Auditing Standard and Practice

TODAY’S TOPIC
Auditing Standard
and
Standard Practice in
Auditing

CONTENTS OF THIS TOPICE
 Introduction and Definition
 Classification of Auditing Standard
 Organizations Influencing Auditing Standards
 Concept of International Standards on auditing [ISAs
 Concept of Bangladesh Standards on Auditing
 Benefits Derived from ISAs
 Auditing Profession in Bangladesh
 Ethics
 Corporate Government

INTRODUCTION and
DEFINITION
Introduction:
The more you follow the principles the more your business
will be fruitful. That is to say nothing can go without
following its own principles. There is no exception of this
rules regarding auditing. So an auditor is to follow some
principles, guidance's and methods during audit activities.
These are know as auditing standards. Among these which are
international accepted and practiced are know as International
Standards on Auditing ISAs.

Definition of Auditing Standard:
Generally auditing standard indicates the evaluation of
quality of auditing activates accepted and performed
in any organization. In the other word, the principles
and methods followed by an auditor appointed in
audit to perform his duty very effectively are know as
auditing standard.
In summary it may be said that the principles and
methods followed during audit activities with a view
to bring the uniformity in world audit are know as
auditing standards.

CLASSIFICATION OF AUDITING
STANDARD
Depending on the overall considerations,International standards on
Auditing can be classified into seven types.
1. Frame work of Standards
2. Overall objectives
3. Basic Principles
4. Procedures of examination
5. Reporting Procedures
6. Other Information in Documents containing audit Report
7. Special Purpose auditing
But if we consider categorically International Standards on Auditing can be
categorized into three:
1. General Standard
2. Standard of Field work
3. Standard of Report

ORGANIZATIONS INFLUENCING
AUDITING STANDARD
Organizations influencing auditing standards indicate those organizations which
are entitled or empowered to interfere in the different functions of auditing e.g issuing
standards, rectifying and replacement of standards, providing guidelines in the
application of standards etc.
But the question is, are there any dissimilarities
between ISAs and the auditing standards practiced in different countries ? Yes, off
course.
A 1998 survey of IFAC member bodies revealed some interesting information. First
of all, of the 65 countries responding, the showed that eighteen 18 countries including
Bangladesh have completely adopted the ISAs as their national auditing standards. Of
the remaining 47 countries, the survey showed that:
*28 countries had no significant differences between the national standards and
ISAs;
* 9 countries had some significant differences ; and
* 10 countries had not identified whether there were any differences.
That is to say, if we consider internationally we will see that IFAC is the organization
which can influence ISAs since under IFAC a committee known as IAPC (international
auditing practices committee) issued ISAs.
In the same way in the context of Bangladesh, ICAB and ICMAB are the
organizations which can influence BSAs because of being the members of IFAC.

ISSUER OF ISAs, CONCEPT OF IFAC
AND IAPC, OBJECTIVES OF IAPC
*ISSUER OF ISAs:
IAPC (International auditing practices
committee) formed under IFAC (international
federation of accountants) issues ISAs.

*CONCEPT ABOUT IFAC:
IFAC (international federation of accountants) is an
international organization. The number of the members of
this organization is 157 of 122 countries. Two large
institutions of Bangladesh namely ICAB and ICMAB are
the members of IFAC It’s jurisdictions represents over 2.5
millions accountants.
What it does:
IFAC develops international standard on ethics,
auditing and assurance education and public sector
accounting standards. It provides guidelines in the
application of standards in different sectors.

*CONCEPT ABOUT IAPC:
IAPC (international auditing practices
committee) is formed in 1976 under the
supervision of IFAC. It has given specific
authority to issues standards and statement and
exposure drafts on behalf of the council of
international federation of accountants [IFAC].

*OBJECTIVES OF IAPC:
*Issuing ISAs;
*Providing Guidelines in the Application of ISAs;
*Promoting adoption of the committees
pronouncements as the primary source of national
standards and as guidance in cross-border offerings;
*Promoting debate with practitioners, users and
regulators throughout the world identify user needs
for new standards; and
*Promoting the endorsement of the standards by
legislators and securities exchanges.

INTERNATIONAL STANDARDS
ON AUDTING
* ISA-120: Framework of international standards
of auditing:
Standards are issued in two separate series, auditing
(ISA) and related services (ISA/RSs) which
comprise reviews, agreed-upon procedures and
compilations. The Framework describes the services
that auditors may be engaged to perform in relation
to the resulting level of assurance.

