One must take care to ensure that nothing is missed in the process which needs to be followed to achieve the audit objective. The following audit process in that order may be taken as a specimen:

  1.  Formulating audit plan and laying down broad framework for conducting the work and method to ensure control over the quality of work.
  2.  Examination and evaluation of the nature, extent and efficacy of the system of internal control. The nature, extent and timing of substantive procedures, would depend upon the extent of satisfaction an auditor obtains after evaluating the internal control system. The determination of extent of test checking would also depend upon the same.
  3.  Ascertaining the arithmetical accuracy of the books of account by checking posting, casting, crass-casting, carry forwards, opening and closing balances, etc.
  4.  Examining the documentary evidence (both internal and external) and the authority in support of the transaction, i.e. vouching:
  5.  Checking the validity of transactions with reference to :
  •  provisions affecting the accounts and audit in any Act or Rules;
  •  rules and regulations governing the constitution and management of the organisation i.e., the memorandum and articles of association in the case of a company, partnership deed in the case of a firm, trust deed in the case of a trust and bye-laws in the case of a cooperative society;
  •  minute books for appropriate sanction of the transactions by competent authority;
  •  other legal documents such as the prospectus, returns submitted to legal authorities, contracts and agreements e.g., vendors’ agreement, lease agreement, selling agency agreement, collaboration agreements, etc; and
  •  well recognised accounting principles and practices e.g., distinction between capital and revenue, accrual system of accounting, valuation principles, etc.,
  •  Ensuring that there is adequate disclosure of information and, in particular, the annual accounts are prepared in such a manner as to convey the real picture about the assets and liabilities and of the operating result (profit or loss) of the organisation. For this purpose, the auditor must conform to the prescribed legal requirement, if any, as to the form of accounts and have due regard to the best current accounting practice. Reference to Schedule VI in case of companies and compliance with accounting standards will have to be seen.
  •  Verification of existence, ownership, title and value of the assets and determination of the extent and nature of liabilities.
  •  Scrutiny of the accounts to establish reasonableness, consistency and compliance with the legal requirements.
  •  Application of various overall checks in order to test the overall reliability of the accounting records and the statements and to see whether the results of overall checks corroborate the findings already made.
  • Determination of the significant accounting ratios and subjecting the accounts to ratio analysis to locate the areas showing departure from the expected state of affairs.
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