PRINCIPLES OF AUDITING Auditing is characterised by reliance on ...

<strong>PRINCIPLES</strong> <strong>OF</strong> <strong>AUDITING</strong><strong>Auditing</strong> <strong>is</strong> character<strong>is</strong>ed <strong>by</strong> <strong>reliance</strong> on a number of principles. These make the auditan effective and reliable tool in support of management policies and controls, providinginformation on which an organ<strong>is</strong>ation can act to improve its performance. Adherence tothese principles <strong>is</strong> a prerequ<strong>is</strong>ite for providing audit conclusions that are relevant and.sufficient and for_ enabling auditors working independently from One another to reachsimilar conclusions in similar circumstances.The following principles relate to auditors.a. Ethical conduct: the foundation ofprofessional<strong>is</strong>mTrust, integrity, confidentiality and d<strong>is</strong>cretion are essential to auditing.b. Fair presentation: the obligation to report truthfully and accuratelyAudit findings, audit conclusions and audit reports reflect truthfully andaccurately the audit activities. Significant obstacles encountered during·the auditand unresolved diverging opinions between the audit team and the auditee arereported.c. Due professional care: the applica.tion ofdiligence andjudgement in aUdifingAuditors exerc<strong>is</strong>e care in accordance with the jmportance of the task theyperform and the confidence- placed in them· <strong>by</strong> audit clients and other interestedparties. Having the necessaty competence <strong>is</strong> an important factor.further principles relat~ to th~ audit, which <strong>is</strong> <strong>by</strong> definition independent and systematic.d. Independence: the bas<strong>is</strong> for the impartiality ofthe audit and objectivity oftheaudit conclusionsAuditors are independent of the activity being audited and are free from bias andconflict of interest. Auditors maintain an objective state of mind throughout theaudit process to ensure that the audit findings and conclusions will be based onlyon the ~udit evidence.e. Evidence-based approach: the ratio,?81 method for reaching reliable and.reproducible audit conclusions in a systematic auditprocessAudit evidence <strong>is</strong> verifiable. It <strong>is</strong> based on samples of the information available,since an audit <strong>is</strong> conducted during a finite period of time and with finiteresources. The appropriate use of sampling <strong>is</strong> closely rela~ed to the confidt;!ncethat can-be placed in the audit cOnclusions.1

CONDUCTING ON-SrTE AUDIT ACTIVITIES1. Conducting the opening meetingAn op~ning meeting sho~ld be held with the auditee's management or, whereappropnate, those responsIble for the functions or processes to be audited. Thepurpose of an opening meeting <strong>is</strong> .a. to confirm the audit plan,b. to provide a short summary of how the audit activities will be undertakenc. to confirm communication channels, and 'd. to provide an opportunity for the auditee to ask questionsPractical help. - Opening the meetingIn many instances, for example internal audits in a small organ<strong>is</strong>ation, the opening'meeting may simply cons<strong>is</strong>t of communicating that an audit <strong>is</strong> being conducted andexplaining the nature of the audit.For other audit situations, the meeting should be formal and records of the attendanceshould be kept. The meeting should be chaired <strong>by</strong> the audit team leader, and thefollowing items should be considered, as appropriate:a. introduction ot. the participants, including an outline of their roles;b..confirmation of the audit objectives, scope and criteria;c. confirmation of the audit timetable and other relevant arrangements with theaUditee, such as the date and time for the closing meeting, any interim meetingsbetween the audit team and the auditee's management. and any late changes;d. methods. and procedures to be used to conduct the audit, including adv<strong>is</strong>ing theaUditee that the audit evidence will only be based on a ~ample of the informatioravailable ana that therefore there <strong>is</strong> an element of uncertainty in auditing; ~:e. confirmation of formcll communication channels between the audit team and theauditee;f. confirmation of the language to be used during the aUdi~;g. confirmation that, during the audit, the auditee·will be kept informed of auditprogre&s;h. confirmation that the resources and facilities needed <strong>by</strong> the audit team areavailable;i. confirmation of matters relating to confidentiality;2