ISA-200: Objectives and scope of
the audit of Financial Statements
 The standard describes
management’s responsibility for
financial statements and objective,
scope and general principle
governing of an audit of financial
statements of an entity by an
independent auditor.

ISA-210: Terms of Audit
Engagements
 An auditor’s engagement letter to the
client is designed to document and
confirm the Auditor’s acceptance of the
appointment, the scope of the auditor’s
work and the extent of the auditor’s
responsibilities and the form of any
report. The Standard describes the
principal contents of an engagement
letter.

ISA-220: Quality control of Audit
Work
 Controlling the quality of audit work
is essential in maintaining the high
standard of the profession. This
Standard distinguishes between
controls on individual audits and
general quality controls adopted by
an audit firm.

ISA-230: Documentation
 Guidance is provided on the general
from and content of working papers
as well as specific example of
working papers normally prepared or
obtained by the auditor. Ownership
and custody of working paper is also
discussed.

ISA-240: The Auditors Responsibility
to consider Fraud & Error in an Audit
of Financial Statements
 The standard defines fraud and error and
indicates that the responsibility for the
prevention of fraud and error rests
with management. The auditor should
plan the audit so that there is a reasonable
expectation of detecting material
misstatements resulting from fraud and
error.

ISA-250: Consideration of Laws and
Regulations in an Audit of Financial
Statements
 The purpose of this Standard is to establish standards
and provide guidance on the auditor’s responsibility
to consider laws and regulations in an audit of
financial statements. When planning and performing
audit procedures and in evaluating and reporting the
results thereof, the auditor should recognize that
noncompliance by the entity with laws and
regulations may materially affect the financial
statements.

ISA-260: Communications of Audit
Matters with those charged with
Governance
This Standard describes the basic principles governing
and auditor’s professional responsibilities which
should be exercised whenever an audit is cared out.
The basic principles identified involve: integrity,
objectivity and independence confidentiality, skills
and competence, work performed by others,
documentation, planning, obtaining, obtaining audit
evidence, reviewing accounting systems and internal
control, reviewing conclusions reached and reporting.
.

ISA-300: Planning
 The guidance applies to the planning
process of the audit of both financial
statements and other financial
information. It is framed in the context
of recurring audits, identifies key
elements in the planning process and
provides practical examples of items
which should be considered when
planning an audit.

ISA-310: Knowledge of the Business
 The purpose of this standard is to establish
standards and provide guidance on what is
meant by knowledge of the business, why it
is important to the auditor and to members
of the audit staffs working on an
engagement, why it is relevant to all phases
of an audit, and how the auditor obtains
and uses that knowledge.

* The purpose of this Standard is to establish
standards and to provide guidance on obtaining
an understanding of the entity and its
environment including its internal control and on
assessing the risks of material misstatement in a
financial statement audit.
ISA-315: Understanding the Entity and its
Environment & Assessing the Risks of Material
Misstatement

ISA-320: Audit Materiality
 Standard defines the concepts of
materiality and audit risk, their
interrelationship and the application of
these concepts by an auditor when
planning and conducting an audit and
evaluating the results of his procedures.

ISA-330: The Auditor’s Procedures in
Response to Assessed Risks
 Management is responsible for
maintaining an adequate accounting
system incorporating various internal
controls to the extent appropriate to
the size and nature of the business.

ISA-400: Risks Assessments &
Internal Control
 Guidance is provided to the auditor in
assessing inherent and control risks and using
such assessments to determine the nature,
timing and extent of substantive procedures so
as to restrict detection risk to an acceptable
level. The Standard requires the auditor
understand the internal control and accounting
systems ad document that understanding.

ISA-401: Auditing in a Computer
information Systems Environment
This standard provides guidance to the auditor
when using computer-assisted audit techniques
(CAATs)- particularly audit software and test
data. The ISA outlines instances when CAATs
may be used, factors to consider in determining
whether to use a considerations when using
CAATs in a small business computer
environment are highlighted.

ISA-402: Auditing in Considerations
Relating to Entities Using Service
Organization
The purpose of this Standard on Auditing (ISA)
is to establish standards and provide guidance
to an auditor whose client uses a service
organization. This ISA also describes the
service organizations auditor’s reports which
may be obtained by client auditors.

