumstances so that the correctness and propriety of the accounts can be certified by using various methods.
  • Audit Techniques – The methods used to obtain evidence in audit are called methods. These techniques are used to verify the correctness and propriety of articles. Which methods should be used, it is decided by the auditor at his own discretion according to the situation. Routine checks, test checks, certification, verification, evaluation etc. are examples of techniques.
  1. The normal checking of books and articles is called routine checking. Generally, the following are included in this.
  1. Addition of books of initial articles, check sub-totals, check the totals taken to the next page.
    1. Checking the accounts made in the ledger from the opening books
    2. Checking various accounts, checking the balances of the accounts.
    3. To check the balance transferred in the trial balance.
    4. To find out the correctness related to mathematics.
  2. Benefits of routine check-ups –
    1. Simplicity – This is a very simple task, so even people with normal ability can easily do this work.
    2. Mathematical Accuracy – Due to the knowledge of mathematical correctness of the initial books of account, errors come to light soon.
    3. Basis of Audit – Routine checks, though very simple, are very important. It is the basis of the final inquiry, on the basis of which the audit report is given.
    4. Accuracy of Khatauni – The Khatauni made in the ledger from the initial can be easily checked on the basis of routine checks. This shows the purity of the Khatauni.
    5. Knowledge of number change – Many symbols are used in daily drawing. Due to this, it is easy to know when the change in numbers is done.
  3. Disadvantages of daily checking –
    1. Monotony – Due to the mechanical work of routine checking, there is a dullness in the work.
    2. Non-detection of fraud – It is not possible to detect the fraud committed in a planned manner by routine investigation.
    3. No knowledge of theoretical inaccuracies – It is difficult to detect theoretical and supplementary errors by routine checking.
    4. Formalities – Often the audit staff considers this work to be only formal, they complete it carelessly and quickly, which does not make a reasonable profit.
    5. Dependence on internal control system – Routine checks are worthwhile only when the internal control system is satisfactory in the business. In the absence of this, it is appropriate to conduct a detailed investigation.

Generally, auditors do not conduct a complete and detailed examination of all accounts and accounts while performing audit work. If only a few selected behaviors are tested, then it is called a trial test. This test is done on the principle that some selected behaviors are checked out of the whole behavior and if these behaviors are proved to be true as a result of the test, then on this basis all the behaviors are considered to be true.

The following points should be kept in mind while conducting test checks:

  1. As far as possible, representative articles should be selected from all the books, this choice should be done very carefully.
  2. The selection of articles and entries should be as random as possible. This maintains accuracy in the test.
  3. Test checks should be arranged in such a way that the work of each audit employee is checked. Without this, there will be possibility of fraud and error.
  4. Transactions of the first and last month should be checked in large numbers.
  5. Trial check should never be used for cash book.
  6. If the internal control system adopted in the business is satisfactory, then it can be relied upon to test the test.

Advantages of Trial Testing –

  1. Time Saving – In test testing only a few selected behaviors are checked instead of checking all the behaviours. This gets the job done quickly and saves time.
  2. Other use of power – Test check saves the auditor a lot of time and energy which he can use elsewhere.
  3. Reliability in Testing – The accounts to be checked in a test test are representative, so the results are reliable.
  4. Internal Control System – For the success of the test test, it is necessary to have a well-organized internal control system. Therefore, the auditor can give good suggestions for the same as required.

Defects of test checking –

  1. Errors and frauds are hidden – Due to checking some selected behaviors instead of checking all the behaviors, there is a possibility of hiding errors and frauds.
  2. Increased auditor’s responsibility – If there are any errors, frauds, in the practices which were not selected in the test check, then in such a situation the auditor’s responsibility increases.
  3. Neatness in work – In this test only a few selected behaviors are checked. Due to this, the employees become careless due to the monotony in the work.
  4. No credibility in the test – If the behavior selected in the test is not authentic, then there is a lack of credibility in the test.

A. Meaning – “Auditer work papers are written personal material that an auditor prepares for each audit. These letters disclose accounting information received from the employer, the methods used in the investigation, their reasoned findings, and financial statements. Sarnald W. Johnson.

Audit work papers include the following:

  1. Auditor appointment letter and agreement
  2. Analysis of employer’s financial statements
  3. Audit schedule
  4. Summary of boundary rules, articles and partnership agreements
  5. Summary of major contracts.
  6. Information received, clarification certificates and comments on irregularities. 
  7. Copies of last year’s balance sheet and auditor’s report. 
  8. A copy of the report submitted by the auditor. 
  9. Summary of the major resolutions passed in the meetings of the shareholders and the Board of Directors. 
  10. Other work papers as may be necessary such as audit notebook.

Audit Note Book –

The important audit details are recorded in the Audit Notebook.In this, the details provided by the Employer are recorded. Copies of the details are also mentioned. Audit Note Book is an important work paper in audit work papers. It usually includes the following information.

  • (a) Information regarding internal inspection.
  • (b) List of books.
  • (c) Name cards and job descriptions of officers and employees related to accounts.
  • (d) Explanations, information and answers thereto sought.
  • (e) Totals and balances of specific accounts.
  • (f) List of lost certificates and all information which is of future importance.
  • (g) Main rules and characteristics of business.
  • (h) Any other important information which the auditor may wish to record.

B. Objective –

  1. Indicator of validity of audit report – The auditor prepares his report on the basis of these work papers and submits it to the employer. This letter is the proof of the correctness and validity of the auditor’s report.
  2. Evidence in Court – These working papers can be presented as evidence when there is a suit in court.
  3. Use for reference – These can be used as a reference even after the audit work is over. These work letters are also helpful in providing other services to the employer.
  4. Evaluation and control of the work of the employees – On the basis of these work papers, the auditor can evaluate the work by inspecting the work of his employees. Appropriate control can be done on the basis of work appraisal.

C. Ownership of audit work papers –

The auditor has full ownership over the audit work papers, whether they are prepared by the auditor himself or by the employer on his instructions. The auditor prepares these for his convenience, discretion and discharge of his duties, so that in future, if necessary, he can prove himself free by presenting them as evidence in the court. Keeping their importance in mind, they should be kept safe. Ipswich Milks vs. In the case of Dillon and Son (1927) also, the work papers are assumed to be owned by the auditor. There is no statutory rule in India regarding the retention and life span of these work papers. By law, it is neither necessary to prepare them nor it is mandatory to keep them safe. The auditor keeps these letters for his safety, work proof and future guidance etc. Under the Companies Act 1956 Section 209, it is mandatory to keep the books of account of the company for the next 8 years. Therefore, work papers should also be kept safe for 8 years. But the auditor cannot be compelled to do so as per the law.

In order to complete the audit work systematically, the audit uses different types of symbols while checking the books and articles. For example,

the auditor gives necessary instructions to his employees in respect of these marks, which sign is to be used for which work. This mark is the initial proof of checking of any book and account. These marks indicate that the investigation has been done but may not have been fully investigated, that is why it cannot be considered as the final proof of the investigation. The following precautions should be taken while using symbols –
  1. Different symbols should be used for khatauni, linking of accounts, authentication etc.
  2. Each sign should be small, clear and distinct.
  3. Instruct the employees of the organization about these signs that they should not use them. But for which work which special symbol has been used, do not give this information.
  4. Pencils of different colors should be used in the use of symbols. The change in the colors of the pencil every year is also good from the point of view of testing.
  5. Special signs should be used on the deleted numbers and on the transactions that are under suspicion.

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