j. confirmation of relevant work safety, emergency and security procedures for theaudit team;k. confirmation of the availability, roles and identities of any guides;I. the method of reporting, including any grading of nonconfonnities;m. infonnation about conditions under which the audit may be terminated;n. information about any appeal system on the conduct or conclusions of the auditPRACTICAL HELP - CONDUCTING INTERVIEWSInterviews are one of the important means of collecting information and should becarried out in a manner adapted to the situation and the person interviewed. However,the auditor should consider the following:)' t a .. interviews should be herd with persons from appropriate levels and functionsperfonning activities or tasks within the scope of the audit;b. interviews should be conducted during the normal working hours and, wherepractical, at the nonnal workplace of the person being interviewed;.c. every attempt should be made to put the person being interviewed at ease priorto and during the interview;d. the reason for the interview and any note taking should be explained;e. interviews can be initiated <strong>by</strong> asking the persons to describe their work;f. questions that bias the answers (i.e. leading ques~ons) should be avoided;g. the resu'/ts from the interview should be summar<strong>is</strong>ed and ·revieweq with theinterviewed person;{,h. the interviewed persons should be thanked,for their participation and coop~ration.,:~PREPARING AUDIT CONCLUSIONSa. to review the audit findings, and may other appropriate infonnatioh collectedduring the audit, against the audit objectives,b. to agree on the audit conclusions, taking into account the uncertainty inherent inthe audit process, .3

c. to prepare recommendations, if specified <strong>by</strong> the audit objectives, anddto d<strong>is</strong>cuss audit follow-up, if included in the audit plan.PRACTICAL HELP - AUDIT CONCLUSIONSAudit conclusions can address <strong>is</strong>sues such asa. the extent of conformity of the management system with the audit criteria,b. the effective implementation, maintenance and improvement of the managementsystem, andc. the capability of the management review process to ensure the continuing!suitability, adequacy, effectiveness and improvement of the ,managementsystem.PERSONAL ATTRIBUTESAuditors should possess personal attributes to enable them to act in accordance withthe principles of auditing.An a uditor should be:a. ethical, Le: ,fajr, truthful, sincere, honest and,d<strong>is</strong>creet; "b. o~n-minded, i.e. willing to consider alternative ideas or points of view;c. diplomatic, Le. tactful in dealing with people;d. observant, Le. actively aware of physical surroundings and activities;e. per~tive, i.e. instinctively aware of and able to understand situations;f. versatile, i.e. adjusts readily to different situations;., .~. {g. tenacious, Le. pers<strong>is</strong>tent, focused on achievIng objectives;h. dec<strong>is</strong>ive, Le. reaches timely conclusions based on logical reasoning and analys<strong>is</strong>,and'Lself-reliant, Le. acts and functions independently while interacting, effectively withothers4

KNOWLEDGE AND SKILLS1. Generic knowledge and skills of quality management system andenvironmental management system auditorsAuditors should have knowledge and skills in the following area.a. Audit principles, procedures and techniques: to enable the auditor to applythose appropriate to different audits and ensure that audits are conducted incons<strong>is</strong>tent and systematic manner. An auditor should be ablea• to apply audit principles, procedures and techniques,• to plan and organ<strong>is</strong>e the work effectively,• to condu.ct the audit within the agreed time schedule,• to priorit<strong>is</strong>e and focus on matters of significance,• to collect intonnation through effective interviewing, l<strong>is</strong>tening, observing andreviewing documents, records and data,• to understand the appropriatenesstechniques for aUditing,and consequences of using sampling• to verify the accuracy of collected information,• to confinn the sufficiency and appropriateness of audit evidence to support auditfindings and conclusions,• to assess those factors thatconclusions,can affect the reliability of the audit findings and• to use work documen~s to record audit activities.• to prepare audit reports,)~".--­ . • to maintain the confidentiality and security of information and• to communicate effectively, either through personal lingu<strong>is</strong>tic sleills or through aninterpreter.Ib. Management system and reference documents: to enable the auditor tocomprehend the scope of the audit and apply audit criteria. Knowledge and skills in th<strong>is</strong>area should coverDthe application of management systems to different organ<strong>is</strong>ations5

