PROJECT REPORT ON

SUBMITTED BY

Name of Student

M.Com SEMESTER – III

2022-23

UNDER THE GUIDANCE OF

SUBMITTED TO UNIVERSITY
OF MUMBAI

VIDYALANKAR SCHOOL OF INFORMATION TECHNOLOGY

(AFFILIATED TO UNIVERSITY OF MUMBAI) VIDYALANKAR MARG,
WADALA (E), MUMBAI 400 037
 VIDYALANKAR SCHOOL OF INFORMATION TECHNOLOGY
(Affiliated to Mumbai University)

Certificate
This is to certify that
Mr./Ms ________________of M.Com.in Banking &
Finance/Advance Accountancy/Business Management Semester
_____has undertaken & completed
the project work titled
_____________________________________
during the academic year under the guidance of
Mr./Ms.___________ submitted on to this college in
fulfilment of the curriculum of M.Com. in Banking & Finance
/Advance Accounatancy,University of Mumbai.
This is a Bonafede project work & the information
presented is True & original to the best of our knowledge and
belief.

PROJECT COURSE EXTERNAL PRINCIPAL

GUIDE CO-ORDINATOR EXAMINER
 ACKNOWLEDGMENT

I hereby acknowledge all those who directly or indirectly helped

me in drafting of this project report. It would not have been
possible for me to complete the task without their help and
guidance.

First, I would like to thank my guide ______________________for

the valuable guidance in completion of my project. I thank the
Head of the Department ___________________________and
department faculty members for the moral support to complete the
project. I thank our project in charge __________________ for
updating me with University guidelines during my project work. My
heartfelt gratitude to the principal Dr. Rohini Kelkar and the Vice-
Principal Mr. Vijay Gawde, for the opportunity given to do the
project work. Finally, I thank our library staff for assisting me in
getting the right source of information.

Last but not the least; I am thankful to the University of Mumbai for
offering the project in the syllabus. I must mention my hearty
gratitude towards my family, other faculties and friends who
supported me to go ahead with the project.
 DECLARATION

Vidyalankar School of Information Technology

(Affiliated to University of Mumbai)
Vidyalankar Marg, Wadala (E),
Mumbai 400 037

I _______________________, student of M.Com. Banking &

Finance/Advance Accountancy/Business Management
Semester III, Vidyalankar School of Information Technology,
hereby declare that I have completed the project on
______________________________ in academic year 2022-23.

The information submitted is true and original to the best of my

knowledge.

Signature of student
Executive Summary

Write 2 pages
 INDEX

SR.NO PARTICULARS PAGE

NO.

1. List of Tables/Figures

2. Scope of Study

Ch .1 Introduction to the Study

1.1. Objective of the Study

1.2. Limitations of the Study

1.3. Methodology& Sources of data

Ch.2 Introduction to the Topic
Ch.3 Review of literature
Ch.4 Analysis & findings

Ch.5 Findings
Ch.6 Questionnaire (Blank Copy)
Ch.7 Bibliography
THE ROLE OF AUDITORS WITH THEIR CLIENTS AND THIRD PARTIES
CHAPTER ONE

1.0       introduction

1.1   Background of the Study

In order to appreciate the significance of correct interpretation and application of

International Standards on Auditing (ISAs), one needs to first set the historical
context.

Auditing has been a worldwide profession for hundreds of years. Historically,

auditing was concerned with accounting for government activities and reviewing the
work done by tax collectors. In the early years of auditing, the keeping and
maintaining of accounting records was done primarily to detect fraudulent activity.
The industrial revolution in the mid-1700s to the mid-1800s was responsible for the
increased demand in auditors because this period saw an increase in responsibility
being passed from owners to managers. This led to an increased requirement for
auditors who were independent of management and who were engaged not only to be
alert for errors within financial records but also errors within the records. In simple
terms, deliberate errors in order to achieve personal financial gain were deemed to be
fraudulent activity (as is still the case today) whilst error was (and still is)
unintentional.

During the early 1700s the concept of ‘sampling’ was introduced. Sampling is where
auditors select a sample of items that make up various balances and was used where it
is not economically viable to physically examine all the transactions that have taken
place. This practice is still pivotal today. This is one of the main areas which this
publication looks at in respect of the.

1.2   Aims and Objectives of the Study

The main objectives of this research work are to look into the roles of auditors with
their clients and third party. This project is design to enlighten the public that the
work done by the qualified verification of financial statement. Auditors need to
exercise duty of care to the client and third parties.

Also, the independence of an auditor is also important is this issue and this shows that
work of professional auditor cannot be over emphasis in every sector.

        In such situations, auditors, their clients and third party generally seek ways to
resolve their disagreements.

1.3   Significance of the Study

     The study would increase the stock of professional auditors in terms of know ledge
and professional skills on how to relate and operate with their clients and third party.
The study would also serve as a useful reference material to students of accountancy
and future research would find this work valuable.

1.4   Limitation of the Study

     The research of this nature involved spending on stationary, transportation and
many others. There is a problem of insufficient capital in term of money, materials
and time. Despite this constraint, enough will be put into the write up to justify the
time and resources that would be spent.

1.5   Definitions of Terms

Independence:
This means the possession of integrity, ability to be self-reliant and honest, freedom
from bias and avoidance of the relationship which to a research observer would
suggest a conflict of interest on the part of the auditor.

Confidentiality:

This means information acquired in the course of professional work should not be
disclosed except where consent has been obtained from the client, employer or other
proper to discharge or public duty to disclose.

Responsibility:

An auditor is not responsible for preparing accounts. He does not guaranteeing their
accuracy. An auditor does not maintain and control the business. He does not assess
the efficiency of business operations.

Error:

Errors are generally agreed in auditing as unintentionally mistakes. It makes clients

account unreliable and if very predominate in occurrence and value can impact or
affect the truth and fairness of the accounts.

Irregularities:

Every intentional distribution of financial statement for whatever purpose, which

includes misappropriation of assets, whether or not accompanied by distortion of
financial statements (such as missing vouchers, payment disputes, imbalance figure)
undoubtedly constitute irregularities.

Fraud:
Fraud is used only to refer to irregularities involving the use of criminal deception to
obtain an unjust or illegal advantage such as stating stock value higher than
obtainable, in a deceptive manner to be able to declare profit (when loss is actually
sustained) and go ahead to declare dividend wrongly. In order words “Fraud” refers to
intentional misrepresentations of financial information by one or more individuals
among management, employees, or third parties.

1. Manipulation, falsification or alteration of records or documents

2. Misappropriation of assets

3. Suppression or omission of the effects of transaction from records or

documents

4. Recording of transaction without substance 5. Misapplication of accounting

policies

1.6   Organization and Plan of the Study

It spells out the number of chapters into which the researcher wants to divide the
work.

It is going to be a four or five chapter work. It has to stated here. This will guide the
investigator concern the organization and plan of his written up.

It is usually written such that the topic to be written under each chapter will need to be
stated.

