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Audit approach and Audit Team...

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DIAGRAMMATIC REPRESENTATION OF AUDIT APPROACH

Terms of engagement

Refer : SAs issued by ICAI

Overall Objective :

an efficient and effective audit

Constraining factors

Knowledge of the business

Risk

Materiality

Practicality

Accounting and information

systems

Evaluation of options

Internal

Analytical

Substantive

Inter Relationship

Control

Review

Tests

Overall strategy and detailed audit plan : Planning Memorandum

Time Table and Budget

Audit Programmes

Time Recording

Collection and Evaluation

Monitoring and

of option

Control

costs Summary

Completion Procedures

AUDIT FEE

AUDIT REPORT

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AUDIT TEAM

On each audit engagement, all the members of the audit team should understand clearly their
responsibilities and the objectives of the procedures which they are expected to perform.

I am discussing here,

general indication of the respective responsibilities of partners and audit staff.

The degree of supervision required and the extent to which responsibilities may be delegated
will depend on the size and complexity of the assignment and on the experience and proficiency
of the audit staff.

ENGAGEMENT PARTNER

The engagement partner has responsibility for all services provided to the client. He has a general
duty to keep up to date with audit, accounting and tax matters and to maintain knowledge of
the particular industry in which the client operates. This enables him to assess the practical effect
of new developments on the individual client.

The engagement partner is also responsible for monitoring changes in the clien's circumstances
(eg. In ownership, management,directors,financial position, nature of operations)
to ensure that no conditions have arisen which would have caused the firm to refuse appoinment,
had such conditions existed at the time of initial acceptance.

It is for the engagement partner to establish the scope and objectives of the firm's engagement
(in a letter of engagement), to review these regularly and to discuss additional services with
the client.

In most cases the engagement partner will also be the audit partner and the expressions are
used synonymously.
The audit partner is responsible to his fellow partners for the firm's report on the financial statements.
He needs to be satisfied that the work on each audit is being performed to an acceptable standard.
He will approve the planning of the audit and review the audit files and financial statements
to ensur that the audit evidence obtained is sufficient to enable the firm to express an audit opinion.

His Responsibilities include the following :

to maintain regular contact with the client
to approve the general and detailed audit strategy
to approve budgets and the assignment of appropriate staff to the audit team.
to review the work of the audit manager and to assess his performance
to ensure that objectivity is maintained unimpaired
to discuss and resolve points of contention, seeking appropriate specialist advice where necessary
to approve management letters and post audit letters sent to the client
to approve the audit fee.

REVIEW PARTNER

For the audit of companies whose shares are publicly traded and for certain major other clients,
a second partner, or review partner, is involved.
He is responsible for providing the audit partner with an objective review of the financial statements
and points on accounts before the audit report signed, and second opinion on major matters
arising from the annual audit and othe professional matters arising during the year.
In addition, the second partner provides the client with a back-up service at partner level.



The review partner will not normally become involved in a detailed examination of the working papers.
The intention is not to duplicate effort but to produce an informed and objective opinion on material
matters and on sensitive audit and accounting problems.
In his review, his stance will be that of a potential user of the financial statements.

AUDIT MANAGER

The audit manager is responsible to the engagement partner for the satisfactory completion of
the audit work. This requires that the work be carried out to acceptable standards in accordance with
the firm's procedures and within budgeted cost and time limits.

In order to achieve this overall objective the audit manager will normally be responsible for :

deciding on the nature and scope of the work to be carried out and preparing an audit planning
memorandum and budget, to be approved by the engagement partner.
In certain cases, some or all of the planning functions may be delegated.

agreeing the audit timetable with the client and making arrangements for travel, hotels and
accommodation at the client's offices.

selecting ( in conjunction with the audit group manager) audit staff who have appropriate training,
experience and proficiency.

ensuring that staff are adequately briefed about the client's affairs, the nature of the business
and audit strategy

supervising the programme of work by paying regular visits and providing audit staff with
technical advice and any on-the-job training required.

