Professional Documents
Culture Documents
INTRODUCTION
progressed so far that the highest type of auditor is looked upon today as
a financial expert. The premises upon which most audits are predicated,
however, are still largely those of the checker-verifier. Recent economic
trends have accentuated the new conceptions and demands upon the
auditor. The control of business enterprises within and among themselves
has emphasized the importance of the budgetary and managerial aspects
of the accountants' reports in enabling business units to coordinate their
internal and external activities in the scheme of the economic plan.
Thus the word “audit” is derived from the Latin word ‘audire” which
means “to hear”. In olden times, whenever the owners of a business
suspected fraud, they appointed certain persons to check the accounts.
Such persons sent for the accountants and “heard” whatever they had to
say connection with the accounts. It was an Italian, Luca Paciaio, who first
published his treatise on double entry system of book-keeping for the first
time in 1494. He mentioned and described the duties and responsibilities
of an auditor, since then; there have been lot of changes in the scope and
definition of audit and the duties and responsibilities of an auditor.
HISTORY OF AUDITING
The complicated evolution of auditing has been changing throughout the
historical changes. Thus the practice of auditing have always had a
dramatic shift of change to cope with the needs of everyday business
environment. Auditing has been around since the beginning of human
civilization, focusing mainly, at first, on finding fraud. As the United States
grew, the business world grew, and auditing began to play more
important roles. In the late 1800’s and early 1900’s, people began to
invest money into large corporations. The Stock Market crash of 1929 and
various scandals made auditors realize that their roles in society were
very important. Scandals and stock market crashes made auditors aware
of deficiencies in auditing, and the auditing community was always quick
to fix those deficiencies. The auditors’ job became more difficult as the
accounting principles changed, and became easier with the use of internal
controls. These controls introduced the need for testing; not an in-depth
detailed audit. Auditing jobs would have to change to meet the changing
business world. The invention of computers impacted the auditors’ world
by making their job at times easier and at times making their job more
difficult.
The practice of auditing has been in the human society since its
beginning. Auditing was used mostly for the detection of fraud and was
done through extensive detailed examination from ancient times until the
late nineteenth century. Fraud was a great concern during the early
history of auditing, because internal controls were not used or not used
effectively until the twentieth century. To protect the public, the British
Companies Act of 1844 provided for mandatory audits. Soon afterward, in
1853, organizations of chartered accountants were formed in Scotland.
The same industrial revolution was occurring across the Atlantic in the
United States. By the late nineteenth century, British auditors were being
sent to audit American companies. Thus it was the British who built the
infrastructure for professional auditing in the United States.
The late nineteenth century was a turning point in auditing history, when
laws like the English Companies Act of 1862 were enacted. “The English
Companies Act of 1862 was a general acceptance of the need for an
independent review of accounts for both large and small enterprises (Lee,
1988).” This Act of 1862 showed that there was a great demand for
specialized-trained professionals to perform these reviews reliably and
independently.
In the late 1890’s, therefore the main objectives of auditing were the
detection/prevention of fraud and the detection/prevention of errors.
Auditing in the United States began to branch from the heavy influences
of Britain in the 1900’s. The main objectives of auditing in the United
States were to obtain accurate financial conditions and earnings of an
enterprise and secondly to detect fraud and errors. Auditors in the early
1900’s were primarily used to submit a certified balance sheet to banks to
obtain credit. Bankers were no longer loaning money based on good
character, but now focused on the definite knowledge of the financial
affairs of the borrowers. Large life insurance companies also began using
independent public accountants to certify published statements since the
Hughes investigation of 1905.
they can do less detailed testing if the controls are strong, strong controls
will save time and money. After the Stock Market Crash of 1929, the
government saw the need for more standards and audits. They were
needed to keep businesses and publicly traded securities to stay uniform
and truthful with respect to their financial condition.
Auditing in general was changed forever, as data once on paper was now
on magnetic tape reels and later floppy disks. The detection of fraud was
more difficult to discover when data could be easily erased or changed.
Auditing changed with the times as it always had. The discovery for new
internal controls was needed, as these controls were important to make
an audit successful and efficient. A computer system within a business
with strong internal controls made an audit easier and resulted in more
dependable financial statements. The computer of the 1970’s could
handle large amounts of data and process the information in a very short
time. Computers made accounting jobs in general easier, with the
computer handling the bookkeeping work. This freed up time so
accountants could focus on more important jobs.