 Chapter 1: Introduction Rend other sub, heading in

 Chapter 2: Literature Review Break Down into sub-head into Reflect the topic
in Question

 Chapter 3: Research Methodology Chapter 4; Data Presentation, Analysis and

Interpretation

 Chapter 5: Finding, Summary, Conclusion and Recommendation.

1.7   Statement of Research Hypothesis

This research statement is mainly focuses on the effect of management information

system on company operation in the organization in which is stipulate on the growth,
stability and profitability of the organization. The statement of hypothesis for research
work is as follow: –

1. Hi – management information system has improved the company service by

reducing the delay and stree of customers.

Ho – management information system has not improved the company service

by reducing the delay and the stree of customers.

2. Hi – management information system has significantly assists in detecting and

reducing fraudulent activities in company’s

Ho – management information has not significantly assists in detecting and

reducing fraudulent in company’s

3. Hi – management information system has significantly assists in detecting and

reducing fraudulent activities in company’s

Ho – management information has not significantly assists in detecting and

reducing fraudulent in company’s

 
CHAPTER TWO

2.0   Introduction

2.1   Concept of Auditing and its Independence

Auditing is the process of checking the financial statements along with other
accounting information of a business entity. It is a systematic procedure where the
economic condition of the entity is analyzed. The person taking up the responsibility
of the process is called an “Auditor”.

In this process, it is checked if the business is running profitably or not. Auditing is an

important process for the company, the investors, the government, creditors,
shareholders, etc. They very much rely on audit reports to make important business
decisions.

This is the concept of auditing in a nutshell.

Definition of Auditing:
An audit is when an auditor examines or inspects various books of accounts, followed
by a physical inventory check, to ensure that all departments are using a defined
system of recording transactions. It is done to ensure that the financial statements
presented by the organisation are accurate.

Internal auditing can be done by employees or department heads, and external

auditing can be done by a firm or an independent auditor. The goal is for an
independent body to audit and verify the accounts to ensure that the books of accounts
are completed fairly and that no misrepresentation or fraud is taking place.

Before they can announce their quarterly results, all publicly traded companies must
have their accounts examined by an independent auditor.

What qualifications do you need to perform an audit? Any institution in India will
have an independent audit conducted by chartered accountants from the Institute of
Chartered Accountants of India or ICAI. Principles are set out by CPAs in the United
States (Certified Public Accountants).

There seem to be four steps to the auditing process. The very first stage is to establish
the auditor's position and terms of engagement, which is typically done through with a
letter signed by the client.

The second phase is to prepare the audit, which gave information like timelines and
organizations that will be scrutinized by the auditor.

Is the auditor in charge of a particular division or the rest of the company? The audit
could last a day or even a week, due to the nature of the audit.

When an auditor examines a company's accounts or inspects its major financial

statements, the results are usually published in a report or prepared methodically.

Analyzing the findings is the final and most important element of an audit. The
conclusions of the auditor are detailed in the report.
Principles of Auditing

The basic principles of auditing are planning, honesty, secrecy, audit evidence,
internal control system, skill and competence, work done by others, working papers,
and legal frameworks.

Audit Report

Now we know what is meant by auditing. As discussed above, it is the inspection of

financial statements of a business entity followed by checking inventory. Based on
this investigation and assessment of the financial records, the auditor gives his
opinion regarding the financial position of the organization in the form of a report.

It is ensured that the statements are prepared following the accounting standards, they
comply with all statutory requirements and proper presentation of the records is done
with all matters duly disclosed.

Advantages and Disadvantages of Auditing

Advantages of Auditing

 The major advantage of auditing is that It gives assurance to the owners,

investors, etc. about the accuracy of their financial statements.
 During the auditing process, errors and frauds in the account books are
discovered. In a way, it also prevents such errors for the fear of being detected.
 In the case of external audits, the books are very closely inspected, and the
management gets a second opinion of their financial standing.
 Since the books are closely examined, it helps the employees to be honest and
responsible while preparing the reports.
 The financial statements get more credibility while they are audited.

Disadvantages of Auditing

 Auditing involves a deep examination of records, which ends up in extra cost

to the company.
 The reports of the audit act as evidence to make major changes in the accounts
of the distribution of profits.
 The changes are calibrated and it makes the employees feel harassed
  Since the rules and regulations of business vary from time to time, it affects
the result of the audit.
 Since the audit report is credentialed, there are chances for the companies to
commit fraud and ultimately it will force the auditors to commit crimes after
the audit.
 Smaller concerns do not consider auditing that important and proceed with
regular transactions.
 The auditing report is prepared based on the information agreed by the clients
and so it is not guaranteed.

Basic Principles Governing an Audit

This Auditing and Assurance Standard was the standard on auditing that was first
issued by the Institute. It explains the basics of auditing that govern the professional
responsibilities of an auditor.

The basic principles of auditing are confidentiality, integrity, objectivity,

independence, skills and competence, work performed by others, documentation,
planning, audit evidence, accounting system and internal control, and audit reporting.

1) A thorough examination of all systems

The assessment of all systems and procedures related to accounting and financial
operations is the primary goal of any audit. Before beginning the audit of the final
statements of accounts, the auditor must first comprehend the system and its
functionality. It will serve as the foundation for the entire auditing process.

2) Internal Controls Assessment

The extent of the audit will be determined by the efficacy of the organization's
internal control system. The auditor can rely on the system if the company's internal
controls are in place and very effective. Then he won't have to go over the accounting
in great detail.
If the internal controls, on the other hand, are ineffective, the auditor must go over the
accounts with a fine-tooth comb. The auditor must also assess the internal control
system, according to CARO 2003.

3) Arithmetic Precision

The auditor must also check the accuracy of the books of accounts regularly. This
includes double-checking the books' arithmetical accuracy and verifying that the
entries are properly posted.

4) Principles of Accounting

The auditor must check that the capital and income transactions are properly
distinguished. All financial transactions must fall into one of two categories: revenue
or capital. The auditor must also verify the accuracy of both income and expenditure
items.

5) Assets Verification

All of the company's assets must be physically verified by the auditor. As a result, he
must examine all legal documents, certifications, official statements, and other
documents to determine the ownership of all assets. The auditor must also make
certain that no assets are missing from the balance sheet.

6) Liabilities Verification

The auditor must also verify the organization's liabilities. He'll go over all of the
documents, letters, and certificates once again. He can also seek confirmation from
outside parties if necessary.

7) Attestation

A paper trail is left behind by every financial transaction. These supporting

documentation must be examined by the auditor to ensure that the transactions are
valid and accurate. Vouching is the term for this. The organisation, for example, has a
12,000/- electrical expense. The auditor must then examine the electrical bill to
double-check the transaction.
8) Statutory Obligations

The auditor's job is to ensure that the company's financial records conform with all
laws, rules, and regulations in effect at the moment. As a result, he must ensure that
the accounts are compliant with the Companies Act 2003, the Income Tax Act 1961,
and other relevant laws.

Features of Auditing

 Auditing is a systematic process. It is a logical and scientific procedure to

examine the accounts of an organization for their accuracy. There are rules and
procedures to follow.