reviewing the work of the audit senior and assessing and reporting on his performance.
The audit manager should monitor the supervision of student's work by senior staff and ensure that
senior staff have in turn reported on student's work.

liaising with tax department and other specialist groups, departments or offices involved in the audit.

making appropriate note of matters which should be brought to the partners's attention. Major
audit points should be discussed in good time with the client and engagement partner.

keeping the engagement partner informed of all significant developments during the course of audit.

keeping the audit group manager informed of progress on each audit, staff progress and any
changes in staff requirements.

ensuring that the firm's consultation procedures ( eg. Second partner review, qualified reports)
are followed, where applicable

ensuring that the firm's completion procedures are carried out.

In addition to his responsibilities with regard to each annual audit, the audit manager is responsible
for maintaining the continuity of relationship with the client from year to year.

In particular he should :

Keep up to date with the major developments in the client's industry

anticipate the effects of new legislation and other technical developments, and discuss these with
the client where appropriate

respond promptly to any communication fron the client

report to the engagement partner any important developments, correspondence or discussion
with the client.

AUDIT GROUP MANAGER

The audit group manager's responsibility is to ensure :

that staff with the appropriate training, experience and proficiency are available for the audit.

that the allocation of work within the group between the audit managers is such that each manager
has sufficient time to carry out his duties on each audit.

that the firm's audit procedures are properly understood and operated with in the group.

The audit group manager also has other administartive responsibilities.

AUDIT SENIOR

The audir senior is appointed by the audit manager to control the day-to-day running of the audit.

He is responsible, inter alia, for :

assisting the audit partner and manager in planning the audit

preparing a detailed audit programme as directed by the audit manager.

ensuring that the audit work is carried out as planned

specifying the work to be carried out by staff reporting to him and ensuring that they understand
and are capable of carrying out the work

providing audit staff with adequate technical support and on-the-job training

keeping the audit manager informed of any technical or administrative difficulty arising during
the course of the audit, and of the progress of the audit compared with the planned timetable
and budgeted costs.

keeping the audit staff informed of the overall progress of the audit

reviewing the work of staff reporting to him and assessing their performance in formal reports.

ensuring that all audit work is completed in good time and that the results of the work adequately
support the conclusions drawn

organising the working papers in a form that facilitates review and answering and following up
partner or manager review points.

Note :

As the member in charge of the audit team at the client's premises, the senior is responsible
for maintaining a good working relationship with the client's employees.


AUDIT ASSISTANT

An audit assistant is responsible for carrying out the work given to him by the senior.
in order to do so he must understand clearly the objectives of the work he is expected to perform
and the degree of detail and level of materiality to which he should work.

In particular he should :

ensure by discussion with the senior that he has all the necessary backgroung information
concerning the asignment.

review the relevant sections of the permanent notes and the previous year's audit files and, when
assigned a particular task for the first time, re-read the relevant sections of the audit manual.

be aware of the time budgeted for the task given to him and record the actual time taken

keep the audit senior informed of his progress with the task given to him

record and bring promptly to the senior's attention any significant discrepancy he might find

ensure that review points are adequately answerd

CLIENT RELATIONS

Good client relations create a better working environment and will increase the efficiency with which
the audit can be performed.

All members of the audit team at the client's premises should consider the followinf :

Key client personnel should be regularly informed of current and planned audit activities and of
any special requests the audit team may have

interference with the client's daily routine should be kept to a minimum

adequate documentation should be kept so that needless or repetitious questioning of client
employees is avoided.

For instance, Where an audit step requires the confirmation of an already documented system,
the audit staff should indicate that they are seeking to identify only subsequent changes
in tha system.

The audit team should adopt the client's working hours and observe his rules governing general
office routines.

All members of the audit team should take a genuine interest in the client's operatins
and in being of service to the client.

They should develop an awareness of the needs of the client and the amny services offered by
the firm, and suggest to the engagement partner or audit manager, any ways in which
the firm can be of further assistance.



Regards

K.Ilayaraja