With the passing of every day under the present lockdown due to Covid-19, we are coming closure to many dead ends usually called last dates to file various returns under the income tax act, compliances under Companies Act and continuous obligation to file various monthly, quarterly and annual returns under different statutes. From now onwards we will be performing two important functions i.e. statutory audits and tax audits.
It seems that the current year's audit will be a virtual one and from our own offices presently scattered at different locations as most of us are working from home. In the recent past, we used to manage our audit staff with different qualifications and experience in a close-knit atmosphere. These teams usually used to carry out audit work by pooling their experience of the audit and handling of a continuing client in the past and in case of minor problems relied on the decision taken by the team leader. One major help to the audit team used to come from the audit working papers/files of the previous year. In reality audit of the current year starts after the audit team goes through the audit papers of the previous year/years. The next step was to have a discussion among the audit team to finalize the audit program and to start the audit. At the end of the routine audit, an overall review used to be carried out by the designated senior to satisfy the quality of the audit completed by the audit team. Once all the doubts or observations of the senior were cleared by the team final print outs of the financials were taken for putting the signatures of the client and the auditor.
Audit under the virtual system will or may miss all the above processes or a few of these. Auditors may not be able to verify the records physically and may have to rely on the scanned images received at their place of working which may be an office or home. What I feel this year is a unique one we need to establish certain processes keeping in mind that such processes are not temporary to be used during the current year but also can be a guiding factor for the future. Let the current years' experience be adopted and incorporated in our future practice also. We may call these processes SOPs for our offices.
We may divide the total audit work into three parts with a brief explanation:
- Client Profiling.
- Standard Audit Programs.
- Audit Processes.
- Review of Draft Accounts.
We need to create a dossier about all our clients giving details about their management, nature of the organization, product/products they are manufacturing, or trading or services they are providing. Whether the organization is of commercial nature or charitable or registered under Companies Act, Partnership Act, Societies Act, etc. etc.
Standard Audit Programs:
From the client's profile, all the clients may be grouped under three to four groups keeping in mind their nature of business, turnover, legal status, compliances, status with respect to listed and non-listed companies. Standard auditing processes to be followed along with a checklist of documents required to be documented. The standard audit process thus documented must be made available to the audit teams to be followed by them to maintain quality and consistency. These audit programs/processes need to be continuously updated with any change in the legal requirements. Following a uniform audit approach during auditing will ensure efficiency in audit and will save cost and time.
Once the audit work of a client is assigned, the concerned audit team needs to understand the working profile of the client whose audit has been assigned to them. Once they understand the nature of accounts, they should refer to the audit program required to be followed to execute the assigned job. The team leader must follow the guidelines provided in the standard audit program and distribute the work among the team accordingly. At the start of the audit, the team must be clear about the percentage of vouching and the value they need to check. A list of documents and vouchers mentioning the name of the audit team members with mailing addresses must be drawn and mailed to the client with a request to send the soft copies of the items directly to the concerned auditor. Every team member after the receipt of the soft copies must carry his part of the audit as per the audit schedule and maintain the audit details and notes to be used at the time of drawing the final accounts and subsequent review. The responsibility of the audit team leader should be to remain in constant touch with his team to collect information about the progress of the audit and help them in solving their difficulties. For better management of the audit, the team leader must remain single point contact between his team and the client. This will help in the smooth flow of information from both sides.
Review of Draft Accounts:
Once the team leader is satisfied with the completion of the audit and is in possession of all documents and working notes mailed by his team members along with draft financials he may proceed for the process of review with his senior. The first step will be to understand the papers received by him, arrange the papers as per the schedules of the draft final accounts, and forward these to the senior on his mail address. Allow some time to senior for his first-hand review and understanding. Fix a time for video conference and be prepared with all the papers and working notes. Satisfy the observations raised by the senior or note down the changes to be made as advised for further action. After the meeting make the changes if any, revisit the draft financials to close the audit. Once the audit process is closed forward the audited financials to the senior along-with changed audit notes and other documents for future reference. Once the senior receives the final audited financial after revisiting the same, he may send the financials to the client to be returned after putting signatures.
This was what I thought will help us during working at multi-locations and without meeting physically. I hope my professional colleges will improve this article in the future for the guidance of those professionals and their audit staff who are new to the profession or are working remotely for the first time. Since our profession is bound to change the existing shape while entering a new era this article can be the trigger for sharing our creative thoughts in the future.