Ginteraction between the components of the management system,c> quality or environmental management system standards, applicable proceduresor other management system documents used as audit criteria,• recogn<strong>is</strong>ing differences between and priority of the reference documents,• application of the reference documents to different audit situations and• information systems and technology for, author<strong>is</strong>ation, security, d<strong>is</strong>tribution andcontrol of documents, data and records.c. Organ<strong>is</strong>ational situations: to enable the auditor to comprehend the organ<strong>is</strong>ation'soperational context. Knowledge and skills in th<strong>is</strong> area should cover• organ<strong>is</strong>ational size, structure r functions and relationships,.• general business processes and related terminology and• cultural and social customs of the auditee.I•d. Applicable Jaws, regulations and other requirements relevant to the d<strong>is</strong>cipline: toenable the auditor to work within, and be aware of, the .requirements that apply to theorgan<strong>is</strong>ation being audited. Knowledge and skills in th<strong>is</strong> area should cover• local, regional and national codes, laws and regulations,• contrac,<strong>is</strong> and agreements,• international treaties and conventions, and• other requirements to which the organ<strong>is</strong>ation subscribes.GEN ERIC KNOWLEDGE AND SKILLS <strong>OF</strong> AUDIT TEAM LEADERSAudit team leaders should have additional knowledge and skills in audit leadership tofacilitate the efficient and effective conduct of the audit.· An audit team leader should bea~eI• to plan the audit and make effective use of resources during the audit,• to represent the audit team in communications with the audit client and auditee,6

.. to organ<strong>is</strong>e and direct audit team members,coprovide direction and guidance to auditors-in-training,• to lead the audit team to reach the audit conclusions,• to prevent and resolve conflicts, and• to prepare and complete the audit reportSPECIIFIC KNOWLEDGE AND SKILLS <strong>OF</strong> QUALITY MANAGEMENT SYSTEMAUDITORSQual1ty management·system auditors should have knowledge and skills in the followingareas.a. Quality-related methods and techniques: to enable the auditor to examine qualitymanagement systems and to generate appropriate audit findings and conclusions.Knowledge and skills in th<strong>is</strong> area should cover• quality terminology,• quality management principles and their application, and• quaiity management tools and their application (for example stat<strong>is</strong>tical processcontrol, failure mode and effect analys<strong>is</strong>, etc.).b. Processes and products, including services: to enable the auditor tocomprehend the technological context in which the audit <strong>is</strong> being conducted.Knowledge and skills in th<strong>is</strong> area should cover• sector-specific terminology,• technical character<strong>is</strong>tics of processes and products, including services, and• sector-specific processes and practices.NoteExtracts from MS Is6 19011 :2003Guidelines for Quality and/or Environmental Management Systems <strong>Auditing</strong>(ISO 19011 :2002, lOT)7

PUSAT PERUBATAN UNIVERSITI MALAYA1. AUDITOR'S CHARACTERISTIC<strong>Auditing</strong> <strong>is</strong> <strong>by</strong> no means an easy task. It typically involves long hours ofwork, travelling and the need to comprehend new information and variousstyles of quality system.Under all those circumstances the auditor <strong>is</strong> expected to remain sharp,calm, objective and complete the job on time.Auditor are expected to have these good qualities:• Punctual• Objective• Analytical• Open minded• Inquiring• Polite• Good communicator• Honest• Impartial• Industrious• Good judgement• Patient2. EVALUATION <strong>OF</strong> AUDITORSAuditor can be judged (but limited to) the following criteria:• Organ<strong>is</strong>ing skills• Knowledge of the standards• Questioning skills• Comprehensiveness'of the audit• L<strong>is</strong>tening to auditee .• Overall appearance• Reporting of non conformance• Overall jUdgement• Complying to auditing standards and procedures• Overall rapport with auditeeR8fjhl240701

- -----_.• Ethical- fair, truthful, sincere, honest and d<strong>is</strong>creet• Diplomatic - tactful in dealing with people• Open minded - willing to consider alternative ideas• Observant - actively aware of physical slUroundingsand activities• Perceptive - instinctively aware of and able tounderstand the situations• Versatile -• Tenacious-• Dec<strong>is</strong>ive -• Self-reliant -adjusts readily to different situationspers<strong>is</strong>tent, focused on achieving objectivesreaches timely conclusions based on logicalreasoning and analys<strong>is</strong> &acts and functions independently

ARAHAN AUDITLANGKAH4 (MIS 2)Prinsip" Question, check and observe- diamalkan.~sk QuestionObserve~heckL<strong>is</strong>ten (to answer)A. Auditor has six friends:WHAT ?~ WHEN ?WHY ?HOW ?WHOM ?WHERE ?And h<strong>is</strong> best friend <strong>is</strong> 'SHOW ME'