 The audit is always done by an independent authority or a body of persons with

the necessary qualifications. They have to be independent so their views and
opinions can be totally unbiased.

 Once again, an audit is the examination of all the books of accounts and financial
information of the company. So it is essentially a verification of the final accounts
of the organization, i.e. the profit and loss statement and the balance sheet at the
end of the financial year.

 Auditing is not only the review of the books of accounts but also the internal
systems and internal control of the organization.

 To conduct the audit we need the help of various sources of information. This
includes vouchers, documents, certificates, questionnaires, explanations etc. He
may scrutinize any other documents he sees fit like Memorandum of
Association, Articles of Associations, vouchers, minute books, shareholders
register etc.

 The auditor must completely satisfy himself with the accuracy and authenticity of
the financial statements. Only then can he give the opinion that they are true and
fair statements.

Characteristics of Auditing
  It is a systematic procedure of examining the financial records of an
organization
 Its main objective is to find out any frauds or errors in the financial records.
 It is conducted either by the auditors who have in-depth knowledge of
accounting procedures and legal formalities.
 It ensures the truth and fairness of the financial statements if it reflects the
exact status of the state of affairs of the business.
 It also ensures that the statements follow the accounting standards.

2.2   Audit Committee as an aid to Independence

Composed of individuals who serve on an organization’s board, an audit committee is

responsible for ensuring an organization operates in an ethical environment and
complies with laws and regulations. Charged with oversight of financial reporting,
risk management and internal controls, audit committees also are responsible for
selecting the public accounting firms that serve as their organizations’ external
auditors as well as for maintaining relationships with their organization’s own internal
audit team.

The essential nature of audit committee responsibilities was reinforced in 2002 with
the passage of the Sarbanes-Oxley Act, which significantly strengthened the role of
audit committees in organizational governance. Individuals who pursue an online
Master of Accountancy degree can acquire knowledge and skills that could be
beneficial when they interact with and report to audit committees.

Audit Committee Role and Duties

The breadth of an audit committee’s role and duties is demonstrated by its

responsibilities. Some of the most significant responsibilities under the purview of an
audit committee include the following:

 Ensuring the organization’s financial statements are understandable and reliable.

 Ensuring the organization establishes a thorough risk management process and
effective internal controls.

 Reviewing the organization’s policies, particularly in areas such as ethics, conflict of

interest and fraud.

 Reviewing the organization’s litigation and regulatory proceedings.

 Selecting and implementing a direct reporting relationship with the public accounting
firm that serves as the organization’s external auditor.

 Establishing communication with the organization’s internal auditor and reviewing all
audit findings.
Audit committees also play a significant role in setting the tone of an organization.
They do so by ensuring their organizations develop and implement a code of conduct
and establish effective communication channels. Audit committee members also need
to be aware of what management is doing to achieve compliance with laws and
regulations, and they must be knowledgeable about issues such as ongoing
investigations and disciplinary actions.

With such a broad scope of responsibilities, these committees can face significant
challenges. In its 2019 survey of 1,300 audit committee members worldwide, KPMG
identified two of the greatest challenges to audit committees performing their core
oversight responsibilities:

 Maintaining internal control over financial reporting, disclosure controls and

procedures.

 Helping ensure their organization has the talent and resources to maintain quality
financial reporting.
KPMG also reported that audit committee members viewed technological innovation,
digital disruption and the complexity of business as the factors that place the most
pressure on risk management and internal controls.

How an Audit Committee Operates

The charter an audit committee establishes sets the foundation for its operations. The
elements of the charter lay the groundwork for carrying out all audit committee
 responsibilities. For example, an audit committee’s charter may be drafted to
accomplish the following key tasks.

 Set forth the audit committee’s purpose and list its specific responsibilities in detail.

 Establish the audit committee’s authority to carry out specific responsibilities, such as
appointing and compensating an external auditor, obtaining information and meeting
with officers of the organization.

 Define the composition of the audit committee, how members will be appointed and
any requirements for expertise among the members.

 Describe how the audit committee will conduct meetings, how often it will meet, who
must attend meetings and the circumstances under which the audit committee will
meet in executive session.
The precise composition of an audit committee depends on the type of organization
the committee serves. For example, publicly traded companies in the United States
must comply with the rules of the U.S. Securities and Exchange Commission (SEC)
in areas such as audit committee composition, independence and member
qualifications. The audit committees of governmental entities must comply with
requirements established in state statutes, city or county charters, municipal codes or
local laws.

The expertise of members and the ongoing training they receive have a significant
effect on an audit committee’s ability to carry out its responsibilities. Audit
committees must continuously update their knowledge in areas such as new
accounting methods, technology and financial disclosures.

What Makes Audit Committees Effective

How effective the committee is in executing its audit committee responsibilities can
be influenced by several factors:

 Having a strong audit committee chairperson who can facilitate productive meetings
and communicate effectively is essential to the success of an audit committee.
 Providing training to audit committee members through adjunct meetings, retreats or
courses offered by governance organizations helps committee members carry out their
responsibilities.

 Performing a self-assessment helps an audit committee identify and address

opportunities for improving its oversight activities.

 Ensuring transparency in its activities allows an audit committee to share important

information with stakeholders.

 Establishing effective communication — both internally among audit committee

members and externally with management, auditors and non-audit board members —
helps an audit committee demonstrate how it is carrying out its responsibilities.

 Ensuring diversity among committee members in terms of experience and knowledge

enhances its capabilities and proficiency.
Among the most important characteristics of an effective audit committee is strong
communication with and oversight of auditors. Audit committees need to have a good
working relationship and direct line of communication with the public accounting
firm that serves as the organization’s external auditor. They also must establish a
strong rapport with internal auditors to promote effective internal controls.

2.3   Audit Practice in the Firm and Scope of Operation

When it comes to validating the financial information about your business, Third

Party audit firms play a crucial role. Potential investors as well as lenders prefer
reviewing financial statements audited by external professionals before establishing
corporate relations with your firm. If the potential clients, lenders and investors find
any anomalies in the audited statements or notice that the auditors failed to point out
any solid misstatements, it certainly creates a negative impression in the eyes of the
world. It is for this reason why accounting bodies have established certain standards
and expectations, which define the roles and responsibilities of external audit firms,
and set ground rules regarding how auditing must be done.
 
Judging Financial Statements
 

Some companies form an opinion that Third Party audit firms are responsible for

creating business financial statements, which is in fact the job of firms
providing  accounting services.  The auditors are mainly responsible for providing
even-handed affirmation that there aren’t any material misstatements and issues in the
financial statements, and are made while following the accounting standards. They are
there to just test financial data, sufficient enough to offer reasonable assurance to the
companies.
 

Understanding the Business and its Operations

 

Though accounting services just concentrate on crunching numbers, auditing is more

about recognizing the number statements which are not present in the vacuum.
Auditors are determined to obtain a thorough understanding of the client’s business,
its operations, its internal controls, and its overall environment, for which they
perform a complete risk assessment of your business. They examine the digital
account system for ensuring the data is protected and not being compromised, and
will compare the results with other companies in the same business for spotting
irregularities, if any.
 

