SOLUTION AUDIT AND INTERNAL REVIEW NOV 2012

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SOLUTION AUDIT AND INTERNAL REVIEW NOV 20125. Technical Standard/Professional Duty of CareAn accountant has a duty to carry out his work with care and skills and in conformitywith the professional and technical standards promulgated by his professional body andin the legislation of his country and instructions of the client insofar as they are notincompatible with the requirements of integrity, objectivity and independence.In the light of these, the accountant must be conversant with GNSA, GAS, IFRS andCompany‟s Code, 1963 Act 179.6. Professional competenceAn accountant who accepts a professional engagement implies that he has the necessarycompetence to carry out the work and will apply his knowledge, skill and experience withreasonable care and diligence. He should therefore refrain from undertaking orcontinuing any assignments which he is not competent to carry out unless he obtains suchadvice and assistance as will enable him carry out his task satisfactorily.7. Ethical BehaviourAn accountant should conduct himself in a manner consistent with the good reputation ofthe profession and refrain from any conduct which might bring discredit to theprofession. The obligation to refrain from any conduct which might bring discredit to theprofession requires the professional body of the country to consider, when developingethical requirements, the responsibilities of an accountant to clients, third parties and thegeneral public. Some specific matters that require considerations are:(a)(b)(c)(d)The financial liability of an accountant for the acts and defaultsAdvertising, publicity and solicitation by accountants in public practiceReceipts and payment of commission by an accountantThe basis on which fees are charged by an accountant in public practice.(b)Need for engagement letter1. Under statutory audit: The scope of the audit and the auditor‟s responsibilities aswell as the responsibilities of the management is defined by law. But even understatutory audit the auditor may agree to render other services to the client. Thescope of these services must be refined in defined in writing.2. Under non- statutory audit: The scope of the audit as well as other services to beperformed by the auditors must be the subject of an agreement between the clientand the auditor. This agreement must be set out in the engagement letter.3. Furthermore, the Company‟s Code 1963 Act 179 (Sub-Section 1 of Section 143)states that no person can be appointed as an auditor of a company unless he hasfirst consented in writing to be appointed.Page 4 of 8
SOLUTION AUDIT AND INTERNAL REVIEW NOV 20124. The professional accountancy bodies also require that their members should sendEngagement Letters to clients before the commencement of any professionalwork.5. The auditor need to send an engagement letter to all new clients and to existingclient when a substantial change has occurred in the scope of the audit on otherservices to be performed or in the change of the management of the client.6. It is in the interest of both client and the auditor that the auditor send anengagement letter, to help in avoiding misunderstanding with respect to theengagement.(c)Internal Controls relating to instituted to achieve the following:1. Transactions are executed in accordance with management‟s general or specificauthorisation.2. All transactions are promptly recorded in the correct amount, in the appropriateaccounts and in the accounting period in which it relates so as to permitpreparation of financial information within a framework of recognised accountingpolicies and to maintain accountability of assets.3. The records of assets are compared with the physical assets at reasonable intervalsand appropriate action taken on any differences.SOLUTION 4(a) Factors affecting audit risk:(1) Probability of an error occurring(2) Potential size (Materiality) of an event(3) Internal control strengths and degree of compliance(4) Size of departments(5) Usage of cash or other negotiable instruments(6) Portability, attractiveness, unit value of stocks(7) Size and hence possibility of collusion in department‟s staff(8) Previous experience(9) Experience on other audits(10) Discussion with staff especially internal audit(11) Assessment of managerial competence(12) Ratio analysis (especially gross profit)(13) High stock level departmentPage 5 of 8
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SOLUTION AUDIT AND INTERNAL REVIEW NOV 2012

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