Audit Objective, Audit Scope and Audit Process Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Audit objective flows from the audit mandate Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Audit Scope Audit scope is based on the audit objective Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Audit Process Audit process is determined by Audit Scope Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Audit Objective Of autonomous bodies is two fold: 1. Watching the utilization of financial assistance from the government 2. Certifying that the accounts present a true and fair view of the accounts Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Learning Objective At the end of the session, the learner will be able to state the audit objective and audit scope relating to the audit of autonomous bodies and be able to describe the certification audit process, to the extent that, the need for certification audit, and the activities involved in certification audit process are correctly described. Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Basic Concepts – Certification Audit Certification Audit is “Opinion given by an independent Auditor, that the financial statements represent a true and fair view of the financial position of the company.” Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Need for Certification Audit 1. Remoteness of Users 2. Complexity 3. Variance of Interest 4. Consequences 5. Control and Creditability 6. Compliance with Rules/Regulations 7. Identification of Systemic Weaknesses Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Audit Objective Audit objective in the case of an autonomous body or authority is to watch: 1. Utilization of Government’s financial assistance to it as per sanction; and 2. To examine that its financial statements present a true and fair view of the accounts of that body. Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Audit Objective Incase of financial statements can be discussed under: Income Statement Items; Balance sheet items Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Audit Objective- Income Statement Items ·                    Completeness ·                    Occurrence ·                    Measurement ·                    Regularity Disclosure Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Audit Objective- Balance sheet items ·     Completeness ·     Existence ·     Valuation ·     Ownership Disclosure Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Audit Scope It is not feasible or desirable that audit of each individual transaction should be undertaken by the Comptroller and Auditor General of India. Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Factors affecting scope of audit Ø     The particular financial statements to be audited including their periods Ø     Whether the auditee was audited earlier Ø     Extent of errors found in earlier years' audits Ø     Size of the auditee both in financial terms as well as geographical distribution of units Ø     Strength of auditees internal controls Ø     IAAD’s Mandate Ø     Statement of auditor's responsibilities Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Factors affecting scope of audit Ø     Statement of auditee's responsibilities Ø     Level of assurance as per IAAD’s policy Ø     Inherent risk in the accounting system of the auditee, including aspects such as nature of accounting process (manual or computerized), competence of accounting personnel, etc. Nature/type of audit evidences acceptable and the users of the audit report. Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Essential features of certification audit (a)    critical review of the system of book keeping; (b)   to form an opinion as to the reliability of the records; (c)    to see whether accounts are in accordance with books; (d)   to examine if accounts not only present a true but also a fair view; (e)    weather the transactions pertain to the organisation, and represent legitimate charge; Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Essential features of certification audit (f)     evaluate of the system of classification into capital and revenue items; (g)   vouching of accounts; (h)    check postings; (i)    examine justification for each journal entry; (j)     agree ledger balances with the schedules; (k)  check provision for liabilities and for accrued income; (l)      to check the ‘Statement of Receipts and Payments’ with the cashbook; Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Essential features of certification audit (m)  to check opening balances shown in accounts with reference to closing balances shown in previous year’s accounts; (n)    to look for exceptional transactions during the accounting period and, if necessary, comment on them; (o)   to check and vouch all transactions of capital expenditure; (p)   to verify existence and ownership of assets, basis if their valuation and provision for their depreciation; Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Essential features of certification audit (q)   to check bank reconciliation with reference to certificates of banks; (r)     to ascertain the system of stock taking, pricing and valuation of balances; (s)    to ensure adequacy or otherwise of provision for bad debts, outstanding liabilities, damage or deterioration to assets both fixed and current; (t)     to make sure that all income has been brought to account; Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Essential features of certification audit (u)    to see that all allowances, discounts etc. are authorized and admissible; (v)    to examine that all commitments for capital expenditure are provided in accounts and ensure that ascertained liabilities are not shown as contingent liabilities; (w)  to review balances of sundry debtors, advances, etc., analyze their pendency and ensure that their recovery is enforced and that none represents fictitious balances. Where in doubt about the value of assets, the management has made a proper provision; Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Essential features of certification audit (x)    ascertain material variance between the current years items in the ‘Income and Expenditure Account’ wit previous year’s figures to examine any undue variance; (y)    consider the values placed on current assets; (z)    examine the bookings against items, which qualify for grants/assistance to prevent attempt at securing inflated assistance from the Government. Also look for charges/transactions falling beyond the scope of authorized activities of the organization. Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Certification Audit Process Involves: 1.         Planning; 2.         Executing; and 3. Reporting. Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Planning phase a) Describe the Entity b) Establish Audit Objectives and Scope c) Determine Materiality d) Assess Risk e) Prepare Audit Plan f) Prepare Detailed Audit Program Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Execution phase a) Sampling Concepts b). Perform Control Procedures c). Perform Analytical Review d) Sampling for Substantive Test of Details e) Perform Substantive Test of Details f) Review Working Papers g) Derive Conclusion and Evaluate Audit Findings Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Reporting Phase Prepare Audit Report Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Indian Audit and Accounts Department’s Auditing Standards Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Indian Audit and Accounts Department’s Auditing Standards  1. Introduction including Basic Postulates 2.  General Standards 3.   Operational Audit Standards 4. Reporting Standards. Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Basic Postulates Norms of principles and practices ; independent attitude ; Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

General Standards Professional- Manuals and Instructions- Quality Assurance- Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Operational Audit standards Audit planning- Audit should be properly guided, directed and supervised. Sufficient understanding of the internal control systems Financial Statement Audit- Regularity and Legality Audit Performance Audit (VFM Audit) Audit of Receipts Auditing in EDP environment Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Audit Evidence Sufficient, competent and relevant evidence should be obtained to support the audit conclusions regarding the organization, project, programme, activity, transaction Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Reporting Standards On the completion of each audit assignment, the Auditor should prepare a written report setting out the observations and conclusions in an appropriate form; its content should be easy to understand and free from vagueness and ambiguity, include only information which is relevant and supported by sufficient and competent audit evidence and be independent, objective, fair, complete and accurate, constructive and concise as the subject-matter permits. Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Analysis of Financial Statements (a)    financial statements are prepared in accordance with acceptable accounting standards; (b)   financial statements are presented with due consideration to the circumstances of the audited entity; (c)    sufficient disclosures are presented about various elements of financial statements; and (d) the various elements of financial statements are properly evaluated, measured and presented. Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2

Accounting Standards Accounting Standards are required for the preparation and presentation of financial statements by both corporate and non-corporate bodies so that users of these statements are assured of a minimum standard in classification, collation and compilation of transactions and adjustments and their final depiction at appropriate places in the financial statements. Financial Audit autonomous Bodies Audit Objective, Scope and Process 1.2