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Total Number of Subscribers: 426 |
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Date: 1 April 2008 |
Compiled by Mr. M. Sathya Kumar |
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INDEPENDENCE To arrive at an independent opinion, the auditor has to
bank on a host of entities What does independence depend on? INDEPENDENCE is a basic principle governing audit. Audit and
Assurance Standard (AAS) 1, on `basic principles governing an audit', states
independence as one of the first basic principles of `Integrity, independence
and objectivity'. The definition of audit begins thus: "Audit is an
independent examination of ... " What is independence? Independence implies that the opinion expressed by the auditor
is not subordinate to the wishes another person — be it the management or others — and that the opinion is not
influenced by self-interest. It, therefore, implies that the auditor should not have any
self-interest in the assignment at any stage of conduct of work and that the
report issued by him reflects his opinion and not someone else's. Independence is a state of mind and cannot be imposed by law.
Law or regulations generally prescribe the broad framework, but case-specific
decisions are to be taken by the person in command. But during the course of an audit, the auditor depends upon his
own staff, staff of the entity, outside agencies such as debtors, creditors,
banks, experts, and other auditors such as branch auditors, internal
auditors, and so on. If this were the case, can he still be said to be
independent? Why does an auditor depend on others? Audit involves gathering of audit evidences, their analyses,
drawing of audit conclusions, forming opinions based on such conclusions and
reporting. In the course of an audit, the auditor necessarily has to depend
on different agencies to gather sufficient and appropriate audit evidences.
AAS 5, dealing with audit evidence, says that an auditor should be thorough
in his efforts to gather audit evidence and be objective in its evaluation. For this, he depends on his own staff to carry out complex audit
procedures. He has to necessarily depend upon staff of the entity to furnish
the necessary information, clarifications, explanations, and so on. He relies
heavily on the management to carryout the audit. Audit committees, management representations, and so on, are at
the top management levels. He depends upon outsiders, such as debtors and
creditors, for audit confirmations (AAS 30) and experts (AAS 9) to lend
further assurance to transactions. He also relies upon internal auditors (AAS
7) and other auditors (AAS 10). Internal auditors and other auditors are
engaged in the same line of activity as the auditor but the others, such as
experts, are from other fields of expertise. Independence at the planning stage: It is the auditor who plans the audit. He independently
decides... a) whether to take up the assignment or not after considering the
provisions of law, code of conduct, impairment of independence, and so on; b)
whether to carry out the work on a continuous audit or year-end audit based
on a case-to-case basis; c) when to commence the audit depending on
availability of staff, planning of his work, and so on; d) who should
constitute the audit team to carry out the audit; e) which branch/component
should he start with; f) time allocated for the audit; g) how to go about
evaluation of internal control systems; and h) nature, extent and timing of
various audit procedures to be carried out... and commences the audit under
his supervision. He drafts audit programme considering all these factors. Dependence on staff: The auditor examines the persons before employing them to decide
the extent to which he can depend on them. He considers their integrity levels,
honesty, qualifications, experience, suitability for the job, and so on, at
the time of interview. They are absorbed by him only if he is satisfied with
their overall capabilities. Audit staff work under the superintendence,
control and supervision of the auditor. They carry out the audit in a
representative capacity. They look to the auditor for day-to-day work and
report compliance. The auditor plans, directs, controls, monitors, supervises,
reviews and ultimately owns up the responsibility of the work performed by
his staff. Dependence on the entity's staff: The auditor has to necessarily depend on the entity's staff to
provide information to him during the course of audit. Essentially the
accounting department, the internal audit department or the internal audit
firm provides the auditor with valuable inputs for audit. It is the auditor who decides what information to be called for
from the employees of the entity and the manner in which he would require it.
He requires the staff of the entity to merely provide information to him.
Once information is provided to him, the auditor analyses the information and
subjects the audit evidence (information) to such further examination as he
deems fit before he draws his own conclusions therefrom. The auditor seeks
such further corroborative evidence before he relies on the evidence produced
by the staff of the entity. He looks for other information available in
support of the transaction before he finally decides on the acceptability of
the evidence. Depending on outsiders: The outsiders on whom the auditor depends during the course of
the audit could be debtors and creditors for confirmation of balances;
bankers for confirmation of advances, balances, limits enjoyed, and so on;
internal auditors for efficiency of implementing the internal control
systems; non-executive directors, nominee directors, and so on, for
authenticity of the transaction; audit committee for providing information;
branch auditors as far as the accounts of the branches are concerned; experts
in the fields other than accounting and auditing to substantiate the
transaction. Coutesy : Mr. M. V. Kali Prasad http://www.thehindubusinessline.com/mentor/2005/08/29/stories/2005082900201000.htm |
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