Introduction Meaning - Definition Objectives Differences between Accountancy and Auditing Types of Audit - Advantages of Auditing Preparation before

efore commencement of new Audit Audit Notebook Audit Working Papers Audit Program, RECENT TRENDS IN AUDITING: Nature & Significance of Tax Audit Cost Audit - Management audit.

Explain the procedure which the auditor should adopt before commencing the new audit and also discuss those instructions which must be given by the audit
An auditor should pay proper attention to the following points before taking up a new audit : 1. Appointment Letter :An auditor should confirm his appointment letter first of all. In this regard he should get and examine the copy of resolution passed by the shareholders in the general meeting. 2. Nature Of Audit :Auditor should know about the nature of audit. If he does not know the nature of audit then he can not prepare himself for that audit. 3. List Of Books :He should obtain a list of all the books of account which are in the use of business. 4. Names Of Officers :The auditor should take the list of all the officers with their names duties and powers. He should also get their specimen signatures. 5. Documents :He should also get the copy of memorandum and articles of association. He should study them carefully and check that company is running the business according to them or not. 6. Prospectus :The auditor should examine the prospectus to know the relevant matters affecting the accounts. 7. Accountancy System :The system of accounting which is employed by client must be examined by the auditor before taking the new audit. 8. Minute Book :The auditor should get the minute book and read it carefully. He should also take the notes of important decision made by the directors and shareholders in the various meetings. 9. Internal Control System :Internal control system prevailing in the business must be studied by the auditor. He should examine the

record and observe the actual procedure in operation. 10. Personal Visit Of Site :The auditor should visit the site of the business personally and he should know maximum about the technical nature of the business. 11. Study Of Contracts :The auditor should study all those contracts which are made by the company with the outsiders and with employees. He should note down the important mailers. 12. Case Of Joint Auditors :If there are more than one auditors and they have decided to audit the company jointly in that situation they should divide the work among themselves and then start the auditing. 13. Previous Report Inspection In Case Of Old Company :If the company not a new but old, in this situation auditor should also inspect the report of previous auditor. 14. Audit Programme :The auditor may chalk out the audit programme keeping in view above points. 15. Timing :Auditor should fix the time of audit before starting the new audit. He should also decide the time for the completion of audit work. 16. Legal Formalities :Auditor should also check that legal formalities have been completed by the management or not. 17. Historical Background :Auditor must know business history like nature of business, number of products, year of establishment. He should also keep himself in touch with the operation of the company.

INSTRUCTION GIVEN BY THE AUDITOR TO HIS CLIENT:Following instructions must be given to the client by the auditors before commencing the audit : 1. A list of books with the list f employees should be provided to the auditor. 2. A system of book keeping and internal connect should be provided. 3. Final trial balance and draft of final account should be ready for audit examination. 4. All supporting vouchers should be ready. 5. All types of schedules supporting the accounts should be prepared and kept in original form.

A person, who is qualified under Section 226, will be appointed as auditor to company under Section 224, Before Commencing the Audit work. The following preliminary steps are to be executed.
Verification of Appointment: First of all auditor has to conform whether his appointment is properly made or not. If appointment is not proper, he can claim remuneration, if he is appointed by share holders, he has to see whether the procedure specified under Section 224, is properly followed or not. If he is appointed by directors he has to go through the resolution made by the court. Verification of Memorandum: Memorandum is started of the company. It deals with external affairs of the company. Out of its clauses, the information written under objects clause, liability clause and capital clause is useful to auditor. Therefore he should refer to memorandum and such information should be taken to audit note book. Verification of Articles: Articles read about internal affair of the Company. It includes calls on share, transfer of shares, transmission of shares, reserves, payment of dividend etc. All these things are useful to Company auditor and hence abstracts from articles should be taken to audit note book. Verification of Prospectus: Before commencing the audit work, auditor should refer to prospectus also to obtain information relating to minimum subscription, preliminary expenses, underwriters commission, terms of issue etc. Verification of Contract Deeds: On account of legal entity company can enter into contracts. Auditor should refer to those contract deeds to know about names of parties to the Contract, Contract prices, other terms etc. Verification of Certificate of incorporation and certificate of Commencement of business: If it is first audit of the company, auditor should refer to Certificate of Incorporation and Certificate of Commencement of Business issued by registrar of Companies to conform that the company has got formed properly in accordance with requirements of companies act. Verification of Internal Check System: Internal check means arrangement of staff in such a way where work done by one clerk automatically gets checked by the other. Well planned internal check system minimizes scope for frauds and errors. In presence of well designed internal check system, auditor can follow shortcut methods like test checking etc. Good internal check system reduces the work load of auditor. List of Books: Auditor should obtain list of books maintained by the company. Company maintains several statutory books or compulsory books, Statistical or Optional books, Cost records, financial records etc. All those books are to be listed.