Mining Opinion Effecting Evidence

 

External auditors normally base a major portion of their judgement on the evidence
that they collect and examine while auditing the accounts. Once the business is rated
on the risk chart, auditors ensure to collect sufficient evidence to study and form their
opinion. The greater the risk rating of a client, the more quality evidence must be
collected before presenting an opinion. Third party sources, like banks, investors and
lenders may also be contacted for obtaining reliable information.
On the whole, it is on the basis of these roles and responsibilities that the external
auditing firms base their working criteria and judge the accuracy and reliability of the
company’s financial statements.

2.4   Right, Duties and Remuneration of Auditor

Appointment of a Company Auditor

Section 224 of the Companies Act deals with the provisions regarding the
appointment of auditor(s) of a company as follows:

(1) Appointment of First Auditor by Board of Directors: The first auditors of a

company shall be appointed by the Board of Directors within one month of the date of
registration of the company. Such auditor(s) shall hold office until the conclusion of
the first annual general meeting.

If the first auditors are not appointed by the Board of Directors, they may be
appointed by the company in a general meeting.

(2) Appointment by shareholders: Every company shall, at each annual general

meeting, appoint auditor(s) to hold office from the conclusion of that meeting until the
conclusion of the next annual general meeting, and shall, within seven days of the
appointment give intimation thereof to every auditor so appointed.

(3) Appointment of Auditors by Central Government: Where an auditor(s) is not

appointed or re-appointed at the annual general meeting, the company must notify the
fact to the Central Government within seven days thereafter and thereupon the Central
Government will appoint a person to fill the vacancy.

(4) Appointment by special resolution: In the case of a company, in which not less
than 25% of the subscribed share capital is singly or jointly held by:
(a) a public financial institution or a Government company, or the Central
Government, or any State Government; or

(b) any financial or other institution in which a State Government holds not less than
51% of the subscribed share capital; or

(c) a nationalised bank, or an insurance company carrying on general insurance

business.

The appointment or reappointment (at each annual general meeting) of an auditor(s)

shall be made by a special resolution.

(5) Appointment of auditors of Government Companies: The auditor of a

Government company shall be appointed or reappointed by the comptroller and
Auditor General of India only.

Removal of Auditors

(1) Removal after the Expiry of Term: After the expiry of term, an auditor can be
removed in the annual general meeting by passing an ordinary resolution.

(2) Removal before Expiry of Term: An auditor can be removed before expiry of term
as follows:

(i) In Case of First Auditor : The first auditor who is appointed by the Board of
Directors to hold office till the conclusion of the first annual meeting, can be removed
before the expiry of term at the general meeting even without the prior approval of the
Central Government. However, a special notice of at least 14 days is required for the
appointment of another auditor in his place.

(ii) In case of other Auditors: Auditor appointed by the members can be removed
before the expiry of his term by the company only at a general meeting, after
obtaining prior approval of the Central Government and after giving a due notice to
the auditor. Remuneration of the Company Auditor
The person or persons who are authorised to appoint an auditor are considered fully
competent to fix the auditor’s remuneration. It is provided in Section 224 (8) of the
Companies Act that:

(i) If an auditor is appointed by the Board of Directors or by the Central Government,

his remuneration is to be fixed by the Board or Central Government as the case may
be.

(ii) In other cases, the remuneration of the auditor shall be fixed by the company in
the annual general meeting or in such a manner as the company in general meeting
determine.

(iii) The remuneration is inclusive of all expenses allowed to him and he is not
entitled to any other payment.

(iv) In the case of a retiring auditor who is re-appointed as an auditor in the general
meeting, the amount fixed for the previous year is considered as the remuneration for
the current year unless a resolution is passed, refixing his remuneration.

(v) In case where an auditor renders extra work over and above his audit work, he is
entitled to receive extra remuneration in addition to normal fee for the audit.

Qualifications of an Auditor

Section 226 of the Companies Act prescribes the qualifications and disqualifications
of company auditor. Accordingly, only the following persons will be competant to be
appointed as an auditor of a company:

(i) If he is a chartered accountant within the meaning of the Chartered Accountants

Act of 1949.

(ii) Partnership firm as auditor: In the case of a firm, if all its partners practising in
India are qualified for appointment as auditors, it may be appointed by its firm name
to be auditor of a company. In such a case, any of its practising partners can act in the
name of the firm.

(iii) Certified auditors: Apart from the practising chartered accountants, a person

holding a certificate under the Restricted Auditor’s Certificate (Part B States) Rules,
1956, is also qualified to be appointed as auditor of a company.

 Disqualifications of auditors

The following persons shall not be qualified for appointment as auditors of a

company:

(i) A body corporate.

(ii) An officer or employee of the company.

(iii) A person who is a partner or who is in the employment of any officer or

employee of the company.

(iv) A person who is indebted to the company for an amount exceeding Rs. 1,000.

(v) any other body corporate which is:

(a) a subsidiary of that company; or

(b) the holding company of that company; or

(c) a subsidiary of that company’s holding company

(vi) Further, if the auditor already holds appointment as auditor in the specified
number of companies, he will be disqualified for further appointment as auditor of
any other company.

(vii) Where an auditor incurs any of the above disqualifications after his appointment,
he will be deemed to have vacated his office.
Statutory Rights of a Company Auditor Some important legal rights or powers of a
company auditor are as follows:

(1) Right to access books of Accounts and Vouchers: The auditor has a right of
access at all times to the books and vouchers of the company whether kept at the head
office or elsewhere. At all times means at any time during the business hours. The
auditor may pay a surprise visit when he suspects any irregularity in the accounts or
wishes to verify the cash balances, etc.

(2) Right to receive Information and Explanations: A company auditor has a right
to receive from the directors and responsible officers of the company any information
or explanation as he may think necessary.

(3) Right to receive Particulars: The auditor has a right to get from an officer or
other person any particular or information required to be given to the Balance Sheet or
Profit and Loss Account of a company or in any document required to be annexed or
attached thereon.

(4) Right to receive notice and attend General Meetings: The auditor has a right to
receive notices and other communications relating to general meeting in the same way
as a member of the company. He can speak in the meeting in which accounts are
discussed.

(5) Right to visit Branches: The auditor has a right to visit the branch office of the
company, if any, if the accounts of the company branch have not been audited by a
duly qualified auditor.

(6) Right to seek opinion from Experts: The auditor has a right to seek opinions of
experts in different fields whenever he feels it necessary as he is not expert in all the
areas.

(7) Right to receive remuneration: The auditor is entitled to demand his

remuneration from his client after he has completed the work of auditing. Even if he is
dismissed in the middle, he has a right to get full remuneration of the year.
Duties of Company Auditor

(1) Duty to Submit Report: It is an important duty of the auditor to make a report to
the members of the company on the accounts examined by him. The report should
contain the following information:

(i) Whether in his opinion, the Profit and Loss Account referred to in his report shows
a true and fair view of the profit or loss.

(ii) Whether in his opinion, the Balance sheet referred to in his report is properly
drawn up so as to show a true and fair view of the state of affairs of the business.

