(a) (i) In the given situation, M/s YZW & Co., Chartered Accountants, have
been appointed as statutory auditor of First Health Private Limited
which operates in business of hospitals and pharmaceuticals, with
60 hospitals and 200 pharmacy stores across the country. CA. Y, the
engagement partner for this assignment, was informed about the
availability of the client’s ledger invoices, debit notes, credit notes as
audit evidence. He accepted these documents as audit evidence,
considering them to be “available”. For verifying assertions about book
debts, the client’s ledger invoices, debit notes, credit notes, monthly
accounts statement sent to the customers are all evidence: some of
these are corroborative, other being complementary. In addition,
balance confirmation procedure is often resorted to obtain greater
satisfaction about the reliability of the assertion.
The word “available”, does not mean that the evidence available with
the client is the only available evidence. The auditor should know what
normally should be available in the context of the transaction having
regard to the circumstances and usage.
In view of the above, it can be concluded that decision of CA. Y to
consider clients’ ledger invoices, debit notes, credit notes as audit
evidence, considering them to be available, is not correct.
(ii) Evidence is the very basis for formulation of opinion and an audit
programme is designed to provide for that by prescribing procedures
and techniques. What is best evidence for testing the accuracy of any
assertion is a matter of expert knowledge and experience. Transactions
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are varied in nature and impact; procedures to be prescribed depend
on prior knowledge of what evidence is reasonably available in respect
of each transaction.
In most of the assertions much of the evidence be drawn and each one
should be considered and weighed to ascertain its weight to prove or
disprove the assertion. In this process, an auditor would be in a
position to identify the evidence that brings the highest satisfaction to
him about the appropriateness or otherwise of the assertion.
An auditor picks up evidence from a variety of fields and it is generally
of the following broad types:
(i) Documentary examination
(ii) Physical examination
(iii) Statements and explanation of management, officials and
employees
(iv) Statements and explanations of third parties
(v) Arithmetical calculations by the auditor
(vi) State of internal controls and internal checks
(vii) Inter-relationship of the various accounting data
(viii) Subsidiary and memorandum records
(ix) Minutes
(x) Subsequent action by the client and by others.
(b) Types of Controls in an automated environment: Controls in an
automated environment can be categorised as under: -
(i) General IT controls
(ii) Application controls
(iii) IT-dependent controls
AUDITING AND ETHICS
Column A - Areas where Controls to
be implemented
Column
B
-
Type
of
Controls
Access security
General IT controls
Sequence number checks
Application controls
Data centre and network operations
General IT controls
Mandatory data fields
Application controls
(c) (i) Meaning and Significance of Completion Memorandum: The
auditor may consider it helpful to prepare and retain as part of the
audit documentation a summary (sometimes known as a completion
memorandum) that describes-
♦
the significant matters identified during the audit and
♦
how they were addressed.
Such a summary may facilitate effective and efficient review and
inspection of the audit documentation, particularly for large and
complex audits. Further, the preparation of such a summary may assist
auditor’s consideration of the significant matters. It may also help the
auditor to consider whether there is any individual relevant SA
objective that the auditor cannot achieve that would prevent the
auditor from achieving the overall objectives of the auditor.
(ii) Assembly of the Final Audit File: As per SQC 1, “Quality Control for
Firms that perform Audits and Review of Historical Financial
Information, and other Assurance and related services”, the auditor
shall assemble the audit documentation in an audit file and complete
the administrative process of assembling the final audit file on a timely
basis after the date of the auditor’s report. An appropriate time limit
within which to complete the assembly of the final audit file is
ordinarily not more than 60 days after the date of the auditor’s
report.
In the given case, the audit report was issued on August 20, 2024 and
CA P instructed team member Mr. Y to assemble the final audit file and
to prepare completion memorandum. However, Mr. Y completed the
assembly of the final audit file in the month of March 2025, i.e. more
than 60 days, is non-compliance of SQC 1. Thus, the approach of team
member Y is not correct.
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