ISA-500: Audit Evidence
 Audit Evidence is information obtained
by the auditor in arriving at the
conclusion is upon which an opinion on the
financial information is based. The nature and
sources of audit evidence are described as well
as the sufficiency ad appropriateness of audit
evidence and the methods by which it is
obtained by the auditor in the performance of
compliance and substantive procedures.

ISA-501: Audit Evidence-Additional
Considerations for specific items
 Guidance is provided on the application of
audit evidence gathering procedures
(attendance at stocktaking, direct confirmation
of accounts receivable and direct
communication with a client’s lawyers) that
are generally accepted as providing the most
reliable audit evidence in relation to certain
assertions.

ISA- 505: External
Confirmations
 The purpose of this Standard on Auditing is to
establish standards and provide guidance on
the auditor’s use of external confirmations as a
means of obtaining audit evidence. The auditor
should determine whether the use of external
confirmations is necessary to obtain sufficient
appropriate audit evidence to support certain
financial statement assertions.

Standard provides guidance as to the
auditor’s responsibilities for opening
balances when the financial statements are
being audited for the first time or were
audited by another auditor in the prior year.
ISA-510: Initial Engagements –
Opening Balances

ISA- 520: Analytical Procedures
A description of the nature of analytical review
procedures is provided as well as guidance on
the objectives, timing and extent of reliance to
be placed on such procedures in performing
and audit. Also discussed is the auditor’s
investigation of unusual fluctuations.

ISA- 530: Audit Sampling & other
Selective Testing Procedures
 The factors that an auditor should consider
when designing and selecting an audit sample
and evaluating the results of audit procedures
are identified. The ISA applies to both
statistical and non-statistical sampling methods
and provides fundamental yet practical
guidance on such matters as sampling risk,
stratification, selection methods and projection
of errors.

ISA- 540: Audit of Accounting
Estimates
Guidance is provided to auditors on the
audit procedures that should be
performed in order to obtain reasonable
assurance as to the appropriateness of
accounting estimates contained in
financial information.

ISA-545: Auditing Fair Value
Measurements & Disclosures
This standard deals with the examination and
reporting procedures where an auditor is asked
to report on prospective financial information
being either a forecast, based on best-estimate
assumptions, or a projection based on
hypothetical assumptions.

Discussed are the procedures to be
considered in obtaining sufficient
appropriate audit evidence concerning
the existence of transaction with
related parties.
ISA-550: Related Parties

ISA-560: Subsequent Events
Guidance is provided on dating of the auditor’s
report, the auditor’s responsibility in relation
to subsequent events, which are significant
events occurring after the balance sheet date
and the auditor auditors’ responsibility in
connection with the discovery of facts after the
financial statement have been issued.

ISA- 570: Going Concern
Guidance is provided to auditors in discharging
their responsibilities in situations in which the
appropriateness of the going concern
assumption as a basis for the preparation of
financial statements is in question.

ISA-580: Management
Representations
This Standard provides guidance to the auditor
on using management representations as audit
evidence, procedures the auditor should apply
in evaluating and documenting them, and
circumstances in which written representations
should be obtained.

ISA- 600: Using the work of another
Auditor
The auditor’s consideration to be made when
intending to use the work of another auditor
are described. The guideline applies when an
independent auditor reporting on the financial
statements of an entity uses the work of
another independent auditor with respect to the
financial statements of one or more division,
branches, subsidiaries or associated
companies included in the financial statements
of the entity.

 The internal audit function constitutes a
separate component of internal control
undertaken by specially assigned staff within an
entity. An objective of internal auditor is to
determine whether internal controls are well
designed and properly operated.
ISA- 610: Considering the work of
Internal Auditor

ISA- 620: Using the work of an
Expert
 This Standard provides guidance to the auditor
in instances when using the work of an expert
(specialist) engaged or employed by the client
or auditor. The ISA outlines examples or cases
when an auditor may need to use the work of
an expert and provides guidance on
consideration relating to the expert’s skills
competence and objectivity.

ISA- 700: The Auditor’s Report on
Financial Statements
 Guidance is provided to auditors on the
form and content of the auditor’s report
issued in connection with the independent
audit of financial statements of an entity.

ISA- 710: Comparatives
 The purpose of ISA is to establish
standards and provide guidance on the
auditor responsibilities resulting
comparatives. It does not deal with
situations when summarized financial
statements are presented with the audited
financial statements.