(iii) Whether the auditor has obtained all the informations and explanation which to
the best of his knowledge and belief were necessary for the purpose of his audit.

(iv) Whether in his opinion proper books of accounts as required by law have been
kept by the company so far as appear from his examination of those books.

(v) Whether the report on the accounts of any Branch office audited under section 228
by a person other than the Company’s auditor has been forwarded to him and how he
had dealt with the same in preparing the auditor’s report.

(vi) Whether the Company’s Balance Sheet and Profit and Loss Account dealt with by
the report are in agreement with the books of accounts and return.

(2) Auditors duties to enquire into the affairs of the Company:

(i) Loans and Advances: He has to see whether loans and advances made by the
company on the basis of security have been properly secured and whether the terms
on which they have been made are not prejudicial to the interests of the company or
its members.
(ii) Transactions represented merely by book entries: He must see that transactions
which are not supported by any facts or evidence, though recorded in the books, are
not prejudicial to the interests of the company.

(iii) Sale of investments at less than purchase price: Where the company is not an
investment company or a banking company, the auditor is required to see whether it
has sold any shares, debentures or other securities at a price which is lower than their
price purchase.

(iv) Loans and advances shown as deposits: He has to see whether loans and
advances made by the company have not been shown as deposits, so as to avoid
scrutiny by the members or others.

(v) Personal expenses: He should enquire whether any personal expenses have been
charged to revenue accounts of the company, so as to improperly utilise the funds of
the company for the individual benefit of any person directly or indirectly in control
of the affairs of the company.

(vi) Allotment of shares for cash: Where it is stated in the books and papers of the
company that any shares have been allotted for cash, the auditor must enquire whether
cash has actually been received in respect of such allotment, and if no cash has
actually been received, whether the position as stated in the account books and the
Balance Sheet is correct and regular.

(3) Duty to sign report: It is the duty of the auditor to sign the report prepared by
him. In case the auditor is a firm, only a partner of the firm practising in India may
sign the report.

(4) Duty as to statutory report: It is the duty of an auditor to certify statutory report
as correct to the extent it relates to:

(i) Shares alloted by the company,

(ii) Cash received in respect of such shares and

(iii) Receipts and payments of the company.

(5) Duty as to prospectus: It is the duty of the auditor to certify informations given in
the prospectus with regards to certain matters.

(6) Duty as to report under voluntary winding up: If a company goes into
voluntary winding up, the directors are required to file a declaration of solvency.
Thus, it is the duty of the auditor to give a report about such declaration.

(7) Duty to assist investigation: Where an inspector is appointed to investigate the

affairs of the company, it is the duty of the auditor to assist investigator in connection
with the investigation.

(8) Duty of care and caution: The auditor holds himself out as an expert and must
act honestly and exercise due care and caution in the performance of his engagement.
As an expert, he cannot set up ignorance as a defence. He must prove that in the
course of his audit he has employed skills that would reasonably be applied by any
other auditor.

2.5   Concept of Fraud and Error

You must be knowing that the primary objective of an audit is to express an opinion

on the truthfulness and fairness of financial statements. And to form such an opinion,
an incidental objective works simultaneously which is to detect and prevent frauds
and errors. Unless an auditor establishes that there are no frauds and errors in the
books of account, he cannot express his opinion on the true and fair view of financial
statements. Thus, locating the possibility of errors and fraud is important.
An error may be defined as an unintentional mistake in the measurement or
presentation of financial information. However, fraud refers to an intentional
misstatement in financial statements. It may be committed by the client’s employees,
the management, or third parties so as to obtain an illegal or personal gain out of the
business of the client.

The main difference between an error and a fraud is that of intent. While frauds are
committed intentionally, errors are not.

Further, the responsibility of an auditor for detecting errors and frauds is the same as
both of them result in misstatements in financial statements. But the distinction
between them is important because the existence of fraud raises questions about the
integrity of the client’s management and those charged with governance.

Difference between Error and Fraud

In the context of an audit, the following points of difference can be drawn between an
error and a fraud:

Error Fraud

Meaning of Error Meaning of Fraud

The term “Error” refers to an unintentional A fraud indicates an intentional misstatement that i
mistake in the measurement or presentation of material to financial statements. Materiality means
accounting and/or financial information. that the existence of fraud is such that it can affect
financial statements to a large extent.

Unintentional Intentional

Errors are unintentional. Frauds are committed intentionally. The objective

to derive some personal gain or an unfair advantag

Types of Errors Types of Frauds

An auditor may come across many types of errors On the other hand, fraud may take the form of
in financial information. These may be clerical misappropriation of assets, manipulation or
errors (i.e., errors in recording and posting of falsification of accounts, and so on. The purpose
transactions), errors of principle (i.e., failure to may be to deliberately misrepresent the financial
comply with generally accepted accounting position to evade taxes or to show a better
principles), compensating errors, or errors of performance of the management than it actually ha
duplication where a single transaction is recorded Further, it may be either employee fraud or
twice. management fraud.

Consequences of an error on the audit work Consequences of fraud on the audit work

Once errors are detected, the auditor should ensure When an auditor identifies or suspects fraud, he
that the financial statements are adjusted in regard should consider its effect on financial statements
to them. All material errors should be and communicate to the appropriate level of
communicated to the management. management. He should examine the reliability of
management’s representation in this regard. He
should ensure that appropriate disclosure of
identified misstatements is made either in the
financial statements by management or in his audit
report. Finally, he should further consider whether
he should withdraw from his engagement.

The possibility of detection is more The possibility of detection is less

Errors can be detected more easily. The possibility of detection of fraud is

comparatively less because the management makes
conscious attempts to conceal it.

Auditor’s duty with regard to detection of fraud and errors

Even though the primary responsibility for the prevention and detection of fraud rests
with the management, auditors are expected to adopt a careful approach and an
attitude of professional scepticism at all times.
According to SA 240, an auditor conducts a financial audit of an entity in order to
obtain a reasonable assurance (and not absolute assurance) that its financials are free
from any fraud/error and material misstatements.

On identification of misstatements or where the auditor suspects fraud, he must

communicate it to the appropriate level of management. If he suspects the
management’s involvement in fraud, he must communicate the same to those charged
with governance and must discuss with them the nature, timing, and extent of audit
procedures necessary to complete the audit.

Moreover, if there is a responsibility to report the occurrence of misstatements to

regulatory or enforcement authorities under any law, the auditor must abide by that.
For instance, reporting frauds to the Central Government under Section 143 of the
Companies Act 2013.
The auditor is also required to consider the implications of fraud and errors, and frame
his audit report appropriately. Where there is fraud, the same should be disclosed in
the financial statements. If adequate disclosure is not made, there should be a suitable
disclosure in his audit report. Whichever way it may be, it is crucial to disclose the
existence of fraud and errors, if any.
CHAPTER THREE

3.0   Introduction

3.1   Method of Data Collection

Organizations storing customer credit card information, individuals’ medical records,

or other personally identifiable information (PII) are required by certain laws and
regulations to protect this data from hackers or other users with malicious intent. The
loss of customer data results typically in reputational damage and unexpected legal
fees.

