Propriety audit


(Guest)

"We take Propriety to encompass not only financial rectitude, but a sense of the appropriate values and behaviour".

 

Impropriety is considered as one of the serious evils in all the countries and in particular in the developing countries. Governments in various countries are attempting to enact/strengthen various laws to combat impropriety. 

 

What is Propriety?

In general, there is no fixed definition of the term ‘propriety’ which keeps changing, reflecting the changing expectations of society. The literal dictionary meaning of the term propriety encompasses ‘appropriateness’, ‘rightness’, ‘correctness in behaviour or morals’, ‘conformity with convention in conduct’, ‘the standards of behaviour considered correct by polite society’. The core principles of the concept of propriety could be summarised as under:

 

  1. Integrity

  2. Openness

  3. Objectivity

  4. Honesty

  5. Selflessness

The concept of propriety can be related to various other concepts which are commonly known. To list a few:

  1. Accountability

  2. Legality

  3. Probity

  4. Value for money

  5. Fraud & Corruption

  6. Governance

  7. lInternal Control Environment

 

Practically, there is also a reasonable degree of overlap amongst application of these concepts and all the above can be analysed from the broad umbrella of propriety.

 

Root cause for propriety issues

Propriety issues arise in entities due to the following:

  1. Corporate culture

  2. Poorly designed or operated internal controls

  3. Ignorance of the rules or expectations of proper behaviour, especially in small and medium-sized entities

  4. Urge to achieve targets/results in the short term

  5. Greed

 

Reporting by the Auditors

If there are impropriety symptoms identified in the course of enquiry/discussion or verification by the Auditors, it is appropriate for them to report the same to the management or even to those in charge of governance and to consider their impact on audit risk. When the Auditors become aware of any failure of propriety, they should aim to understand its nature and the circumstances under which it has occurred and sufficient additional information should be obtained to evaluate the possible impropriety. If the Auditors consider that the impropriety could be significant, they may perform appropriate additional procedures and document the results.

The extent of additional procedures the auditors decide to perform in response to impropriety is a matter of professional judgment and depends on:

  1. Its impact on the financial statements

  2. Nature of the impropriety

  3. Persons involved

  4. Likelihood that the impropriety may have led to loss of funds

  5. Likelihood that the suspected impropriety involves fraud

  6. Extent to which further procedures can be expected to clarify the situation

  7. Extent to which the impropriety indicates that other impropriety or mismanagement may be present

  8. Likelihood of the need to report.

 

Where there is suspicion of impropriety but an absence of evidence, the Auditors may consider drawing the management’s attention to the possibility of introducing procedures that would generate evidence were the suspicion to be well founded.