 The Standard defines Other Information as
Financial and non-Financial information included
in a document which contains an entity’s Audited
Financial Statements together with auditor’s report
thereon. An entity usually issued such a document
on an annual basis which is frequently referred to
as the Annual Report.
ISA- 720: Other information on documents
containing Audited Financial Statements

ISA- 800: The Auditor’s Report on
Special purpose Audit Engagements
 Standard provides guidance to auditors that issue
audit reports that are other than those covered by ISA
13 notably, (a) financial statements prepared in
accordance with a comprehensive basis of accounting
other than international Accounting standards or
relevant national standards, (b) specific accounts,
elements of accounts, or items of financial statements,
(c) compliance with contractual agreements, and (d)
summarized financial statements.

We well get some special advantages if we are able to audit according to ISA (International
standard on auditing). These advantages are as follows.
(1) Increase faithless:
Faithless regarding economical statement and reports will increase if the statements or
reports are done by following International Standard on auditing (ISA) In this case, the
acceptability of this statement increases to every organization or every county of the
world.
(2) Uniformity:
Uniformity arises in auditing, of all countries of the world, if they follows ISA.
(International standard on auditing) as their standard on auditing, as a result its
acceptability increases to every one although it procedures is done in different countries.
(3) Increase effectiveness:
International standards on auditing also increases the effectiveness of international
accounting standards. Because. ISAs is to use in case of keeping account if we wants to
audit accounts according to the international accounting standard.
ADVANTAGES DERIVED FROM ISAs

PROFESSIONAL ETHICS OF AUDITORS
Ethics means treating of morality or duty
on the fundamental principles. Integrity
or, the science of morals or the principles
of morality. Actually an ethical guide
known as the Rules of Professional
Conduct or the Rules. It is applicable to
all members of the Association, Whether
in public practice or not.

ETHICS
 The fundamental principle
 Integrity, objectivity and independence
 Confidentiality
 Charged in professional appointment
 Fees
 Ownership of books and papers
 Conflicts of interest
 Financial service Act 1986

The fundamental principle
T.F.P cover the following matters:
1. Integrity
2. Objectivity
3. Competence
4. Skill, care, diligence
5. Courtesy and consideration
Integrity, objectivity and independence:
The basic principles of independence states that a members
objectivity must be beyond question if they are to repost as auditor.
So, Auditor independence is currently a hot topic within the professions
and will be ore of the mains priorities for the Accountancy
Foundation

Principles followed in the conduct of
audit
1. Integrity, objectivity, and independence:
The auditor has to reflect integrity, objectivity and independence in his
professional activities. He must be free and neutral in nature.
2. confidentiality.
There must have an ultimate confidentiality about the accumulated
documents by the auditor.
3 skills and competence;
. The auditor must have general education and specialised education. He
must have practical knowledge regarding auditing.
4.work performed by others
If the work of the auditor is performed by others,then he must be sure
about the accuracy of that perform work

5.Prepare document:
the auditor should prepare documents to ensure that the work
done by him is followed the main principles of the
organization.
6.Planing:
For the accuracy of the work the auditor should make a proper
plan regarding his work. That means he should make a serial
of his work.
7. Accounting system and internal control:
If there is a proper internal control system on the basis of the
area and nature of the organization, it will be helpful for the
auditor to aid in his work.
8. Audit conclusion and report:
Finally the auditor will give his opinion regarding the
activities of the concerned whether it is fruitful or not. And
these will be on the basis of evidence.

STANDARDS ON
AUDITING
ADOPTED IN
BANGLADESH
The standards published IAPC
Are fully adopted in Bangladesh by
Auditing standard controlling body ICAB

Standards adopted by ICAB are as follows: (with
serial no)
#BSA -120:Framework of international
standards on Auditing.
#BSA-200:Objective &General Principle
Governing an Audit of Financial Statements
#BSA-210:Terms of Audit Engagement.

#BSA-220: Quality Control for Audit work.
#BSA-230: Documentation .
#BSA-240: The Auditors responsibility to
consider Fraud & Error in an Audit of Financial
Statements .
#BSA-250: Consideration of Laws & Regulations in
an Audit of Financial Statements .
#BSA-260: Communications of Audit matters with
those charged with governance .
#BSA-300: Planning .
#BSA-310: Knowledge of the Business .