What Is a Third-Party Audit?

Since companies routinely partner with other organizations, they must ensure their
partners are protecting their customer data. One way to ensure data protection is to
conduct a third-party audit. In a third-party audit, an independent auditor is hired by
the organization to review its partner’s operations. The scope for a third-party audit is
typically limited to only the area in question, in this case, the adequacy of data
protection over shared data. One of the most common types of audits is certification
audits. In certification audits, certification bodies are conducting audits to certify that
one party can meet the requirements they agreed to in a contract. For example, if a
company contracts a software vendor to host their data under a contractual provision
to maintain SOC 2 controls or another standard, one of the certification bodies will
perform an audit of the software company’s ability to meet the requirements. If the
partner is found to meet the requirements of the chosen standard, the company is
certified as in compliance. If issues are found, a remediation plan is put in place to
meet the requirements of the chosen standard as soon as possible.

Companies that outsource payroll, healthcare processing, and other processes

containing PII can obtain a SOC 2 report. Based on the AICPA’s WebTrust
principles, a SOC 2 reportis an independent certification of outsourced service
providers (OSP) non-financial reporting controls, including security, processing,
confidentiality, and privacy controls. The OSP (i.e., third party) engages a firm to
perform the attestation (audit) and then provides the detailed audit results to any
interested customer.

But PII is not the only type of critical data shared with third parties. It’s common for
organizations to share other sensitive and essential data, such as trade secrets with
joint venture partners and subcontracted manufacturers or future strategic decisions
with consulting firms and outside counsel. Besides reputational damage and legal
fees, the loss of trade secrets and strategic information can significantly lose revenue,
market share, and shareholder value.

Unfortunately, it is uncommon that these strategic third parties provide a SOC 2

report or other means of independent data protection control assurance (e.g., an ISO
27001 certification). It is interesting to see that while management is spending more
and more on internal controls and protection of key data, very little, if anything, is
done to verify that externally held essential data is just as protected.

According to PwC’s 2015 Global State of Information Security Survey, organizations

with annual revenues exceeding $1b had $11m budgeted for security spend in 2014.
However, when executives are asked how third parties protect critical data, initial
responses include references to contract clauses indemnifying the company if data is
lost or blind trust in the third party. As one executive states, “If our supplier can’t
protect our, and their other customers’ key data, they wouldn’t be in business.”

How Do You Conduct a Third-Party Audit?

Conducting a third-party audit starts with identifying the scope of the review. The
scope should be specific and in line with the potential risk exposure. At this point, an
independent auditor is hired by the organization to perform the audit. Independence is
essential to the success of this engagement to preserve the relationship between the
two parties. This is especially true when we consider third-party relationships beyond
the company/vendor relationship. If we are considering an audit of a board member,
an independent party is the only way to conduct an audit free from bias. After they
perform the audit, the independent auditor will issue a 3rd Party Audit Report. The
3rd Party Audit Report will include detailed information describing the outcome.

A proactive and forward-looking Internal Audit department can help bring the needed
awareness to the lack of focus on external data protection controls compared against
the high level of attention given to internal data protection controls.

What Should Internal Auditors Consider When Performing a Third-Party

Audit?

Internal Audit can assure their Board of Directors and executive team whether or not a
process is in place to manage risks of third parties maintaining critical data. That third
parties have their data protection controls in place. Suppose the Chief Audit Executive
can successfully recommend a third-party data protection control audit. In that case,
Internal Audit should consider including third-party governance, contracts, and third-
party data controls in the scope of their engagement.

Third-Party Data Governance

To determine if management is adequately protecting critical data stored at third

parties, an understanding of all third parties with key data should be obtained by audit.
Vendors are quick to be included and assessed for this type of project. Still, the
Internal Auditor should also consider third parties such as customers, joint venture
partners, contractors, and even their board of directors.

Customers and joint venture partners may co-develop proprietary technologies and
new products. Some companies may also make investments in start-ups or smaller
organizations to develop specific technologies and evaluate if the invested company’s
data is critical. And while an organization’s Board of Directors is usually considered
(top) employees of an organization, most are independent and send and receive
information that is more often than not strategic, confidential, or both.

Next, does the organization have policies and procedures dictating how to classify,
handle, transmit, store, and share critical data? Do the policies and procedures dictate
the individuals in the organization that have the authority to determine what data can
be shared and what data cannot be? A lack of policies and procedures can sometimes
mean a lack of process. And a lack of a process almost always means a lack of
control.

If third-party data protection policies and procedures do not exist, different

departments in the organization may still have a role in protecting data. For example,
as part of the vendor due diligence process, Procurement personnel may be asking
new third parties about their data protection controls and how they classify data.
While Procurement’s process may not cover all third parties with critical data, it will
include some, and the organization should take credit for their work.

Contracts

While contract clauses such as data confidentiality and “right to audit” are standard in
most key vendor and distributor contracts, other contract clauses are more suited to
protect critical data. Internal Audit should look for or recommend specific clauses
highlighting the partner’s data processes. Specifically, does the third party have
someone in charge of classifying critical data, document how key data should be
handled and transmitted, and how critical data is destroyed once the critical data is no
longer needed?

Another contract clause gaining popularity as a result of all of the recent cyber hacks
is the notification of a successful cyber-attack. Internal Audit should verify that
company contracts require third parties to notify the company as soon as possible
(generally within 24 – 48 hours) when their network has been successfully breached.
Timing is essential to cease sharing their critical data and begin their disaster recovery
plans if data was lost.

Finally, suppose the third party is sharing critical data with other subcontractors or
third parties. In that case, management can require through contract clauses that the
third party has a process to monitor the subcontractor’s data protection controls.
Contract language should include how often the third-party audits their subcontractors
and the level of detail of their review (inquiry only, inspection testing, or independent
verification from a qualified auditor).

Third-Party Controls

Internal Audit can also have a role in evaluating third-party data protection controls.
In addition to auditing the contract clauses mentioned above, many other third-party
controls can and should be evaluated. These include the amount of training and
awareness provided to third party employees on data protection requirements, whether
or not desktops, laptops, and other mobile devices are encrypted, and if mission-
critical data is segmented from the other third party data.
 To determine what controls Internal Audit should review, key data business owners
and the information security department should be asked for insight. Also,
cybersecurity control frameworks such as the SANS Institute’s Critical Security
Controls for Effective Cyber Defense, Top Cyber Security Controls, NIST’s
Framework for Improving Critical Infrastructure Cybersecurity, or ISO’s 27001
Information Security Management Standard should be leveraged as much as possible
by IT security.

Chief Information Officers and Chief Compliance Officers spent significant time and
resources protecting PII by identifying and tagging PII and bolstering the
organization’s network and cybersecurity defenses. While tagging PII partially
addressed compliance risks, the risk of unprotected critical data stored at third parties
may still exist. If this is the case, the well-informed Chief Audit Executive has an
opportunity to enable positive change by bringing attention to this enterprise risk.

