This document discusses auditing and provides definitions and explanations of key auditing concepts and procedures. It begins by explaining the origins and evolution of auditing from verifying spoken words to written financial records. It then defines auditing and describes fundamental principles like integrity, independence, planning, evidence, and reporting. It also explains concepts like audit evidence, audit plans, audit programs, and audit sampling which are techniques used to efficiently and effectively evaluate financial statements and internal controls.

3. Auditing originates from the Latin term “Audire”, which means “to
hear,” –
just as in ancient times auditors used to listen to officers and people of
authority to confirm the validity of their words. Over the years, the role
of auditing evolved to verifying written reports: specifically, the
financial records of individuals and businesses.

4. Meaning and definition of Auditing
Auditing or reviewing is the most common way of actually looking
at the financial statements alongside other accounting data of a business
or an organisation. It is a structured method where the monetary state of
the business is examined.
Auditing is defined as the on-site verification activity, such as
inspection or examination, of a process or quality system, to ensure
compliance to requirements. An audit can apply to an entire
organization or might be specific to a function, process, or production
step. Some audits have special administrative purposes, such as auditing
documents, risk, or performance, or following up on completed
corrective actions.

5. An audit is an “independent examination of financial information of any
entity, whether profit oriented or not, irrespective of its size or legal
form when such an examination is conducted with a view to express an
opinion thereon.”
auditing is an official inspection and verification of the credibility
of financial reports.

9. Fundamental Principles Governing an Audit
A] Integrity, Independence, and Objectivity
B] Confidentiality
C] Skill and Competence
D] Work Performed by Others
E] Documentation
F] Planning
G] Audit Evidence
H] Accounting Systems and Internal Controls
I] Audit Conclusions and Reporting

11. A] Integrity, Independence, and Objectivity:
The inspector must be candid while during the audit process; he can’t be inclining toward the association. He should stay
objective all through the entire cycle, and his trustworthiness should not permit any negligence.
Another significant rule is autonomy or independence, and the examiner can’t have any interest in the association he is
inspecting, which permits him to be autonomous and fair-minded consistently.
B] Confidentiality:
The auditor comes across a great deal of sensitive monetary data of the association. It is significant that he regards the
classified genre of such data and archives.
He can’t uncover any delicate data to any outsider except if it is a necessity by law. What’s more, he should likewise be
extremely cautious with archives, authentications, and so forth that the association shares with him.
C] Skill and Competence:
The examiner should be capable and prepared in the strategies of auditing, for example, he should be qualified as an
examiner. Furthermore, as an expert, he should be aware and upgrade on the latest changes, declarations, rules, and so
forth.
In the event that is important, he can go through preparing and prepare to keep up to date with the new accounting and
auditing methodology. For instance, after GST was presented, auditors needed to refresh their insight.

12. D] Work Performed by Others:
The extent of an audit on occasion can be extremely immense. So an auditor can utilise his
representatives, delegates, and others who work under him.
Be that as it may, the reviewer will keep on being completely liable for the work done by
these individuals working for him. So the evaluator should cautiously oversee and audit
such work and be sensibly certain of the precision of such work.
E] Documentation:
Much of the time, the examiner keeps a review notepad, a review or audit plan, and an
evaluating document or an audit file. It is significant the auditor tracks significant reports
for his review work, as it is proof of the work the evaluator has completed. Also, the
customer is leaned to these reports and records, assuming he wishes to examine the work.
F] Planning:
A review plan permits the inspector to arrange his work and empowers him to be more
proficient and ideal. Each review plan is distinctive as it must be redone as indicated by the
type of association, the sort of business they lead, the extent of the review, the
productivity of the inside controls, and so forth.

13. G] Audit Evidence:
The auditor should gather sufficient proof to help him in his last assessment. This
assortment of such proof is finished by substantive and consistency systems. There are two
origins of this proof – inward or internal and outer or external. Likewise, external resources
of proof are, in every case, more dependable.
H] Accounting Systems and Internal Controls:
The inspector needs to guarantee that the records of the association are exact and address
a valid and reasonable image of the monetary status of the organisation. Likewise, the
examiner should guarantee that all material data has been recorded in the accounting
records. Testing the inside controls framework is likewise significant as it decides
something very similar.
I] Audit Conclusions and Reporting:
After the examiner gathers all proof, he should now shape his viewpoint based on the
accompanying standards:
All applicable bookkeeping guidelines were applied consistently. Budget reports are
consistent with all guidelines and legal prerequisites. All material data has been revealed.

14. Auditing evidence
Auditing evidence is the information collected for review of a company's financial
transactions, internal control practices, and other items necessary for the
certification of financial statements by an auditor or certified public
accountant (CPA). The amount and type of auditing evidence considered vary
considerably based on the type of firm being audited as well as the required
scope of the audit.
Examples of auditing evidence include bank accounts, management accounts,
payrolls, bank statements, invoices, and receipts.
Good auditing evidence should be sufficient, reliable, provided from an
appropriate source, and relevant to the audit at hand.

15. Understanding Auditing Evidence
The goal of any audit is to determine whether a company’s financial
statements comply with generally accepted accounting principles (GAAP),
international financial reporting standards (IFRS), or another set of
accounting standards applicable to an entity’s jurisdiction.
Publicly traded companies are generally required to present fully audited
financial statements to shareholders periodically, and thus the
compilation and organization of auditing evidence are essential for
auditors and accountants to do their work. In short, auditing evidence is
meant to provide auditors with the information for them to make the
judgment on whether or not financial statements are accurate and true.