List of Offices: Auditor should refer to organization chart of the company and key positions are to be found. Here auditor has to gather names, rights, duties, specimen signatures etc of staff members employed at such key positions. Verification of Financial Statement: Auditor should get copies of previous 3 or 4 years financial statements along with audit reports. By going through them an idea with regard to profitability, financial position and previous auditors opinion can be obtained. Central Government Permission:On certain occasions company has to obtain permission to central government. For example; to issue share warrants, to grant to directors etc. Here auditor has to observe whether permission from Central Government is obtained or not. Audit Program: Planning of audit work is called Audit Programme. It shows division of audit work among audit staff. After preparation of audit program audit work can be commenced. Audit program has several advantages like completion of audit work within desired period, proper entrustment of work, etc. At the same time audit programme has certain disadvantages also like making work mechanical etc.

Audit Note Book

Audit note book is maintained by the audit assistant ti note down to all those unclear matter which he may come across in the course of audit and on which he requires further clarification and explanation. It contains day to day work performed by the audit staff on any particular day. Notes about all types of errors, difficulties and uncleared point, etc. are recorded in audit notebook. Contents of Audit Note Book: 1. A copy of audit program. 2. The nature of business and important documents relating to the business. 3. The name of the clients and audit year. 4. A list of books of accounts. 5. Name of principal officers, their duties and responsibilities. 6. Accounting and financial policies followed by the business. Objectives of Audit Note Book: 1. To know about the nature of business. 2. Detection and prevention of frauds and errors effectively. 3. To make the future audit work easier. 4. To know the facts where clarification and explanation are essential. 5. To check the list of debtors and creditors. 6. To present as a proof by the auditor to clearance over the cases.

Meaning Of Audit Note Book And Contents Of Audit Note Book

A note book which is prepared by the audit staff to note down all the uncleared queries which s/he may find in the course of audit and requires further clarification and explanation is known as audit note book. Audit note book contains information regarding day-to-day work performed by the audit staff on any particular date. Notes about all types of errors, difficulties and uncleared queries or points to be discussed with the auditor or clients and the points which are to be incorporate in the report are noted down. Contents Of Audit Note Book General Information Generally the following information is incorporated in audit note book: 1. The nature of the business carried on and the important documents relating to the constitution of the business, i.e. Memorandum Of Association, Articles Of Association ( in the case of limited companies) and Partnership Deed ( in the case of partnership firm) and other legal documents. 2. The name of the client and the audit year. 3. A list of books of accounts in use. 4. Names of principal officers, their duties and responsibilities. 5. Particulars of the accounting and financial system followed and the internal check in operation in the business. 6. Details regarding accounting and financial policies followed in the business. 7. A copy of the audit program. Special Matters To Be Recorded In The Audit Note Book 1. Routine queries not cleared, i.e., missing receipts and vouchers etc.

2. Details of mistakes and errors discovered. 3. The points raised during the course of audit, to which the attention of the auditor must be drawn, i.e. failure of the company to comply with the provisions of the Companies Act or of the Memorandum of Association and other legal requirements. 4. Extracts from minutes books and contracts and other correspondence with various government agencies, financial institutions, debtors, creditors etc. 5. The points to be incorporate in the audit report. 6. The points which needs further explanation and clarification e.g., a change in the basis of valuation of finished stocks or in the computation of depreciation, etc. 7. Date of commencement and completion of the audit.