#BSA-315: Understanding the Entity & its
Environment & Assessing the Risks of
Material misstatement .
#BSA-320: Audit Materiality .
#BSA-330: The Auditor’s procedures in
response to assessed risks.
#BSA-400: Risks assessments & Internal
control .

#BSA-401: Auditing in a Computer information
systems environment .
#BSA-402: Auditing in considerations relating
to Entities using Service Organization .
#BSA-500: Audit Evidence.
#BSA-501: Audit Evidence-Additional
considerations for specific items .

#BSA-505: External confirmations .
#BSA-510: Initial Engagements- Opening
Balance .
#BSA-520: Analytical procedures .
#BSA-530: Audit sampling & other selective
testing procedures .
#BSA-540: Audit of Accounting estimates .
#BSA-545: Auditing fair value measurements &
disclosures.

#BSA-550: Related parties .
#BSA-560: Subsequent events.
#BSA-570: Going concern.
#BSA-580: Management representations.
#BSA-600: Using the work of another Auditor .
#BSa-610: Considering the work of Internal
Auditor.

#BSA-620: Using the work of Expert.
#BSA-700: The Auditor’s Report on Financial
Statements.
#BSA-710:Comparatives.
#BSA-720: Other information in documents
containing Audited Financial Statements .
#BSA-800: The Auditor’s Report on special
purpose Audit Engagements.

History of auditing profession in
Bangladesh:
 The history of auditing profession in Bangladesh is very
precious. It was started from the British period. For a logical
Explanation, the history has been subdivided into certain
specific periods and is described in below:
 1850-1881
The first company act in British India was
enacted in 1850. One of the vital
provisions of that act was a half yearly
audit and submission of report on account
audited by auditor.

1882-1913
 First schedule of table A of company act 1882,
contained, about the audit of accounts of
companies and appointments remuneration and
duties of the auditors.
 Then company act 1913, was passed which
provided that, no person could act as auditor
unless he held an auditors certificate granted
by Govt.

1913-1932
 Govt. of Bombay, instituted the Govt. diploma
in accountancy in 1918, for the direction of
organizing the profession.

1932-August 14, 1947
 Till 1932, there was no centralized
control over the profession of
accountancy. Consequently, the Govt.
framed rules under section 144 of the
company act 1913 called “Auditor
certificate rules 1932”.

August 14, 1947- December-15, 1971:
 Adopting the “Auditor certificate rules 1932” Pakistan
emerged as “Sovereign state” in August, 14, 1947.
Amendments were made in 1950, and the affairs of the
accountancy profession were administrated under the
auditor’s certificate rules 1950. Which were published in
the gazette of Pakistan December, 30, 1950? For
regulating the accountancy profession in Pakistan.
 In 1952, the registered accountants formed a private
body known as “Pakistan institute of Accountancy”, for
looking after their own interest and Govt, of Pakistan,
matters affecting the accountancy profession.
 The chartered accountancy ordinance, 1961, received the
assent of the president of Pakistan on March 3, 1961.
And was published in part one of the extraordinary
gazette o Pakistan on March 10, 1961. The institute of
chartered accountancy of Pakistan came into being on
July, 1

December 16, 1971. Onward
 Through a liberation war, the East Pakistan emerged as an
independent country Bangladesh on 16th December, 1971.
 A council was constituted by the Govt. of Bangladesh under
notification no. SEC-XII/9M-132/72/318(50) dated the 27th
march 1972, issued by the ministry of commerce after the 16th
day of December 1971. the profession of chartered accountants
is governed by the following:
 1. The Bangladesh Chartered accountants order,
1973(P.0.No.2of 1973).
 2. The Bangladesh Chartered accountants bye – laws,1973.
 3. Forms of application certificates, agreements, Etc.
 4. Directives of the council and decisions of the institute.

•The above are contents in the members’ handbook issued
under the authority of the chartered accountants of
Bangladesh.
•The Institute of Chartered accountants of Bangladesh is now
a statutory autonomous body and is administered by a council
of 20 members. The council is assisted by the 5 standing
committees known as executive committee, examination
committee, investigation and disciplinary committee. The
articled students committee and the technical and research
committee. The chartered accountants by laws also provide for
the formation of regional committee to look after the interests
of the members. The members are divided into classes-namely,
associates and fellows (ACA, FCA).

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