3.2   Method of Data Analysis

This article provides some insight into the matters which need to be considered by
auditors when using data analytics. The Advanced Audit and Assurance syllabus
includes the following learning outcomes:

 Assess and describe how IT can be used to assist the auditor and recommend the use
of Computer-assisted audit techniques (CAATs) and data analytics where appropriate,
and
 Discuss current developments in emerging technologies, including big data and the
use of data analytics and the potential impact on the conduct of an audit and audit
quality.

In addition, candidates are expected to have a broad understanding of what is meant

by the term 'data analytics', how it may be used in the audit and how it can improve
audit efficiency.
What is data analytics?

Data analytics has been around in various forms for a long time, but businesses are
finding increasingly sophisticated and timely methods to utilise data analytics to
enhance their operations. Data analytics enable businesses to identify new
opportunities, to harness costs savings and to enable faster more effective decision
making. Whether it is the ability to identify potential for new products and services or
to detect the potential loss of clients in order to direct efforts to encourage them to
stay, data analytics is everywhere in business today.

At a basic level data analytics is examining the data available to draw conclusions.
This isn’t a new concept but there are growing trends towards more integrated and
more timely use of data from multiple sources to help inform business decisions or to
draw conclusions. The data used by companies is likely to be both internal and
external and include quantitative and qualitative data. This is often aided by
specialised software which may have to be developed to enable the information from
many different sources and formats to be first combined and then analysed. In some
cases the formats covered include audio and visual analysis in addition to the usual
text and number formats.

What are the uses of data analytics?

The possible uses for data analytics are as diverse as the businesses that use them.
They can be as simple as production of Key Performance Indicators from underlying
data to the statistical interrogation of scientific results to test hypotheses. Firms may
use data analytics to predict market trends or to influence consumer behaviour. Data
mining of customer feedback for repeated common phrases might give insights into
where improvements in customer service are needed or to which competitor
customers may be most likely to move to. Voice pattern recognition can be used to
identify areas of customer dissatisfaction. Police forces can collate crime reports to
identify repeat frauds across regions or even countries, enabling consolidated
overview to be taken. The possibilities with data analytics can appear limitless as
emerging artificial intelligence can allow for faster analysis and adaptation than
humans can undertake.
How can data analytics be used by audit firms?

The IAASB defines data analytics for audit as the science and art of discovering and
analysing patterns, deviations and inconsistencies, and extracting other useful
information in the data underlying or related to the subject matter of an audit through
analysis, modelling and visualisation for the purpose of planning and performing the
audit

The larger audit firms and increasingly smaller firms utilise data analytics as part of
their audit offering to reduce risk and to add value to the client. Bigger firms often
have the resources to create their own data analytics platforms whereas smaller firms
may opt to acquire an off the shelf package. There is no one universal audit data
analytics tool but there are many forms developed in-house by firms. These tools are
generally developed by specialist staff and use visual methods such as graphs to
present data to help identify trends and correlations.

For auditors, the main driver of using data analytics is to improve audit quality. It
allows auditors to more effectively audit the large amounts of data held and processed
in IT systems in larger clients. Auditors can extract and manipulate client data and
analyse it. By doing so they can better understand the client’s information and better
identify the risks. Data analytics tools have the power to turn all the data into pre-
structured forms/presentations that are understandable to both auditors and clients and
even to generate audit programmes tailored to client-specific risks or to provide data
directly into computerised audit procedures thus allowing the auditor to more
efficiently arrive at the result.

Examples of the use of data analytics to perform audit procedures include:

 
* NRV testing – comparing the last time an inventory item was purchased with the
last time it was sold and at what price

* Analysis of revenue trends by product and region

 * Matching purchase orders to invoices and payments

* Segregation of duties testing by identifying combinations of users involved in

processing transactions from the metadata attached to transactions

Benefits of data analytics

The increased access and manipulation of data and the consistency of application of
data analytics tools should increase audit quality and efficiency through:

 increased business understanding through a more thorough analysis of a client’s data

and the use of visual output such as dashboard displays rather than text or numerical
information allows auditors to better understand the trends and patterns of the
business and makes it easier to identify anomalies or outliers

 Better focus on risk. This increase in understanding, aids the identification of risks
associated with a client, enabling testing to be better directed at those areas. This is
further enhanced by freeing up auditor time from analysing routine data so that more
time can be spent on areas of risk

 Increased consistency across group audits where all auditors are using the same
technology and process, enabling the group auditor to direct specific tools for use in
component audits and to execute testing across the group. This would require
appropriate consent from all component companies but if granted enables a more
holistic view of a group to be undertaken

 increased efficiency through the use of computer programmes to perform very fast
processing of large volumes of data and provide analysis to auditors on which to base
their conclusion, saving time within the audit and allowing better focus on
judgemental and risk areas. For example much larger samples can be tested, often
 100% testing is possible using data analytics, improving the coverage of audit
procedures and reducing or eliminating sampling risk

 data can be more easily manipulated by the auditor as part of audit testing, for
example performing sensitivity analysis on management assumptions

 increased fraud detection through the ability to interrogate all data and to test
segregation of duties, and information obtained through data analytics can be shared
with the client, adding value to the audit and providing a real benefit to management
in that they are provided with useful information perhaps from a different perspective.

Challenges of data analytics

The introduction of data analytics for audit firms isn’t without challenges to
overcome. At present there is a lack of consistency or a widely accepted standard
across firms and even within a firm*. At present there is no specific regulation or
guidance which covers all the uses of data analytics within an audit. This results in
difficulty establishing quality guidelines. It also means that firms with the resources to
develop their own data analytics tools may have a competitive advantage in the
market place effectively increasing the gap between the largest firms and smaller
firms, reducing effective competition in the audit industry.  Other issues which can
arise with the introduction of data analytics as an audit tool include:

 Data privacy and confidentiality. The copying and storage of client data risks breach
of confidentiality and data protection laws as the audit firm now stores a copy of large
amounts of detailed client data. This data could be misused by the firms or illegal
access obtained if the firm’s data security is weak or hacked which may result in
serious legal and reputational consequences

 for a variety of reasons, including the above, and also due to a perception that it may
be disruptive to business, the audit client may be reluctant to allow the audit firm
sufficient access to their systems to perform audit data analytics
 Completeness and integrity of the extracted client data may not be guaranteed.
Specialists are often required to perform the extraction and there may be limitations to
the data extraction where either the firm does not have the appropriate tools or
understanding of the client data to ensure that all data is collected. This may
especially be the case where multiple data systems are used by a client. In addition, it
may be possible for clients to only make selected data accessible or to manipulate the
data available for extraction 

 compatibility issues with client systems may render standard tests ineffective if data is
not available in the expected formats

 audit staff may not be competent to understand the exact nature of the data and output
to draw appropriate conclusions, training will need to be provided which can be
expensive

 Insufficient or inappropriate evidence retained on file due to failure to understand or

document the procedures and inputs fully. For example, a screen shot on file of the
results of an audit procedure performed by the data analytic tool may not record the
input conditions and detail of the testing*, and

