Overview of Standards on Auditing: Standards on Auditing are also a tool to increase the fee structure. The client will eventually recognise the efforts that go in concluding the audit, however small it may be. In a highly regulated business environment of some of the western countries, we observe that the gap in fee structure is not as materially different between large firms against proprietary organisation for comparable sized organisations. This is mainly due to evidencing of these audit procedure to the client as well.
While it is true that the degree of depth in application of SAs to various sizes of clients will vary materially, it is necessary that the auditor must have on its records an evidence that he has carried the audit as per the applicable SAs. Finally the term “Audit” means the auditor has applied certain approved procedure to arrive at the conclusion. These procedures are nothing but SAs.
In order to facilitate easy application of these standards, every audit file must contain the list of these SAs and remarks of signatory against each whether the standard is applied. This will inculcate the necessary discipline among the staff members and even the signatories of the audit statements. Such remarks will compel the signatory to go to the depth of certain standards which are required to be applied in the relevant situation.
Let us first understand the overall structure of the auditing standards.
The entire structure of SAs is divided as under:
I. Standard on Quality Control (SQC)
There is only one standard in this category. This standard is more on the audit quality philosophy. This standard necessitates every firm or an individual who undertake the audit to have documented policies on:
- Leadership responsibilities for quality within the firm: The head of the organisation is responsible for development quality practices & promote the culture of audit quality.
- Ethical Requirements: Independence to undertake audit is required to be established. Integrity, confidentiality & professional behavior are the key ingredients.
- Acceptance and continuance of client relationships – An auditor is required to document the significant issues, consultations, conclusions and the basis for accepting/rejecting and continuation with the client.
- Human Resources – Engaging of right manpower is crucial in establishing that the audit performance is as per professional standards to enable the firm or engagement partner to issue reports
- Engagement Performance – This requires evidencing briefing to team members, review of audit by assistants, consultations obtained during the course of audit, difference of opinion, if any and how is that resolved.
- Monitoring – This refers to monitoring the developments in SAs & other professional materials to ensure the quality standards.
II. Standards on Auditing
These are applicable to any audit engagement. The standards are categorised as under :
| General principles & Responsibilities | SA 200 to SA 299 |
| Risk assessment & Response to the assessed risks | SA 300 to SA 499 |
| Audit Evidence | SA 500 to SA 599 |
| Using work of others | SA 600 to SA 699 |
| Audit conclusions & Reporting | SA 700 to SA 799 |
| Specialised Areas (Details given below | SA 800 to SA 899 |
III. Standards on Review engagements (SREs)
An auditor undertakes review assignments. These standards need to be applied during review. There are two such specific SREs. The names are listed below:
- Review of historical financial statements SRE 2400
- Review of interim financial statement by independent auditor
IV. Assurance Engagements Other Than Audits or Reviews of Historical Financial Information (SAEs)
There are certain specific assignments undertaken by a chartered accountant of assurance nature other than audit or review. There are three specific subject matter SAEs
1. Examination of prospective financial information (SAE 3400): “Prospective financial information” means financial information based on assumptions about events that may occur in the future and possible actions by an entity. It is highly subjective in nature and its preparation requires the exercise of considerable judgment. Prospective financial information can be in the form of a forecast, a projection, or a combination of both.
2. Assurance report on controls at service organisation (SAE 3402): This is a counterpart of SA 402. During the course of audit, auditor is required to ensure that the service provider has enough controls to ensure the correct information for audit conclusion. He may conduct the assurance himself or may require other professional firm to provide that assurance. If the assignment is conducted by another firm, this SAE is applied.
3. Assurance on financial information provided in prospectus (SAE 3420)
V. Standards on Related Services (SRS)
1. Agreed upon procedures (AUP) SRS 4400 – Sometimes management requires auditor to perform the audit checks to ensure the correctness of the statements prepared by them. These are specific checks and involve only factual reporting without any assurance
2. Compilation engagement SRS 4410 Professionals are engaged to help the management to compile and put the data in order. This standard spells out the professional care to be exercised while conducting such assignments.
VI. Guidance notes (GN) :
Besides SAs, ICAI has also issued guidance notes that help professionals to evidence the proper conduct of audit. These are specific to the subject matter. Some of the important GNs every professional must have (as relevant assignments are commonly undertaken by most of the professional) are as under:
- a) GN on Bank audit
- b) GN of CARO reporting
- c) GN on Consolidation of financial statements
- d) GN on special purpose reports (Certificates): In my opinion, it is imperative to have this as certificates are commonly issued by all the professionals. This enumerates the format in which certificates should be issued.
Finally, it is necessary to keep a list of SAs in our audit documentation file to ensure its compliance. The brief on each standards is given below which can be utilised as a reference checklist for each audit/ assignment undertaken.
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