2. Topics covered under this chapter
• Mandatory Accounting Standards issued by Institute of
Chartered Accountants of India
• Professional Ethics of an Auditor.
•Auditing Standards and Procedures
• An overview Generally Accepted Accounting Practices
and Auditing Procedures
•Statements on Standard Auditing Practices and Guidance
Notes.
3. Professional Ethics of an Auditor
The word ethics means a set of moral principles or moral philosophy and
standards of conduct. It involves all standards of behavior.
Professional ethics refers to the behavior of a professional person towards
other members of their profession in particular and towards members of the
public in general.
International Federation of Accountants (IFAC) is of the opinion that, “an
essential prerequisite for any group of such persons (professional
accountants) is the acceptance and observance of professional ethical
standards regulating their relationship with clients, employers, employees,
fellow members of the group and the public generally.”
4. Professional Ethics of an Auditor
International Federation of Accountants (IFAC) emphasis the following
principles for professional accountants –
1. Integrity – Should be a person of integrity
2. Independence – Having no interest or control in the company
3. Objectivity – Be objective in giving opinion or report
4. Confidentiality – Be confidential about the business of the customer
5. Technical Standards – Follow all accounting standards and practices
6. Competence – Should be professionally competent to perform his
duties
5. Accounting Standards – Introduction
• International - International Auditing and Assurance Standard Board
(IAASB) constituted by International Federation of Accountants (IFAC)
• India - Auditing and Assurance Standards Board (AASB) constituted by
Institute of Chartered Accountants of India (ICAI)
• AASB includes elected members of Council of ICAI, eminent members in the
profession and special invitees from SEBI, RBI, IRDA, IIT, Associations of
Industry.
• International Accounting Standards (IAS) are issued by International
Accounting Standards Committee (IASC)
• International Auditing Guidelines (IAG) are issued by International Auditing
Practices Committee (IAPC) of International Federation of Accountants (IFA)
6. Accounting Standards issued by AASB
Standards issued by Auditing and Assurance Standards Board are
1. Standards of Auditing (SA) which are applied to historical financial
information.
2. Standards on Review Engagements (SRE) are applied to the review of
historical financial information.
3. Standards on Assurance Engagement (SAE) are applied to assurance
engagements.
4. Standards on Related Services (SRS) are applied to engagements involving
application of procedures to information, compilation engagements and
other related engagements.
5. Standards on Quality Control (SQC) are applicable to all services covered
by the engagement standards as above.
7. Objectives and Functions of AASB
1. Reviewing of existing and emerging audit practices across the world
2. Formulation of SA, SRE, SAE, SRS and SQC
3. Reviewing of existing standards and statements of Auditing
4. Developing Guidance Notes
5. Reviewing and revising existing Guidance Notes
6. Formulating general clarifications wherever necessary
7. Formulating and issuing Technical Guides, Practice Manuals, Studies etc.
8. Procedure for issuing Standards of Auditing
1. The broad areas which require SA shall be determined by AASB as well
as the priority in selection of SA.
2. The study group constituted by AASB shall consider the specific
subjects. The study group shall be constituted of members of the
Institute.
3. On the basis of work done by study group, the proposed draft of SA
shall be prepared by the Committee which is released for the comments
of members of the Institute.
9. Procedure for issuing Standards of Auditing
4. After considering the comments of members of the Institute, the
proposed draft of SA shall be finalized by AASB and is referred to the
Council of the Institute.
5. The final draft of proposed SA is considered by the Council of the
Institute, which may be modified by the Council with the consultation
of AASB, thereafter it is issued under the authority of the Council.
10. Guidance Notes
• ICAI has issued from time to time many guidance notes on matters
of accounting and auditing.
• They have been issued with a view to securing compliance by
auditors.
• They are issued to provide guidance to auditors in certain
accounting or auditing contingency.
• They are recommendatory in character.
11. Generally Accepted Accounting Practices
• Auditing of financial statements seeks to ensure that the
financial statements are prepared with due regard to
accounting conventions.
• Known as Accounting Conventions, Concepts or Doctrines,
these give uniformity in presentation of financial data.
12. Generally Accepted Accounting Practices
Important concepts in this aspect are as follows –
1. Double entry system of accounting.
2. Going concern concept – Current assets are valued at their realizable
value and fixed assets are valued at cost less depreciation.
3. Accrual concept – Income is to be recognized if right to receive it has
occurred irrespective of actual collection of it. Expense is to be
accounted if it has occurred irrespective of actual payment of it.
4. Distinction between Capital Expenditure and Revenue Expenditure.
5. Conservatism – All losses either present or probable are to be
provided. Income is to be recognized only if it is not unreasonable to
expect its ultimate recovery at the time of its occurrence.
13. Accounting Standard of ICAI
According to Accounting Standard 1 of the ICAI, financial statements are
assumed to be prepared and presented on the basis of the following
assumptions –
1. Going concern – That the enterprise has neither necessity nor intention to
close the operations in foreseeable future
2. Consistency – Accounting policy followed in the last year is continued to be
followed this year also
3. Accrual – Revenue and expenditure are accounted on due basis
irrespective of collection or payment
14. Accounting Standards
• Accounting Standards that are Issued by - ICAI
• Issued Accounting Standards - 32
• Formulated by ASB which was set up on 21st April, 1977
• In Force Accounting Standards - 31
• Notified Accounting Standards - 29 (by Ministry of Corporate
Affairs)
15. List of Accounting Standards
AS-1 : Disclosure of Accounting Policies
AS-2 : Valuation of Inventories
AS-3 : Cash Flow Statements
AS-4 : Contingencies and Events Occurring
after the Balance Sheet
AS-5 : Net Profit or Loss for the Period,
Prior Period Items and Changes in
Accounting Policies
AS-6 : Depreciation Accounting
AS-7 : Accounting for Construction
Contracts
AS-8 : Accounting for research &
development – (withdrawn & merged
with AS-26)
AS-9 : Revenue Recognition
AS-10 : Accounting for Fixed Assets
AS-11 : The Effects of Changes in Foreign
Exchange Rates
AS-12 : Accounting for Government Grants
AS-13 : Accounting for Investments
AS-14 : Accounting for Amalgamations
AS-15 : Employee Benefits
AS-16 : Borrowing Costs
16. List of Accounting Standards
AS-17 : Segment Reporting
AS-18 : Related Party Disclosures
AS-19: Leases
AS-20 : Earnings per Share
AS- 21: Consolidated Financial
Statements
AS-22 : Accounting for Taxes on Income
AS-23 : Accounting for Investments in
Associates in consolidated financial
statements
AS-24 : Discontinuing Operations
AS-25 : Interim Financial Reporting
AS-26 : Intangible Assets
AS-27 : Financial Reporting of Interests
in Joint Ventures
AS-28 : Impairment of Assets
AS-29 : Provisions, Contingent
Liabilities & Contingent Assets
AS-30 : Financial Instruments:
Recognition & Measurement
AS-31 : Financial Instruments:
Presentation
AS-32 : Financial Instruments:
Disclosures