THE AUDITOR
An auditor in general engages in the evaluation of an organization,
system, process, project or product. Auditors’ tasks are performed to
ascertain the validity and reliability of information; also to provide an
assessment of a system's internal control. The goal of an auditor is to
express an opinion on the person/organization/system in question, under
evaluation based on work done on a test basis. Due to practical
constraints, an audit seeks to provide only reasonable assurance that the
statements are free from material error. Hence, statistical sampling is
often adopted in audits. In the case of financial audits, a set of financial
statements are said to be true and fair when they are free of material
misstatements - a concept influenced by both quantitative and qualitative
factors.
The analytical review steps for forming his overall conclusions about the
consistency of financial information as a whole with his knowledge of the
entity’s business and relevant economic conditions is also performed by
the auditor. For example an auditor can compare significant ratios for the
entity with those of other entities in the same industry or with the industry
average. This review may assist an auditor in identifying an unusual and
unexpected balance, which was not previously identified. Though the
procedures of analytical review have been highly commendable in the
arena of professional audit, the extent of its reliance much depend on the
substantive information that might be available from the entity, nature of
assertion the auditor might exert on the business logically and the
predictability of relationships among items of financial information (so
that any deviation there from can be taken as being indicative of potential
miss statements) and the strength of the evaluation of the internal
control. If the auditor really faces any such circumstance where the
application of analytical review may not be expected to desired results as
expected of a good audit report, there is no barrier for the auditor for an
extensive check, as he may think proper and adequate. The system of
analytical review adopted generally in combinations of other method have
in major cases yielded the desired results enabling the auditor to present
a good audit report; exhibiting a proper statement of financial information
of the entity under audit.
Even if internal audit has a restricted scope but within the areas where it
does have a mandate it should be concerned with all the functions of
management (planning, organizing, staffing, directing, controlling, and
coordinating). The only exception to this is where internal audit if
Now it is clear that the importance of audit of the financial data is so vast
that it is much more important in an organization in order to run it
efficiently, effectively and in an orderly manner.
1) Single Audit
States, cities, universities, and non-profit organizations, among others. The audit is
typically performed by an independent certified public accountant (CPA) and
encompasses both financial and compliance components. The Single
Audits must be submitted to the Federal Audit Clearinghouse along with a
data collection form.
2) Clinical Audit
National Health Service (NHS), and is defined as "a quality improvement process
that seeks to improve patient care and outcomes through
systematic review of care against explicit criteria and the
implementation of change".
5) Environmental Audit
6) Financial Audit
7) Internal Audit
8) Performance Audit
In the USA, all auditors who follow GAGAS standards are required to
maintain independence, supervision, continuing professional
education, and conduct the audit using a specific process designed
to increase the quality of the audit and reduce the politicization of
audit work. Although there are separate professional credentials and
certifications for Financial Auditors, the persons that conduct
Performance Audits in the USA are often Certified Public Accountants,
Auditing has been the backbone of the complicated business world and
has always changed with the times. As the business world grew strong,
auditors’ roles grew more important. The auditors’ job became more
difficult as the accounting principles changed. It also became easier with
the use of internal controls, which introduced the need for testing, not a
complete audit. Scandals and stock market crashes made auditors aware
of deficiencies in auditing, and the auditing community was always quick
to fix those deficiencies. Computers played an important role of changing
the way audits were performed and also brought along some difficulties.
Auditing Rules
It’s important to understand the guidance given to auditors on the topic of
fraud. Accountants performing audits in the United States follow Generally
Accepted Auditing Standards (GAAS) in their performance of audits.
Additional guidance is provided in the Statements on Standards for
Auditing and Review Services (SSARS) and Statements on Auditing
Standards (SAS). These sets of authoritative guidance outline the
responsibilities that auditors have for finding fraud while performing
audits and reviews.
Last but not the least, the auditor should respect the confidentiality of
information acquired in the course of his work and should not disclose any
such information to a third unless there is a legal or professional duty to
disclose.
The need to conduct special requested projects from the Audit &
Governance Committee and senior management may also
require the deferral of planned audits.
5. Report Results
6. Wrap-up Audit
8. Disseminate Report
1. Safeguarding of Assets:
• Under-utilized facilities.
• Nonproductive work.
• Procedures which are not cost justified.
• Overstaffing or understaffing.
