Principles of Audit and Assurance

1. E-Content: Basic Principles Governing an Audit:
https://youtu.be/6MMCoPm-gJ0?t=89
Basic Principles Governing an Audit Principles Governing
an Audit
Auditing and Assurance standards give the basic principles an auditor has to follow
while conducting an audit of financial statements of any organization.
1.Integrity Objectivity and Independence
Any professional should be straightforward, honest and sincere in his approach. An auditor is a
professional who is given access to entire financial records of the organization he is auditing. He
is also entrusted with funds of other persons for the purpose of audit. So, he should show a high
standard of integrity and maintain a separate account for the amount entrusted to him.
His opinions should be based on evidences rather than on personal intuitions. People in
the organization should not doubt his independence.
2.Confidentiality
The auditor should maintain a strict confidence of the information acquired in the course
of audit. The information should not be disclosed to a third party. If there is a legal or
professional duty to disclose certain information, he may do so with specific authority. The
auditor should not use the information for his personal gains or for the advantage of the third
party.
3.Skill and Competence
The auditor requires specialized skill and competence to perform his audit work. The audit report
has to be prepared with due care. As the professionally qualified persons act as auditors, their
specialized knowledge, skills and competence acquired through study and formal course
help them perform flawlessly. The auditor also needs to constantly update his skill and
competence in the field of accounting and auditing. Skill and competence acquired by the
auditor should be applied with due care.
4.Work Performed by Others
An auditor can delegate work to assistants or use the work performed by others. While
delegating work, he should give proper directions to perform the work. He should also supervise
and review the work appropriately.
An auditor may have to rely on the work and report of another auditor. Then he should ensure the
adequacy of the nature and purpose of the work. He can rely on the opinion or work of an expert
with due caution.

2. 5. Documentation
Adequate documentation serves as an evidence of the audit performed. It will support the fact
that the audit was carried out in accordance with basic principles. Maintenance of
working papers is useful in planning, performance, supervision and review of audit. Therefore,
the auditor is required to document matters in support of the audit work performed by him.
6. Planning
Proper planning enables the auditor to conduct an effective audit in an efficient and
timely manner. Plans should be made to cover, among other things
 acquiring knowledge of the clients’ accounting system, policies, and internal
control procedures.
 establishing the expected degree of reliance to be placed on internal control.
 determining and programming the nature, timing and extent of the audit procedures to be
performed, and
 co-ordinating the work to be performed. Plans should be revised depending upon
the audit needs.
7. Audit Evidence
The auditor before expressing his opinion on the financial statements, conducts tests and applies
audit techniques to collect evidence. By evaluating the evidences collected, he draws
conclusions about the financial statements.
The auditor applies compliance procedures to evaluate the effectiveness of the internal control.
To find out the accuracy and validity of the transactions, he tests the details of the transactions
and analyses the ratios and trends of the expenses and income over the period. These
procedures are called substantive procedures, Thus, audit evidences are of two types:
1. tests of details of transactions and balances and
2. analysis of ratios and trends including the enquiry of unusual fluctuations and items.
8. Accounting System and Internal Control
Depending upon the size and nature of business, the management should maintain an adequate
accounting system incorporating appropriate internal controls. The audit techniques to
be adopted and the extent of substantive procedures to be followed depend on the reliability of
the internal control system.
The reliability of the internal control system depends on its effectiveness, Therefore, it is
the duty of the auditor to evaluate the effectiveness of internal controls regarding accounting
system. The auditor is able to identify the possible areas of material misstatements.

3. 9. Audit Conclusions and Reporting
Conclusions are drawn from the audit evidence collected and from his knowledge of the business
of the entity. The auditor should review and assess the conclusions so drawn.
The auditor gives his opinion in the from of audit report. The form or content of the
report should comply with requirements as prescribed under any agreement or relevant
statutory requirements.