 Practice management issues arise relating to data storage and accessibility for the
duration of the required retention period for audit evidence. The data obtained must be
held for several years in a form which can be retested. As large volumes will be
required firms may need to invest in hardware to support such storage or outsource
data storage which compounds the risk of lost data or privacy issues

 an expectation gap among stakeholders who think that because the auditor is testing
100% of transactions in a specific area, the client’s data must be 100% correct.
CHAPTER FOUR

4.0   Introduction

4.1   Presentation and of Data Analysis

Data analytics are increasingly making their mark on the audit world, as they can help
auditors find actionable audit insights throughout their work. The rise of audit
analytics software is also making it easier for auditors to analyze large data sets and
generate data analytics on their own, rather than only data scientists or related experts
being able to do so.
In this article, we’ll dive more into some of the top benefits of data analytics for
internal audit, including:

1. Better risk management

2. Greater assurance
3. Enhanced efficiency
4. Clearer reporting
5. Improved audit quality

1) Better risk management

One of the top benefits of using data analytics for internal audit is that they can
improve risk management throughout an organization. Trying to review all data
manually typically isn’t feasible, whether you’re trying to analyze accounting
practices to spot financial risks, IT records to identify cybersecurity risks, or pretty
much anything else.

When an auditor then uses limited data sampling methods to compensate for what
would otherwise be information overload, that can leave risk management gaps.
Within a full data set, there might be unrealized yet important outliers. Data analytics
for internal audit can help you spot and understand these risks by quickly reviewing
large quantities of data.

2) Greater assurance

Related to improving risk management, another benefit of data analytics for internal
audit is that they can be used to provide greater assurance, including combined
assurance. Data analytics can provide a more systematic, complete review of business
processes that make it easy to see whether findings from different departments align.
For example, an internal audit team might use data analytics to review financial data
such as transaction logs to see if there are any anomalies. These results can easily be
shared with other departments, such as enterprise risk management (ERM) and
compliance, to see if the findings are in sync.

Using audit analytics software makes it particularly easy to visualize and compare
results. In contrast, with sampling or other more manual, limited processes, you might
not know if you missed something that would indicate whether the audit findings
align with ERM’s results.

3) Enhanced efficiency

Not only can data analytics for internal audit improve risk management and
assurance, but they can also save time. Trying to review hundreds of thousands of
data entries in Excel, for example, can be incredibly time-consuming, to the point that
this analysis often isn’t even attempted.

Yet audit analytics software like TeamMate Analytics can review over 1 million rows
of data and already has a library of over 150 built-in tests that you can run instantly.
From there, the findings can easily be presented in a visual format. Altogether, an
internal auditor can use data analytics and audit analytics software to improve their
efficiency in terms of planning, conducting and presenting an audit.

4) Clearer reporting

Data analytics can also be used to facilitate more digestible, impactful reports. In
particular, using audit analytics software can help your audit function create data
visualizations, such as charts and graphs, that clearly communicate audit findings.

Without data analytics, internal auditors might have to communicate via lengthy
tables and wordy explanations, which overwhelm the audience. But with data
analytics, you can create clear reports for senior management, the audit committee or
other stakeholders, helping them get the most out of presentations.
5) Improved audit quality

Overall, data analytics can help improve audit quality at each stage of the audit
process, leading to improved audit quality as a whole. From audit planning to testing
to reporting,  internal auditors can use data analytics to better understand their work
and collaborate with other stakeholders.

More specifically, data analytics can be used to more systematically and efficiently
conduct audit procedures such as Benford’s testing, stratification, Monetary Unit
Sampling, and gap and duplicate detection.

CHAPTER FIVE

Summary, Conclusion and Recommendations

5.0   Summary
The research findings show that;

The obligations of auditor to their client and third parties are commendable. These
goals include that auditor must have steps to protect the interest of those who will use
his report from being misled either on the nature of his opinion.

The audit must exercise in independence, which is considered to be an attitude of the

mind and also an important concept is respect of being independent of management
influence.

Confidentiality must be maintained with respect to all information and document

made available to him in the cost of his professional work.

The auditor should have an independent approach, which is free from bias or
prejudice in all matters relating to his audit assignment.

Independence is equally considered as an expression of professional integrity of the

individual.

Competence must be exhibited in the performance of his work, this can be achieved
through motivation training and re-training top meet the current development of
professional requirement in relation to economic statutory expectation.

5.1   Conclusion

The role of auditors with their clients and third parties has a large extent remained
commendable. By virtue of the company decree and the companies and Allied matters
decree (CAMD) there must be disclosure of all reserves, expected in the cases of
special classes of companies specified in part III of the eight schedules.

The auditor must ensure that “secret reserve” are not created. He must verify the
existence of assists as reasonably possible and he cannot absolute himself from his
duty by accepting the certificate of an official. He must certify what he does not
believe to be true his business is to ascertain that position? By examine the books of
the company. But he does not discharge his duty by doing this without examine and
without taking the trouble to see that the books of the company itself show the
company, its true position.

In case of company, an auditor must see that the position of the memorandum and
articles of association is carried out. In case of private firms it is of the almost
important that the exact scope of the auditors contract with his client be ordered in
writing. The question of auditor legal responsibilities is one of supreme importance
every practicing accountant. It is however, a most difficult one. The auditor’s roles
and the principles involved by case of several directions inflating. In case of a
company the auditors to limit the responsibilities by the terms of contract with the
event and therefore, has responsibilities can be limited by agreement, but in practice,
it is found that in many cases, there is no written evidence of the exalt term of the
contract. In conclusion, it may be said that it is very unlikely that an auditor will be
held personally liable provided that he possessed such in all case, taking every point
before he certifies the accounts.

5.2   Recommendation

However, it is suggested that more research should be carried out in some other
accounting firms it was discovered that most companies are always trying to avoid the
qualification of their accounts by auditors in their audit report and hence to exercise
some degree of secrecy while dealing with auditors.

This is characterized by insufficient information being given to their auditor that of all
information by top level officers of the company before been available to the auditor.
Also most companies treat their auditors term in such a manner depending on their
decision or shining of some vital information realer required by the auditor in
question, this is always characterized company’s handshake as it is called.

5.3   Suggestions

To obtained in-depth knowledge in various aspects of auditing research works could

be carried out in these areas.
 1. The auditor must have a recognized qualification as a mark of competence

2. The auditor must be independent

3. Rotation of auditing appointment so that an audit will not be too familiar with
their client

4. Establishment of audit committee.

       

Bibliography

References:

https://www.vedantu.com/commerce/concept-of-auditing

https://static.careers360.mobi/media/uploads/froala_editor/files/Fraud-and-
Responsibilities-of-the-Auditor-in-this-Regard(1).pdf
https://kb.icai.org/pdfs/PDFFile5b3b4e86220198.62789266.pdf
https://hrmars.com/papers_submitted/2862/
Article_35_The_Auditors_Responsibility_for_Finding_Errors.pdf
https://www.ibntech.com/blog/roles-responsibilities-third-party-audit-firms/
https://www.accaglobal.com/my/en/student/exam-support-resources/professional-
exams-study-resources/p7/technical-articles/data-analytics.html`1````