16. Auditing evidence is defined as a term to protect investors by
promoting transparent, accurate, and independent audit reports. The
Public Company Accounting Oversight Board (PCAOB), created by the
Sarbanes-Oxley Act of 2002,
Defines auditing evidence as all the information that can be used by
auditors to make their decision on the quality and accuracy of a
company’s financial statements. The auditing evidence supports and
verifies the final information provided by management in the financial
statements. It can also contradict it if there are errors or fraud.

17. Characteristics of Auditing Evidence
Good auditing evidence can be measured by the extent of the following
characteristics:
• Sufficiency
• Reliability
• Source
• nature
• Relevance

18. Characteristics of Auditing Evidence
Good auditing evidence can be measured by the extent of the following characteristics:
Sufficiency: Sufficiency takes into account whether or not the material provided is of an adequate quantity
that would allow auditors to make an accurate judgment. If an auditor was given just one bank statement
of a company, it would not be enough to make any determinations on the financial standing of that
company.
Reliability: Reliability seeks to determine whether or not the material can be trusted and counted on for
forming an opinion. Reliability typically factors from the source of the information.
Source: The source of accounting evidence can be obtained directly from the company or externally.
Externally sourced information is generally regarded as more trustworthy and is therefore preferred.
Nature: Nature refers to the type of information that is received. For example, the information can be
provided through legal documents, presentations, orally from employees, or through a physical
confirmation.
Relevance: Depending on the type of audit being conducted, how pertinent the information received in its
relation to the overall analysis is a guiding factor.

19. Audit plan
The auditor should plan his work to enable him to conduct an effective audit
in an efficient and timely manner. Plans should be based on knowledge of the
client’s business.
Plans should be based on knowledge of the client’s business”. Plans should be
made to cover, among other things
a) acquiring knowledge of the client’s accounting systems, policies and
internal control procedures
b) establishing the expected degree of reliance to be placed on internal control
c) determining and programming the nature, timing, and extent of the
audit procedures to be performed.
d) coordinating the work to be performed.

20. Benefits of audit plan
a)Helping the auditor to devote appropriate attention to important
areas of the audit.
(b) Helping the auditor identify and resolve potential problems on a timely
basis.
(c) Helping the auditor properly organize and manage the audit engagement
so that it is performed in an effective and efficient manner.
(d) Assisting in the selection of engagement team members with
appropriate levels of capabilities and competence to respond to
anticipated risks, and the proper assignment of work to them.
(e) Facilitating the direction and supervision of engagement team members
and the review of their work

21. Meaning of Audit Program
An audit program is a set of policies and procedures to perform and
verify the auditing work to evaluate a business’s financial statements.
Professor Meigs defines, “An audit program is a detailed plan of the
auditing work to be performed, specifying the procedures to be
followed in the verification of each item in the financial statements and
giving the estimated time required.”

22. Objectives of the Audit Program
• Determine compliance with company policy and procedures.
• Determine the effectiveness of the policy and procedures.
• Determine the accuracy of reports generated by department
personnel.
• Evaluate the adequacy of internal controls.
• Determine compliance with applicable state and federal regulations
of the function under review.
• Search for value-added recommendations that improve the efficiency
and contribution of the function under review.

23. Contents of Audit Program
• A review of the system of internal check.
• Audit of balance sheet.
• Audit of an income statement.
• The details of various audit work to be performed and their
classification.
• Preparation of audit report and coordination of all the above-
mentioned items

24. Advantages of Audit Program
• It provides a clear set of instructions on the work to be done.
• It provides a clear record of work done and by whom.
• The senior auditors can review work.
• Work will not be duplicated.
• No important work will be overlooked.
• Evidence of work done is available for use in defending charges of negligence.
• The audit program serves as a shield against any charge of negligence by a client on the part of the auditor.
• It assures that no material aspect of the audit examination has been overlooked.
• It pinpoints the audit work to be done by audit staff, and that has already been done.
• It facilitates the distribution of work among the audit staff according to their knowledge.
• The audit program of last year serves as a basis for preparing the audit program for the subsequent year.
• Before signing the audit report, the final review of the work done can be easily made.
• It ensures adherence to International Accounting and Auditing Standards.
• The responsibility of each audit staff (articled clerk) is fixed.

25. Audit sampling
Audit sampling is a technique used by auditors to select a
representative sample of data from a larger population to obtain
reasonable assurance that the financial statements are free of material
misstatements.
The audit sampling process involves three main phases: planning,
execution, and evaluation.

26. There are two main methods of audit sampling
Statistical Sampling
Statistical sampling is a method that uses probability theory to select a
sample that is representative of the population. First, the auditor
determines the sample size and selects the sample using a random or
systematic selection process.
Non-statistical sampling,
on the other hand, involves using auditor judgment to select a sample
representative of the population. The auditor selects items from the
population based on materiality, risk, or unusual transactions.

27. Advantages of audit sampling
• Reducing the cost and time of the audit,
• Providing reasonable assurance, and
• Complying with auditing standards.
Disadvantages
• Risk of not detecting material misstatements.
• The possibility of incorrect conclusions.