According to the ICAB order, 1973 clearly defines the ethical standard of a
member of the institutes. Any contravention of the prescribed ethical
standard will invoke the penal measures for such a breach as laid down in
the statue. There have been provided different penal measures for
different types of professional misconduct. Membership of the institute is
not mandatory but for doing practice as a professional accountant,
membership is obligatory. Someone getting into a substantive cadre job
may not be forced to become a member of the institute. All these are
about the institutional methods.
Control environment:
Risk assessment:
Control activities:
Monitoring:
Internal control is not a solution to management and the board about the
organization's accomplishment of its objectives. Due to limitations
inherent in all internal control systems, it can only provide reasonable
assurance. For instance, due to simple error or mistake; breakdowns in
the internal control structure can occur, faulty judgments that could be
made at any level of management as well. Controls can be inserted by
collusion or by management override. Lastly, there must be a cost-benefit
analysis in the design of the system, meaning that the design of the
internal control system is a function of the resources available.
This is not done on purpose to propose that the CFO must provide
the audit committee with a level of reassurance regarding the
system of internal control over financial reporting. Rather, through
interactions with the CFO and others, the audit committee should
get a gut feeling about the completeness, accuracy, validity, and
maintenance of the system of internal control over financial
reporting.
Compensating Controls:
The audit committee should be tuned-in to the tone-at-the-top of the
organization as a first indicator of the functioning of the internal control
system. It is important to realize that both the design and compliance with
the internal control system is important.
In this case, it is one and the same person, so the implication is that there
are no checks and balances on the accounts payable person, who could
be writing checks to a personal account, then passing on them during the
bank reconciliation process (that is, there is no one to raise the red flag
that personal checks are being written on the company account). For
example, suppose an organization's accounting department is so small
that it is not possible to segregate duties between the person who does
the accounts payable and the person who reconciles the bank statements.
Compensating controls could make up for this apparent breach in the
internal control system. Here are some examples of compensating
controls in this situation:
• All checks are hand signed by an officer of the company, rather than
using a signature plate that is in the control of the person that
prepared the checks.
• The bank reconciliation may be reviewed by the person’s manager.
• A periodic report of all checks that are cleared at the bank could be
prepared by the bank and forwarded to an officer of the company
for review.
Audit committees should be aware of situations like this and be prepared
to ask questions and evaluate the answers when an obvious breach in
internal control is surfaced.
1. Front page:
o Project title
o Project lead/s (and name of the person who wrote the report,
if different)
o Date of report
2. Table of contents:
3. Executive summary:
4. Background:
This is essentially narration, clarifying why the audit was done. For
example, was the project prompted by an identified local problem or
concern? The background should explain the rationale for doing the
audit, i.e. why this topic is a priority for quality improvement.
Summarize the evidence base for the audit topic, giving full
references at the end (see point 12). If you convened a team to
undertake this audit, this is a good point to say how this was
organized and who was involved.
5. Objectives:
These explain what the project is trying to achieve and should have
been identified at the start.
6. Standards:
7. Methodology:
State the chosen population for this study (e.g. “patients referred to
the one-stop breast clinic for suspected cancer”) and then go on to
say how one has selected the sample for the audit, specifying
whether a retrospective or prospective methodology was used (e.g.
for a prospective audit, “the first 100 patients referred to the clinic
starting from 1/10/04”, or for a retrospective audit, “all patients
seen at the
8. Results:
State how many subjects (e.g. patients) were included in the audit.
This is the initial ‘n’ number. If the data is incomplete, explain why,
e.g. auditor might not be able to find every set of patient notes. How
one has analyzed the data depends upon the question. Ensure to
include the number and percentage of cases meeting each
standard, making it clear what number are taken into consideration
into Percentage of ‘n’ number may change at different points of the
report, e.g. 45/50 (90%). To use a statistical test (e.g. Chi Square) to
analyze data, state clearly what the test is and whether the results
are statistically significant. Data may be presented as tables or as a
chart. Be selective in use of charts – only illustrate the key findings
in this way so as not to overburden readers. Use the most
appropriate chart for each piece of data, e.g. pie charts to show
9. Conclusions:
List the key points that flow from your results - use bullet points and
avoid long paragraphs. Ensure that the conclusions are supported
by the data, or if the data points to no firm conclusions, say so -
don’t make claims that are not supported by the evidence. Make
objective, factual statements, not subjective ones, i.e. don’t say “it
is obvious that…” or “clearly, what is happening is…”
10. Recommendations:
12. References:
13. Appendices:
The audit directorates and training academy placed under C&AG are
Commercial Audit; Local Audit; Works Audit; Foreign Aided Project Audit;
Civil Audit; railway Audit; Post, Telephone and Telegraph Audit; Defense
The Director General, Local and Revenue Audit (DG, L&RA), conducts
audit in two important fields covering about 12,000 government
units/individual offices in a wide range of areas. These are the
government offices (other than Post, T&T, Works, Roads & Highways,
Railways, Public Health Engineering and Defense directorates; hospitals;
educational institutions; sports and cultural bodies) and autonomous and
local bodies (city corporations, municipalities, universities, port authorities
and other autonomous bodies).
