(a) Review of the audit programme: There should be periodic review of the
audit programme to assess whether the same continues to be adequate for
obtaining requisite knowledge and evidence about the transactions. Unless
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SUGGESTED ANSWER
this is done, any change in the business policy of the client may not be
adequately known, and consequently, audit work may be carried on, on the
basis of an obsolete programme and, for this negligence, the whole audit
may be held as negligently conducted and the auditor may have to face
legal consequences.
The utility of the audit programme can be retained and enhanced only by
keeping the programme as also the client’s operations and internal control
under periodic review so that inadequacies or redundancies of the
programme may be removed.
Audit programme not only lists the tasks to be carried out but also contains
a few relevant instructions, like the extent of checking, the sampling plan,
etc. So long as the programme is not officially changed by the principal,
every assistant deputed on the job should unfailingly carry out the detailed
work according to the instructions governing the work. Many persons
believe that this brings an element of rigidity in the audit programme. This
is not true provided the periodic review is undertaken to keep the
programme as up-to-date as possible and by encouraging the assistants
on the job to observe all salient features of the various accounting
functions of the client.
In the given situation, Ms. PP & Co., a firm of Chartered Accountants has
been auditing the books of accounts of KALI Ltd. for the past 3 years and
the Company has recently made major changes in its business policies,
therefore, it is very essential to review the audit programme. Thus,
contention of the audit manager to adhere with the instructions of
following the same audit programme as per routine practice is not correct.
(b) As per SA 500, “Audit Evidence”, issued by ICAI, when using the work of a
management’s expert as audit evidence the auditor should evaluate the
competence, capabilities and objectivity of that expert that:
•
Whether the expert is employed by the entity or is an outside party.
•
Whether the expert is independent in respect of the entity.
•
Auditor’s previous experience of the work of the expert.
•
Knowledge of the expert, his qualification, membership of a
professional body or industry association, etc.
AUDITING AND ETHICS
The auditor should also obtain an understanding of the work of that expert
that:
•
Whether the auditor has expertise to evaluate the work of the expert.
•
Evaluating the assumptions and methods used by the management.
•
Evaluating the nature of internal or external data used by the expert.
(c) Use of Digital Technology in the conduct of an audit: Entities are
embracing digitization as part of their operations to keep pace with
changing times. New technologies are helping companies revamp their
operations and rethink the way business is conducted. Companies are
restructuring their business models driven by technology. Automation is
key to digitization.
In such a business environment, use of digital technology is being made by
auditors right from planning to expression of final opinion.
•
Auditors are making use of artificial intelligence, data analytics and
other latest technologies to help understand business processes in a
better way.
•
By using such tools, auditors can conduct audits in a better way and
devote more attention to areas requiring greater focus.
•
Digital audit is helping auditors to better identify risks making use of
technology.
(d) Audit Engagement Letter: The auditor shall agree the terms of the audit
engagement with management or those charged with governance, as
appropriate. The agreed terms of the audit engagement are recorded in a
letter or other the suitable form of written agreement. Such an agreement
is known as Audit Engagement Letter. The audit engagement letter is sent
by the auditor to his client. It is in the interest of both the auditor and the
client to issue an engagement letter so that the possibility of
misunderstanding is reduced to a great extent.
Audit Engagement letter includes: -
(1) The objective and scope of the audit of the financial statements
(2) The responsibilities of the auditor
(3) The responsibilities of management
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SUGGESTED ANSWER
(4) Identification of the applicable financial reporting framework for the
preparation of the financial statements and
(5) Reference to the expected form and content of any reports to be issued
by the auditor and a statement that there may be circumstances in
which a report may differ from its expected form and content.
If law or regulation prescribes in sufficient detail the terms of the audit
engagement, the auditor need not record them in a written agreement,
except for the fact that such law or regulation applies, and that
management acknowledges and understands its responsibilities.