Translated interview regarding audit techniques and concepts. The interviewer was the internal auditor from the Pakistan's well-known company(not mentioning his name because of confidentiality)
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Auditing interview report by rahma aftab
1. Introduction to interviewer:
He is a senior manager of audit and insurance. His qualification is ACCA + ICAW.
His age is 28 years old. His qualification is from UK. He has 4 years’ experience in
audit, insurance and financial advisory. His firm FEROZ NASIR SAEED & CO. (FNS &
CO.) consists of 3 partners. They all are qualified CAs. They have a portfolio of
more than 100 clients from which some are limited companies and some are
government institutions. He didn’t disclose the names because of confidentiality.
They specially have the skills in taxation, corporate sectors and have different
variables.
Q. What is the procedure of appointing the auditors and who appoints the first
auditor of the company?
A. Audit is compulsory for the private and public Ltd. Co. both. The first auditor is
appointed by the board of directors. The next auditor is appointed by the voting
of shareholders in annual general meeting. But in real world, it doesn’t happen
because the shareholders have very small margins usually.
Q. Is C.A only way to be an auditor?
A. No, after doing ACCA & ICAW, a person gets the signing authority but there are
some limitations in Pakistan and India that a firm should have a department of
C.A qualified. But for internal auditor, it is not necessary to be done with C.A.
even a M.BA can conduct the internal audit.
Q. What is the main responsibility of an auditor according to your point of view?
A. The main responsibility of an auditor is to give a true and fair opinion on the
financial statements of the company. The management of the company prepares
financial statements of the company i.e. balance sheet, profit and loss statement,
statement of changes in equity, cash flow statement & disclosures. An auditor has
to check the financial uncertainty in financial statements. An auditor doesn’t
check the immaterial things in detail. For example: if you are buying and selling
shares, your decision can be changed. For this materiality, an auditor keeps 5%
cap, 5% of revenues and 2.5% of net assets (total liabilities-total assets). Auditor
2. has to assure whether the value of revaluation of fixed assets is correct or not.
Did IFRS9 apply for fair valuation of assets or not? Except that, the auditor has to
check the current assets whether they are actually available or not? After
involvement of many departments like FBR, SECP an auditor becomes able to give
his fair opinion. The opinion of an auditor is not 100% true because for 100%
fairness, there is much time required which is not possible for a company.
Q. Before going for an audit, do you go through the information related to that
company?
A. Information varies from industry to industry. For example: a person who has
specialization skills in lubrication and oil so it is not necessary that he has that
much skill in I.T also. Because the variables are totally different. Whenever you go
for an audit, firstly, you get information about that company. You should know
the procedures, standards, rules and regulations that you are applying are
acceptable or not. You should know where the fraud mostly occurs. For example:
if you are going to audit EXACT CO. so you should know that there are several
rumors about the fake degrees in that company that’s why you have to check the
degrees tentatively.
Q. Which type of audit techniques do you use mostly and why?
A. Audit techniques depend on clients’ data. Mostly we use H-lookup & V-lookup.
V-lookup is an excel function to look up and retrieve data from a specific column
and row in a table.
Q. How much time usually it takes you to complete audit of any organization?
A. The duration of audit depends upon the size, nature and most important
documents of the company. If company delay in providing documents and
information, it may take 6 months otherwise audit can be conducted in minimum
1 month for private company and 3 months at least for public company.
Q. How do you ensure “Independence”?
A. The auditor should be independent. His opinion shouldn’t be influenced by any
relationship with any organization. The auditor can’t audit that company in which
3. he has any relationship. In case, the auditor has any relation with the organization
then he have to withdraw.
Q. How much do you rely on the previous audit of the company and internal audit
of the company?
A. The auditor’s reliance on the internal audit is 0%. Internal audit doesn’t provide
assurance on the fairness of financial statement. Internal audit is conducted for
the internal controls and the procedures of the company. For the previous audit ,
if it was conducted by the same audit firm who is conducting now then the
auditor can rely on previous records otherwise the auditor has to go through all
procedure.
Q. Do you discuss any major accounting and auditing issues with the management
of the company?
A. Yes, management letter is a part of it. Management letter consists of all the
deficiencies’ of the company and their solutions, their impacts on the
management, organization, shareholders and stakeholders.
Q. How do you manage the joint audit?
A. Joint audit is not usually conducted in practical life. In joint audit,
responsibilities of the audit teams are divided into segments and parts. For
example: one is looking for liabilities section and the other one is for the assets of
the company. But the government sectors mostly get their audit conducted by
joint audit. At last, final report is signed by both auditors.
Q. Do the minutes of the company help you in audit conduct?
A. The minutes of the company is necessary for conducting audit because through
it, we can check that the issue we are resolving , does it have any legal status or
not? Even the SECP deals with the companies on these bases otherwise the
minutes of the company is not more than the papers.
Q. During audit, what will be your reaction if the organization whose audit you are
conducting doesn’t provide the required information?
4. A. The auditor will just demand for that. If the company doesn’t provide, the
auditor will just qualify his opinion. A qualified opinion is given due to limitations
in which the company couldn’t gather the sufficient evidences.
Q. How do you detect errors in accounting records?
A. The auditor uses different methods and techniques to detect errors. The
auditor considers those errors in accounting records which generates a material
impact on the financial statements of the business. The auditor usually doesn’t
consider the immaterial things. The auditor first issues the management
representation letter (MRL) in which the auditor highlights the errors which
should be resolved. If these errors are not sorted out by the organization then it
may go towards the qualification.