The present office of the Directorate of Works Audit was established with
effect from 18 May 1964 under the name Director of Audit and Accounts
Works and WAPDA, East Pakistan, Dacca. After liberation, it was renamed
as Accountant General Works & WAPDA, Bangladesh, DHAKA and entrusted
with the accounting and auditing function of the works expenditure and
auditing the accounts of Bangladesh WAPDA. Following
Different foreign countries and donor agencies provide grants and loans
for different development projects in the form of investment or technical
assistance. The Director General, Foreign Aided Projects Audit, is
responsible for auditing all projects implemented with funding by foreign aid.
The main responsibilities of this Audit Directorate are to carry out audits in
all donor funded development projects to prevent error and fraud, to
ensure accuracy and completeness of accounting records and examine
the adequacy of rules and regulation; to prepare the annual audit report
and submit the same to C&AG for placement before the parliament; to
conduct audits of all Accounts and Financial Statements of donor fund in
accordance with the agreement between the government and donors; to
express an opinion as to whether the financial statements of the donor
funded projects presented are consistent with international standards on
auditing, whether the accounts prepared are in accordance with accepted
principles and whether they present fairly the results of the operation of
the project. In terms of IDA and ADB loans, a separate opinion needs to be
furnished for the statement of expenditure.
Civil Audit:
The present office of the DG Railway Audit, headed by a Chief Auditor, and
located at the Central Railway Building (CRB) CHITTAGONG, was established in
1950. This office was entrusted with the audit responsibility of the Eastern
Bengal Railway and Pakistan Eastern Railway from 1950 to 1961 and from
1961 to 1971 respectively. Following the liberation of Bangladesh in 1971,
all audit functions of Bangladesh Railway were conducted by this office
which was renamed as the office of the DG Railway Audit in 1995. The
office has 208 personnel including one director, two deputy directors, and
14 audit and accounts officers working in the regional and divisional
offices throughout Bangladesh.
The auditing system adopted in all audit directorates is very similar. There
are, of course, slight variations depending on the nature and scope of the
The audit team gives notice to the audited body well in advance letting
them know the exact date of commencing audit and the records required
to be examined. Procedures followed in carrying out an audit of any office
include initial discussion with the head of the audited body, collection of
all the records and information needed for auditing, examination of the
records, checking the facts, collection of sufficient evidence in support of
his statement, discussions with relevant people, coming to a conclusion
and preparation of the report.
The audit team follows the guidelines mentioned in the Audit Code and
Manual and Government Auditing Standards. In some cases, the team
follows the special instructions given by the Audit Directorate. In course of
the audit work, all queries raised by the auditor are to be clarified by the
audited organization and are to be substantiated by proper supporting
documents. Queries not met with valid documents are included in the
CONCLUSION
In today’s world; auditing has become an incorporated segment of the
association. All association wants auditing not only for avoidance and
recognition of fake but in addition for organizational effectiveness.
Auditing plays an essential part to appropriately finish the accounting
records and timely preparation of the consistent financial information.
Internal audit moreover helps organization to defend the property and
maintaining the arranged and effectively accomplish of the business
including adherences to the management policies. The manner of auditing
is becoming easier day by day because of using computer aided audit.
The computer aided audit tools and technique software is simplifying and
automating the audit process. The auditor is now able to find any kind of
fraud or material misstatement through the use of CAATTs software.
Government audit also helps the government to find whether the
resources are use effectively and efficiently. They evaluate the data and
directly report to the Comptroller and Audit general of Bangladesh. Also
to guard the shareholder, creditor and supplier from any kind of fraud,
every corporation must verify their financial report by an external auditor.
The external auditor must be an independent man also has to be a
member of the ICAB in Bangladesh.
BIBLIOGRAPHY
Garland
Century(Massachusetts:
York: McGraw-
of Chartered
Prentice-Hall, Inc.,
1983), p.3, 7